DOMINION RESOURCES INC /VA/ (Form: 10-K, Received: 03/20/2003 17:10:23)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2002

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 1-8489

DOMINION RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Virginia		54-1229715
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

120 Tredegar Street
Richmond, Virginia		23219
(Address of principal executive offices)		(Zip Code)

(804) 819-2000

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common stock, no par value		New York Stock Exchange
8.75% Equity Income Securities, $50 par		New York Stock Exchange
9.5% Equity Income Securities, $50 par		New York Stock Exchange
8.4% Trust Preferred Securities, $25 par		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

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. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is an accelerated filer. Yes x No ¨

The aggregate market value of the common equity held by non-affiliates of the registrant was approximately $17 billion, based on the closing price of our common stock on June 28, 2002 on the New York Stock Exchange.

As of February 28, 2003, Dominion had 309,274,238 shares of common stock outstanding.

DOCUMENT INCORPORATED BY REFERENCE.

(a)

Portions of the 2003 Proxy Statement are incorporated by reference in Part III.

Dominion Resources, Inc.

Item Number		Page Number

Part I
1.	Business	3
2.	Properties	12
3.	Legal Proceedings	16
4.	Submission of Matters to a Vote of Security Holders	17
Executive Officers of the Registrant		18

Part II
5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	20
6.	Selected Financial Data	20
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
7A.	Quantitative and Qualitative Disclosures About Market Risk	45
8.	Financial Statements and Supplementary Data	46
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	93

Part III
10.	Directors and Executive Officers of the Registrant	94
11.	Executive Compensation	94
12.	Security Ownership of Certain Beneficial Owners and Management	94
13.	Certain Relationships and Related Transactions	94
14.	Controls and Procedures	94

Part IV
15.	Exhibits, Financial Statement Schedules, and Reports of Form 8-K	95
Signatures and Certifications		110

Part I

Item 1. Business

The Company

Dominion Resources, Inc. is a fully integrated gas and electric holding company headquartered in Richmond, Virginia. Incorporated in Virginia in 1983, Dominion is a registered public utility holding company under the Public Utility Holding Company Act of 1935 (the 1935 Act).

The term “Dominion” is used throughout this report and, depending on the context of its use, may represent any of the following: the legal entity, Dominion Resources, Inc., one of Dominion Resources, Inc.’s consolidated subsidiaries or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries.

Operating Segments

Dominion manages its operations along three primary business lines that integrate its electric and gas services, streamline operations and position it for long-term growth in the competitive marketplace.

Dominion Energy —Dominion Energy manages Dominion’s generation portfolio, consisting primarily of generating units and power purchase agreements. It also manages Dominion’s energy trading and marketing, hedging and arbitrage activities; and gas pipeline and certain gas production and storage operations. Effective January 1, 2003, Dominion’s electric transmission operations became a part of Dominion Energy.

Dominion Delivery —Dominion Delivery manages Dominion’s electric and gas distribution systems, as well as customer service and, through December 31, 2002, electric transmission functions. Dominion Delivery also includes Dominion’s interest in Dominion Fiber Ventures LLC (DFV), a telecommunications joint venture. See Note 30 to the Consolidated Financial Statements for a discussion of Dominion’s consolidation of DFV beginning in February 2003. Effective January 1, 2003, Dominion’s electric transmission operations became a part of the Dominion Energy segment.

Dominion Exploration & Production —Dominion Exploration & Production manages Dominion’s onshore and offshore gas and oil exploration, development and production operations. They are located in several major producing basins in the lower 48 states, including the outer continental shelf and deep-water areas of the Gulf of Mexico, and Western Canada.

While Dominion manages its daily operations as described above, its assets remain wholly-owned by its legal subsidiaries, which are described below. For additional financial information on business segments and geographic areas, see Note 32 to the Consolidated Financial Statements.

Dominion’s principal direct legal subsidiaries are Virginia Electric and Power Company (Virginia Power), Consolidated Natural Gas Company (CNG) and Dominion Energy, Inc. (DEI). Virginia Power is a regulated public utility that generates, transmits and distributes power for sale in Virginia and northeastern North Carolina. CNG is a producer, transporter, distributor and retail marketer of natural gas, serving customers in Pennsylvania, Ohio, West Virginia and other states. DEI is an independent power and natural gas and oil exploration and production company.

As of December 31, 2002, Dominion and its subsidiaries had approximately 17,000 full-time employees. Approximately 6,400 employees are subject to collective bargaining agreements.

Dominion’s principal executive offices are located at 120 Tredegar Street, Richmond, Virginia 23219 and its telephone number is (804) 819-2000.

Dominion’s website address is www.dom.com. Dominion makes available free of charge through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports as soon as practicable after filing or furnishing the material with the Securities and Exchange Commission (SEC).

Business Developments

In June 2002, Dominion acquired Mirant State Line Ventures, Inc. (State Line) from a subsidiary of Mirant Corporation for $185 million in cash. State Line’s assets include a 515 Mw coal-fired generation facility located near Hammond, Indiana. In September 2002, Dominion acquired Cove Point LNG Limited Partnership (Cove Point) from a subsidiary of The Williams Companies for $225 million in cash. Cove Point’s assets include a liquefied natural gas import facility located near Baltimore, Maryland that is under reconstruction, a liquefied natural gas storage facility and an approximate 85-mile natural gas pipeline.

Dominion became a registered public utility holding company when it completed the CNG acquisition in January 2000. The 1935 Act prohibits registered companies from owning businesses not directly related to utility or other energy operations. Dominion has substantially completed its strategy to exit the core operating business of Dominion Capital, Inc.

(DCI), its financial services subsidiary, and continues to seek opportunities to divest of the remaining assets. Currently, Dominion is required to divest of all remaining DCI holdings by January 2006.

Because it is no longer investing in or creating energy business overseas, Dominion continues to explore the sale of CNG’s remaining international operations in Australia.

In February 2003, pursuant to the terms of its lease agreement, Dominion purchased the Dresden, Ohio electric generation facility from the lessor. The Dresden facility remains under construction and includes a 550 Mw combined cycle gas-powered generation plant. The purchase price of approximately $266 million was equal to the sum of all amounts previously advanced by the lenders and equity holders with respect to the facility and certain other additional costs and fees due and payable to the lenders and equity holders by Dominion.

Dominion’s acquisitions and divestitures are described in more detail in Notes 5 and 6 to the Consolidated Financial Statements.

Seasonality

Sales of electricity in the Dominion Delivery segment typically vary seasonally based on increased demand for electricity by residential and commercial customers for cooling and heating use based on changes in temperature. The same is true for gas sales based on heating needs. Dominion Energy’s business is also impacted by seasonal changes in the prices of commodities, primarily electricity and natural gas, that it actively markets and trades. For Dominion Exploration & Production, gas prices can vary seasonally as well.

Competition

Deregulation and restructuring in the electric and gas industries continue to create issues that affect or will likely affect the markets where Dominion Energy and Dominion Delivery do business, and govern the way these business units and their competitors operate. The electric power and natural gas industries continue to evolve into a competitive marketplace where energy companies will compete to provide energy and energy services to a broad range of customers.

Electric Industry

The Virginia Electric Utility Restructuring Act (Virginia Restructuring Act) was enacted in 1999 and established a plan to restructure Virginia’s electric utility industry and provide for the phase-in of choice for retail customers from January 1, 2002 through January 1, 2004. As ordered by the Virginia State Corporation Commission (Virginia Commission), Dominion made retail choice available for all of its Virginia regulated electric customers as of January 1, 2003.

Under the Virginia Restructuring Act, the generation portion of Dominion’s Virginia jurisdictional operations is no longer subject to cost-based rate regulation effective January 1, 2002. Base rates (excluding fuel costs and certain other allowable adjustments) are capped and will remain unchanged until July 2007, unless modified or terminated sooner, as provided by the Virginia Restructuring Act. Under the Virginia Restructuring Act, Dominion may request a termination of the capped rates at any time after January 1, 2004, and the Virginia Commission may grant Dominion’s request to terminate the capped rates, if it finds that a competitive generation services market exists in Dominion’s service area. Recovery of generation-related costs will continue to be provided through capped rates and a wires charge. A wires charge, where applicable, is being assessed to those customers opting for alternative suppliers. The Virginia Restructuring Act also requires Dominion to join or establish a regional transmission organization (RTO), phase-in retail choice beginning January 1, 2002, and functionally separate its electric generation from its electric transmission and distribution operations.

Recently, the Virginia Commission recommended that state policymakers decide promptly whether to proceed with or delay implementation of the Virginia Restructuring Act, in light of recent developments impacting electric industry restructuring in Virginia, including the Federal Energy Regulatory Commission’s (FERC) issuance of a notice of proposed rule making on Standard Market Design. Legislation that would delay entry into a RTO until on or after July 1, 2004 was approved by the Virginia General Assembly in February 2003 and is now awaiting action by the Governor. The proposed legislation also would require Dominion to file an application with the Virginia Commission by July 1, 2003 to join a RTO. Subject to Virginia Commission approval, Dominion would be required to transfer management and control of its transmission assets to a RTO by January 1, 2005.

For additional information on electric deregulation in Virginia, see Regulated Electric Operations in Future Issues and Outlook in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

In North Carolina, regulators and legislators continue to explore the issues related to electric industry restructuring, the

development of a competitive, wholesale market and retail competition. However, to date, there has been no significant activity.

Dominion plans to continue to participate actively in both the legislative and regulatory processes to ensure an orderly transition from a regulated environment.

Gas Industry

Dominion Delivery

Deregulation is at varying stages in the three states in which Dominion’s gas distribution subsidiaries operate. In Pennsylvania, supplier choice is available for all residential and small commercial customers. In Ohio, legislation has not been enacted to require supplier choice for residential and commercial natural gas consumers. However, Dominion offers an Energy Choice program to customers on its own initiative, in cooperation with the Public Utilities Commission of Ohio (Ohio Commission).

West Virginia legislation currently does not require customer choice in its retail natural gas markets, and Dominion has not voluntarily initiated an Energy Choice program. However, the West Virginia Public Service Commission (West Virginia Commission) recently issued regulations to govern pooling services, one of the tools that natural gas suppliers may utilize to provide retail customer choice in the future. In 2002, the West Virginia Commission proposed rules that require that competitive gas service providers be licensed in West Virginia. In addition, the West Virginia Commission is developing rules for a code of conduct between utilities and their marketing affiliates, as well as consumer protection regulations and marketer licensing rules.

See Regulated Gas Distribution Operations in Future Issues and Outlook in MD&A for additional information.

Dominion Energy

Dominion’s large underground natural gas storage network and the location of its pipeline system are a significant link between the country’s major gas pipelines and large markets in the Northeast and Mid-Atlantic regions and on the East Coast. Dominion’s pipelines are part of an interconnected gas transmission system which continues to provide local distribution companies, marketers, power generators and industrial and commercial customers the accessibility of supplies nationwide.

Dominion competes with domestic and Canadian pipeline companies and gas marketers seeking to provide or arrange transportation, storage and other services for customers. Alternative energy sources, such as oil or coal, provide another level of competition. Although competition is based primarily on price, the array of services that can be provided to customers is also an important factor. The combination of capacity rights held on certain longline pipelines, a large storage capability and the availability of numerous receipt and delivery points along its own pipeline system enables Dominion to tailor its services to meet the needs of individual customers.

Dominion Exploration & Production

Dominion conducts exploration and production operations in several major producing basins in the lower 48 states, including the outer continental shelf and deep-water areas of the Gulf of Mexico, and Western Canada. Competitors range from major international oil companies, to smaller, independent producers.

Dominion faces significant competition in the bidding for federal offshore leases and in obtaining leases and drilling rights for onshore properties. Since Dominion is the operator of a number of properties, it also faces competition in securing drilling equipment and supplies for exploration and development.

In terms of its production activities, Dominion sells most of its deliverable natural gas and oil into short and intermediate-term markets. Dominion faces challenges related to the marketing of its natural gas and oil production due to the contraction of participants in the energy marketing industry. In the wake of current industry developments, several energy trading participants have exited the business, reducing the number of active purchasers in the marketplace and reducing Dominion’s delivery flexibility. However, Dominion owns a large and diverse natural gas and oil portfolio and maintains an active gas and oil marketing presence in its primary production regions which strengthens its knowledge of the marketplace and delivery options.

Regulation

General

Dominion is subject to regulation by the SEC, FERC, the Environmental Protection Agency (EPA), Department of Energy (DOE), the Nuclear Regulatory Commission (NRC), the Army Corps of Engineers, and other federal, state and local authorities.

State Regulation

Electric

In Virginia, Dominion’s retail service is subject to regulation by the Virginia Commission. The Virginia Commission has approved a Virginia fuel factor of 1.613 cents per kWh in effect through December 31, 2003.

In North Carolina, retail service is subject to cost of service regulation by the North Carolina Utilities Commission (North Carolina Commission). In connection with the North Carolina Commission’s approval of the CNG acquisition, Dominion agreed not to request an increase in North Carolina retail electric base rates until 2006, except for certain events that would have a significant financial impact on Dominion’s electric utility operations. Fuel rates are still subject to change under the annual fuel cost adjustment proceedings. The North Carolina Commission has approved a fuel factor of 1.402 cents per kWh, effective January 1, 2003.

Dominion’s electric utility subsidiary holds certificates of public convenience and necessity authorizing it to construct and operate its electric facilities now in operation and to sell electricity to customers. However, it may not construct or incur financial commitments for construction of any substantial generating facilities or large capacity transmission lines without the prior approval of various state and federal government agencies.

In August 2002, the Virginia Commission adopted rules relating to competitive electric metering services and consolidated billing by competitive suppliers. Dominion must provide its Virginia electric customers with access to meter functionality and interval meter data beginning January 1, 2003 and implement consolidated billing by competitive suppliers no later than July 1, 2003.

For additional information on deregulation in the electric industry, the Virginia Restructuring Act and current rate matters, see Electric Industry in Competition and Regulated Electric Operations in Future Issues and Outlook in MD&A.

Gas

Dominion’s gas distribution business subsidiaries are subject to regulation of rates and other aspects of their businesses by the states in which they operate—Pennsylvania, Ohio and West Virginia. When necessary, Dominion’s gas distribution subsidiaries seek general rate increases on a timely basis to recover increased operating costs and to ensure that rates of return are compatible with the cost of raising capital. In addition to general rate increases, certain of Dominion’s gas distribution subsidiaries make routine separate filings with their respective state regulatory commissions to reflect changes in the costs of purchased gas. These purchased gas costs are recovered through a mechanism that ensures dollar for dollar recovery of prudently incurred costs. Costs that are expected to be recovered in future rates are deferred as regulatory assets.

Ohio— In February 2002, Dominion filed a report with the Ohio Commission that addressed the results of a payment matching program approved by the Ohio Commission in 2001 and deferral of certain residential customer receivables in excess of the amount already recovered in rates. The report requires no action by the Ohio Commission. Recovery of the deferred amount will be requested in Dominion’s next rate case. Dominion believes that it will recover those amounts deferred.

In November 2002, Dominion filed comments to the Ohio Commission’s request for information needed to ensure that Ohio public utilities are not impacted by adverse financial consequences of parent or affiliate company unregulated operations. Dominion informed the Ohio Commission that its affiliate and parent company transactions are governed by the rules of the 1935 Act. The Ohio Commission has not acted on the comments filed or given any indication as to how it will proceed at this time.

In December 2002, the Ohio Commission conditionally approved an earlier application by Dominion to implement a four-month gas cost recovery (GCR) rate. The Ohio Commission approved the adjustment components of the GCR and directed Dominion to leave the expected gas cost portion of the GCR at the previous level for one more month before filing for a new three-month rate.

In January 2003, the Ohio Commission approved the settlement of Dominion’s 2001 GCR financial and management performance audit. The settlement contained no disallowances and provided for a review of the corporate gas supply group expense recovery through the GCR and an internal audit of gas procurement processes and affiliate company gas purchase transactions.

Pennsylvania— The Pennsylvania Public Utility Commission (Pennsylvania Commission) accepted a settlement filed by Dominion and other parties to Dominion’s gas cost recovery proceeding in September 2002. As part of the settlement, the parties agreed that Dominion was following a least cost procurement policy and, as a result, no disallowances occurred.

West Virginia— In 2001, the West Virginia Commission approved a settlement between Dominion and certain third parties, regarding the costs of gas supplies and increased operating costs. The settlement stipulated that Dominion would receive a $9.5 million increase in gas and non-gas

revenues and provides for a two-year rate moratorium. The new rates took effect on January 1, 2002 and will be in place through December 31, 2003.

For additional information on deregulation in the gas industry and current rate matters, see Gas Industry in Competition and Regulated Gas Distribution Operations in Future Issues and Outlook in MD&A.

Public Utility Holding Company Act of 1935

Dominion is a registered holding company under the 1935 Act. The 1935 Act and related regulations issued by the SEC govern activities of Dominion and its subsidiaries with respect to the issuance and acquisition of securities, acquisition and sale of utility assets, certain transactions among affiliates, engaging in business activities not directly related to the utility or energy business and other matters. Over the past few years, several bills have been introduced in Congress to repeal the 1935 Act, and repeal provisions are currently again pending before Congress.

Federal Energy Regulatory Commission

Electric

Under the Federal Power Act, FERC regulates wholesale sales of electricity and transmission of electricity in interstate commerce by public utilities. Dominion’s electric utility subsidiary sells electricity in the wholesale market under its market-based sales tariff authorized by FERC but has agreed not to make wholesale power sales under this tariff to loads located within its service territory. For additional discussion on this matter, see Regulated Electric Operations—Wholesale Competition in Future Issues and Outlook in MD&A.

The Virginia Restructuring Act requires that Dominion join a RTO, and FERC encourages RTO formation as a means to foster wholesale market formation. FERC Order No. 2000 requires each public utility that owns or operates transmission facilities to make certain filings with respect to RTO formation, but will rely on voluntary formation of RTOs to advance its energy policies. By joining a RTO, Dominion would transfer operational control of its transmission assets to a RTO, a third party.

In September 2002, Dominion and PJM Interconnection, LLC (PJM) entered into the PJM South Implementation Agreement. The agreement provides that, subject to regulatory approval and certain provisions, Dominion will become a member of PJM, transfer functional control of its electric transmission facilities to PJM for inclusion in a new PJM South Region, integrate its control area into the PJM energy markets and otherwise facilitate the establishment and operation of PJM as the RTO with respect to Dominion’s transmission facilities. The agreement also contemplates additional agreements and transmission tariff provisions to be negotiated by the parties and allocates costs of implementation of the agreement among the parties.

Dominion intends to file for FERC approval to join PJM in the future. Dominion will also seek authorization from the Virginia Commission and the North Carolina Commission to become a member of PJM at that time. Dominion will incur integration and operating costs associated with joining a RTO. Dominion has deferred certain of those costs for future recovery and is giving further consideration to seeking regulatory approval to defer the balance of such costs.

Legislation that would delay entry into a RTO until on or after July 1, 2004 was approved by the Virginia General Assembly in February 2003 and is now awaiting action by the Governor. The proposed legislation also would require Dominion to file an application with the Virginia Commission by July 1, 2003 to join a RTO. Subject to Virginia Commission approval, Dominion would be required to transfer management and control of its transmission assets to a RTO by January 1, 2005.

For additional discussion on this matter, see RTO in Future Issues and Outlook in MD&A.

Gas

FERC regulates the transportation and sale for resale of natural gas in interstate commerce under the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978, as amended. FERC also has jurisdiction over the construction of pipeline and related facilities used in transportation and storage of natural gas in interstate commerce.

Dominion’s interstate gas transportation and storage activities are conducted in accordance with certificates, tariffs and service agreements on file with FERC. Dominion is also subject to the Natural Gas Pipeline Safety Act of 1968, which authorizes the establishment and enforcement of federal pipeline safety standards and places jurisdiction of these standards with the Department of Transportation.

Competition in the natural gas industry was increased by FERC Order 636, which was issued in 1992. FERC Order 636 requires transmission pipelines to operate as open-access transporters and provide transportation and storage services on an equal basis for all gas supplies, whether purchased from Dominion or from another gas supplier.

In the spring of 2003, FERC expects to issue new rules governing standards of conduct between interstate electric transmission, gas transporation and storage providers and their energy related affiliates. One goal of FERC is to eliminate the separate standards of conduct regulations for natural gas pipelines and electric transmission utilities and replace these requirements with uniform standards applicable to interstate “Transmission Providers” of both natural gas and electricity. For additional discussion on this matter, see Interstate Gas Transmission Operations in Future Issues and Outlook in MD&A.

Environmental Matters

Each operating segment faces substantial regulation and compliance costs with respect to environmental matters. For discussion of significant aspects of these matters, including current and planned capital expenditures relating to environmental compliance, see Environmental Matters in Future Issues and Outlook in MD&A. Additional information can also be found in Item 3. Legal Proceedings and Note 27 to the Consolidated Financial Statements.

From time to time Dominion may be identified as a potentially responsible party to a Superfund site. The EPA (or a state) can either (a) allow such a party to conduct and pay for a remedial investigation, feasibility study and remedial action or (b) conduct the remedial investigation and action and then seek reimbursement from the parties. Each party can be held jointly, severally and strictly liable for all costs. These parties can also bring contribution actions against each other and seek reimbursement from their insurance companies. As a result, Dominion may be responsible for the costs of remedial investigation and actions under the Superfund Act or other laws or regulations regarding the remediation of waste. Dominion does not believe that any currently identified sites will result in significant liabilities.

Dominion has determined that it is associated with 20 former manufactured gas plant sites. Studies conducted by other utilities at their former manufactured gas plants have indicated that their sites contain coal tar and other potentially harmful materials. None of the 20 former sites with which Dominion is associated is under investigation by any state or federal environmental agency, and no investigation or action is currently anticipated. At this time, it is not known to what degree these sites may contain environmental contamination. Dominion is not able to estimate the cost, if any, that may be required for the possible remediation of these sites.

The EPA amended its oil pollution prevention regulations in July 2002. The total projected cost of compliance with the new regulations is estimated to range from $21 to $40 million, representing primarily capital expenditures.

The EPA is also considering issuing new regulations that govern existing utilities that employ a cooling water intake structure, and whose flow levels exceed a minimum threshold. As currently written, EPA’s proposed rule presents several control options under consideration for the final rule. Dominion is evaluating facility information from certain of its power stations. Given the uncertainties of future action by EPA on this issue, the Dominion cannot predict the future impact on its operations at this time.

Dominion has applied for or obtained the necessary environmental permits material to the operation of its electric generating stations. Many of these permits are subject to re-issuance and continuing review.

As part of its reissuance of a pollution discharge permit for the Millstone Power Station, the Connecticut Department of Environmental Protection will evaluate the ecological impacts of the cooling water intake system. Until the permit is reissued, it is not possible to predict the financial impact, if any, that may result.

Nuclear Regulatory Commission

All aspects of the operation and maintenance of Dominion’s nuclear power stations, which are part of the Dominion Energy segment, are regulated by the NRC. Operating licenses issued by the NRC are subject to revocation, suspension or modification, and operation of a nuclear unit may be suspended if the NRC determines that the public interest, health or safety so requires.

Dominion filed applications for 20 year life-extension for the North Anna and Surry units in May 2001. The NRC has completed its review of the applications and Dominion expects to receive a renewed license for these units in 2003. Dominion also expects to file a similar request for the Millstone units in 2004. For more information on this matter, see Note 16 to the Consolidated Financial Statements.

From time to time, the NRC adopts new requirements for the operation and maintenance of nuclear facilities. In many cases, these new regulations require changes in the design, operation and maintenance of existing nuclear facilities. If the NRC adopts such requirements in the future, it could result in substantial increases in the cost of operating and maintaining Dominion’s nuclear generating units.

The NRC also requires Dominion to decontaminate nuclear facilities once operations cease. This process is referred to as decommissioning, and Dominion is required by the NRC to prepare for it financially. For information on compliance with the NRC financial assurance requirements, see Note 16 to Consolidated Financial Statements.

Disposal of spent nuclear fuel is a significant issue associated with the operation and decommissioning of nuclear facilities. The Nuclear Waste Policy Act (NWPA) of 1982 required a permanent, federal repository for high-level radioactive waste and spent nuclear fuel to be made available by January 31, 1998. In February 2002, the Secretary of Energy recommended that Yucca Mountain located in the state of Nevada be developed as the permanent repository. Final congressional approval was received in July 2002. The DOE is currently in the process of seeking approval of a NRC license to begin construction of the repository.

Dominion and other utilities have petitioned the U.S. Court of Appeals for the 11th Circuit to review a matter involving DOE and PECO Energy Company (PECO). The petitioners challenged the DOE’s action that allowed PECO to take credits against payments PECO would have been making into the Nuclear Waste Fund (NWF). The credits are part of the DOE’s settlement of PECO’s claim regarding the DOE’s failure to provide a permanent repository for spent nuclear fuel as required by the NWPA. The petition stated that the credits violated the NWPA by depleting the NWF and releasing PECO from a portion of its NWF obligation. The petition also sought an injunction of the DOE’s settlement agreement with PECO and an injunction against DOE entering into similar agreements. In September 2002, the court issued its decision on the matter declaring the fee adjustment aspect of the settlement between PECO and DOE “null and void.” The decision does not prevent DOE from settling claims related to its breach of its contractual obligation to begin disposing of spent nuclear fuel, but precludes DOE from using the NWF to compensate utilities for damages incurred by utilities owing to DOE’s breach of its NWF obligation to dispose of spent nuclear fuel.

Interconnections

Dominion maintains major interconnections with Progress Energy, American Electric Power Company, Inc., PJM-West and PJM. Through this major transmission network, Dominion has arrangements with these entities for coordinated planning, operation, emergency assistance and exchanges of capacity and energy. See also RTO in Future Issues and Outlook in MD&A.

Sources of Energy

Sources of Energy—Electricity

Dominion Energy provides electricity for use on a wholesale and a retail level. Dominion Energy can supply electricity demand either from its generation facilities in Connecticut, Indiana, Illinois, North Carolina, Ohio, Pennsylvania, Virginia and West Virginia or through purchased power contracts when needed. The following table lists Dominion’s generating units and capability.

Dominion’s Power Generation

Plant	Location	Primary Fuel Type	Net Summer Capability (Mw)
Utility Generation
North Anna	Mineral, VA	Nuclear	1,628	^(a)
Surry	Surry, VA	Nuclear	1,625
Mt. Storm	Mt. Storm, WV	Coal	1,569
Chesterfield	Chester, VA	Coal	1,234
Chesapeake	Chesapeake, VA	Coal	595
Clover	Clover, VA	Coal	441	^(b)
Yorktown	Yorktown, VA	Coal	326
Possum Point	Dumfries, VA	Coal	322
Bremo	Bremo Bluff, VA	Coal	227
North Branch	Bayard, WV	Coal	74
Altavista	Altavista, VA	Coal	63
Southampton	Southampton, VA	Coal	63
Yorktown	Yorktown, VA	Oil	818
Possum Point	Dumfries, VA	Oil	786
Gravel Neck (CT)	Surry, VA	Oil	183
Darbytown (CT)	Richmond, VA	Oil	144
Chesapeake (CT)	Chesapeake, VA	Oil	144
Possum Point (CT)	Dumfries, VA	Oil	78
Northern Neck (CT)	Lively, VA	Oil	64
Low Moor (CT)	Covington, VA	Oil	60
Kitty Hawk (CT)	Kitty Hawk, NC	Oil	44
Remington (CT)	Remington, VA	Gas	580
Chesterfield (CC)	Chester, VA	Gas	397
Ladysmith (CT)	Ladysmith, VA	Gas	290
Bellmeade (CC)	Richmond, VA	Gas	230
Gravel Neck (CT)	Surry, VA	Gas	146
Darbytown (CT)	Richmond, VA	Gas	144
Bath County	Warm Springs, VA	Hydro	1,440	^(c)
Gaston	Roanoke Rapids, NC	Hydro	225
Roanoke Rapids	Roanoke Rapids, NC	Hydro	99
Other	Various	Various	15

			14,054

Non-utility Generation
Millstone	Waterford, CT	Nuclear	1,954	^(d)
Kincaid	Kincaid, IL	Coal	1,158
State Line	Hammond, IN	Coal	515
Morgantown	Morgantown, WV	Coal	33	^(f)
Elwood (CT)	Elwood, IL	Gas	682	^(e)
Armstrong (CT)	Shelocta, PA	Gas	600	^(g)
Troy (CT)	Luckey, OH	Gas	600	^(g)
Pleasants (CT)	St. Mary’s, WV	Gas	300	^(g)
Others	Various	Various	31

			5,873

Purchased Capacity			3,758
Net Purchases			145

	Total Capacity		23,830

Note: (CT) denotes combustion turbine and (CC) denotes combined cycle

^(a)

Excludes 11.6 percent undivided interest owned by Old Dominion Electric Cooperative (ODEC).

^(b)

Excludes 50 percent undivided interest owned by ODEC.

^(c)

Excludes 40 percent undivided interest owned by Allegheny Generating Company, a subsidiary of Allegheny Energy, Inc.

^(d)

Excludes 6.53 percent undivided interest in Unit 3 owned by Massachusetts Municipal Wholesale Electric Company and Central Vermont Public Service Company.

^(e)

Excludes 50 percent undivided interest owned by Peoples Energy.

^(f)

Excludes 50 percent undivided interest owned by Cogen Technologies Morgantown, Ltd. and Hickory Power Corporation.

^(g)

Includes generating units which Dominion operates under leasing arrangements.

Power Purchase Contracts

Dominion Energy purchases electricity under contracts with other suppliers to meet a portion of its system capacity requirements. As of December 31, 2002, Dominion has 42 power purchase contracts with a combined dependable summer capacity of 3,758 Mw. For information on the financial obligations under these agreements, see Note 27 to the Consolidated Financial Statements.

Fuel for Electric Generation

Dominion uses a variety of fuels to power its electric generation. These include a mix of both nuclear fuel and fossil fuel as described further below.

Nuclear Fuel Supply

Dominion utilizes both long-term contracts and short-term purchases to support its nuclear fuel requirements. Worldwide market conditions are continuously evaluated to ensure a range of supply options at reasonable prices. Current agreements, inventories and spot market availability are expected to support current and planned fuel supply needs. Additional fuel is purchased as required to ensure optimum cost and inventory levels.

Fossil Fuel Supply

Dominion utilizes coal, oil and natural gas in its fossil fuel operations. Dominion Energy’s coal supply is obtained through long-term contracts and spot purchases. Oil and oil-fired generation are used primarily to support heavier system generation loads during very cold or very hot weather periods. System requirements are purchased mainly under short-term spot agreements.

Dominion uses natural gas as needed throughout the year for Dominion’s jurisdictional and non-jurisdictional generation facilities. Dominion’s gas supply is obtained from various sources including: purchases from major and independent producers in the Southwest and Midwest regions; purchases from local producers in the Appalachian area; purchases from gas marketers; and withdrawals from Dominion’s and third party underground storage fields.

Firm natural gas transportation contracts (capacity) exist that allow delivery of gas to our facilities. Dominion’s capacity portfolio allows flexible natural gas deliveries to its gas turbine fleet, while minimizing costs.

Gas Supply

Dominion is engaged in the sale and storage of natural gas through its operating subsidiaries. Sources of gas supplies for sale to customers are the same as those described in Fossil Fuel Supply above.

Dominion continues to purchase volumes from the array of accessible producing basins using its firm capacity resources. These purchased supplies include Appalachian resources in Ohio, Pennsylvania and West Virginia and production from the Gulf Coast, Mid-Continent and offshore areas. Upon FERC’s restructuring of the interstate pipeline business in 1992 and 1993, pipelines no longer sell the delivered natural gas commodity; rather, customers provide their own gas supply for wholesale storage and/or delivery by the pipelines. Much of the supply is purchased by local distributors, energy marketing companies or end-users under seasonal or spot purchase agreements.

Gas Storage—Transmission

Dominion’s underground storage facilities play an important part in balancing gas supply with sales demand and are essential to servicing the Mid-Atlantic and Northeast’s large volume of space-heating business. In addition, storage capacity is an important element in the effective management of both gas supply and pipeline transport capacity. Dominion operates 26 underground gas storage fields located in Ohio, Pennsylvania, West Virginia and New York. Dominion owns 20 of these storage fields and has joint-ownership with other companies in six of the fields. The total designed capacity of the storage fields is approximately 960 billion cubic feet (bcf). Dominion’s share of the total capacity is about 717 bcf. About one-half of the total capacity is base gas which remains in the reservoirs at all times to provide the primary pressure which enables the balance of the gas to be withdrawn as needed.

Gas Production

Dominion Exploration & Production owns 6.1 trillion cubic feet of proved equivalent natural gas reserves and produced almost 1.1 billion cubic feet of natural gas per day and 27 thousand barrels of oil per day in 2002.

Dominion Exploration & Production utilizes production handling and firm transportation contracts to support delivery of its gas and oil in certain market areas. Additional information about these commitments can also be found in Note 27 to the Consolidated Financial Statements.

Item 2. Properties

Dominion leases its principal executive office in Richmond, Virginia as well as corporate offices in other cities in which its subsidiaries operate. It also owns another corporate office in Richmond.

Dominion’s assets consist primarily of its investments in its subsidiaries, the principal properties of which are described below.

Substantially all of Dominion’s electric subsidiary’s property is subject to the lien of the mortgage securing its First and Refunding Mortgage Bonds and certain of its nonutility generation facilities are subject to liens.

Dominion Energy utilizes the electric generation facilities listed under the heading Sources of Energy—Dominion’s Power Generation in Item 1. Business.

Dominion’s storage operation consists of 26 storage fields, approximately 373,000 acres of operated leaseholds and 2,000 storage wells. Dominion Energy has approximately 7,900 miles of gas transmission, gathering and storage piplines.

The map below illustrates Dominion’s gas transmission pipelines, storage facilities and electric transmission lines.

LOGO

Dominion Energy also has more than 100 compressor stations with approximately 577,000 installed compressor horsepower located in Ohio, West Virginia, Pennsylvania and New York. Some of the stations are used interchangeably for several functions.

Dominion Delivery has approximately 6,000 miles of electric transmission lines. Portions of Dominion Delivery’s transmission lines cross national parks and forests under permits entitling the federal government to use, at specified charges, surplus capacity in the line, if any exists.

Dominion Delivery’s right-of-way grants from the apparent owners of real estate have been obtained for most electric lines, but underlying titles have not been examined except for transmission lines of 69 Kv or more. Where rights-of-way have not been obtained, they could be acquired from private owners by condemnation, if necessary. Many electric lines are on publicly owned property, where permission to operate can be revoked.

Dominion Delivery’s investment in its gas distribution network is located in the states of Ohio, Pennsylvania and West Virginia. The gas distribution network includes approximately 27,000 miles of pipe, exclusive of service pipe.

Dominion Exploration & Production owns 6.1 trillion cubic feet of proved equivalent natural gas reserves and produces approximately 1.2 billion cubic feet of equivalent natural gas per day from its leasehold acreage and facility investments. Dominion, either alone or with partners, holds interests in natural gas and oil lease acreage, wellbores, well facilities, production platforms and gathering systems. Dominion also owns or holds rights to seismic data and other tools used in exploration and development drilling activities. Dominion’s share of developed leasehold totals 3.1 million acres, with another 2.4 million acres held for future exploration and development drilling opportunities.

Information detailing Dominion’s gas and oil operations presented on the following pages includes the activities of the Dominion Exploration & Production segment and the production activity of Dominion Transmission, Inc., which is included in the Dominion Energy segment:

Company-Owned Proved Gas and Oil Reserves

Estimated net quantities of proved gas and oil reserves at December 31 of each of the last three years were as follows:

	2002		2001		2000
	Proved Developed	Total Proved	Proved Developed	Total Proved	Proved Developed	Total Proved
Proved gas reserves (bcf)
United States	3,549	4,458	3,026	3,517	1,593	1,858
Canada	486	640	440	573	361	479

Total proved gas reserves	4,035	5,098	3,466	4,090	1,954	2,337

Proved oil reserves (000 bbls)
United States	47,759	138,798	46,473	115,988	21,709	51,072
Canada	18,064	30,432	17,304	24,579	14,527	24,270

Total proved oil reserves	65,823	169,230	63,777	140,567	36,236	75,342


Total proved gas and oil reserves (bcfe)	4,430	6,113	3,850	4,933	2,172	2,789

Certain subsidiaries of Dominion file Form EIA-23 with the DOE, which reports gross proved reserves, including the working interests share of other owners, for properties operated by such Dominion subsidiaries. The proved reserves reported in the table above represent Dominion’s share of proved reserves for all properties, based on Dominion’s ownership interest in each property. For properties operated by Dominion, the difference between the proved reserves reported on Form EIA-23 and the Company-owned proved reserves, reported in the table above, does not exceed five percent. Estimated proved reserves as of December 31, 2002 are based upon studies for each Dominion property prepared by Dominion’s staff engineers and reviewed by either Ralph E. Davis Associates, Inc. or Ryder Scott Company, L.P. Calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with SEC guidelines.

Quantities of Gas and Oil Produced

Quantities of gas and oil produced* during each of the last three years ending December 31 follow:

	2002	2001	2000
Gas production (bcf)
United States	346	238	222
Canada	53	57	47

Total gas production	399	295	269

Oil production (000 bbls)
United States	8,653	6,134	6,436
Canada	1,072	1,529	1,258

Total oil production	9,725	7,663	7,694


Total gas and oil production (bcfe)	458	341	315

Gas and oil production quantities include the production from the Dominion Exploration & Production segment and the production activity of DominionTransmission, Inc., which is included in the Dominion Energy segment.

The average sales price per thousand cubic feet (mcf) of gas with hedging results (including transfers to other Dominion operations at market prices) realized during the years 2002, 2001 and 2000 was $3.41, $3.83 and $3.12, respectively. The respective average prices without hedging results per mcf of gas produced were $3.04, $3.92 and $3.72. The respective average sales prices realized for oil with hedging results were $23.29, $23.42 and $26.63 per barrel and the respective average price without hedging results were $24.45, $23.53 and $28.35 per barrel. The average production (lifting) cost per mcf equivalent of gas and oil produced (as calculated per SEC guidelines) during the years 2002, 2001 and 2000 was $0.60, $0.65 and $0.49 respectively.

Net Wells Drilled in the Calendar Year

The number of net wells completed during each of the last three years ending December 31 follows:

	2002	2001	2000
Exploratory:
United States
Productive	12	17	5
Dry	12	15	9

Total United States	24	32	14

Canada
Productive	1	2	—
Dry	1	1	1

Total Canada	2	3	1

Total exploratory	26	35	15

Development:
United States
Productive	774	372	253
Dry	38	3	2

Total United States	812	375	255

Canada
Productive	61	93	71
Dry	11	15	9

Total Canada	72	108	80

Total development	884	483	335

Total wells drilled	910	518	350

As of December 31, 2002, 68 gross (52 net) wells were in process of drilling, including wells temporarily suspended.

Acreage

Gross and net developed and undeveloped acreage at December 31, 2002 was:

	Developed Acreage		Undeveloped Acreage
	Gross	Net	Gross	Net
United States	3,714,258	2,373,000	2,479,977	1,417,884
Canada	1,399,019	770,788	1,228,191	963,525

Total	5,113,277	3,143,788	3,708,168	2,381,409

Productive Wells

The number of productive gas and oil wells in which Dominion’s subsidiaries had an interest at December 31, 2002, follow:

	Gross	Net
Gas wells
United States	23,896	15,359
Canada	876	579

Total gas wells	24,772	15,938

Oil wells
United States	305	222
Canada	352	172

Total oil wells	657	394

The number of productive wells includes 197 gross (73 net) multiple completion gas wells and 10 gross (4 net) multiple completion oil wells.

Item 3.

Legal Proceedings

From time to time, Dominion and its subsidiaries are alleged to be in violation or in default under orders, statutes, rules or regulations relating to the environment, compliance plans or permits issued by various local, state and federal agencies for the construction or operation of facilities. From time to time, there may be administrative proceedings on these matters pending. In addition, in the ordinary course of business, Dominion and its subsidiaries are involved in various legal proceedings. Management believes that the ultimate resolution of these proceedings will not have a material adverse effect on Dominion’s financial position, liquidity or results of operations.

See Regulation in Item 1. Business, Rate Matters in Future Issues and Outlook in MD&A and Note 27 to the Consolidated Financial Statements for additional information on rate matters and various regulatory proceedings to which Dominion is a party.

Before being acquired by Dominion, Louis Dreyfus and two predecessor companies were named as defendants in several lawsuits originally filed in 1995 that were subsequently consolidated. The consolidated lawsuit is now pending in the Texas 93rd Judicial District Court in Hildago County, Texas. The lawsuit alleges that gas wells and related pipeline facilities operated by Louis Dreyfus, and other facilities operated by other defendants, caused an underground hydrocarbon plume in McAllen, Texas. The plaintiffs claim that they have suffered damages, including property damage and lost profits, as a result of the plume and seek compensation for these items.

In July 1997, Jack Grynberg, an oil and gas entrepreneur, brought suit against CNG and several of its subsidiaries. The suit seeks damages for alleged fraudulent mismeasurement of gas volumes and underreporting of gas royalties from gas production taken from federal leases. In 2002, the valuation portion of the claim was dismissed. The plaintiff has filed an appeal.

In April 1998, Harrold E. (Gene) Wright, an oil and gas entrepreneur, brought suit against CNG Producing Company, a subsidiary of CNG, alleging various fraudulent valuation practices in the payment of royalties on federal leases. Shortly after filing, this case was consolidated under the Federal Multidistrict Litigation rules with the Grynberg case noted above. A substantial portion of the claim against CNG Producing Company was resolved by settlement in late 2002; however, the suit remains consolidated with the Grynberg case.

In 1999, a class action was filed by Quinque Operating Co. and other parties against approximately 300 defendants, including CNG and several of its subsidiaries, in Stevens County, Kansas. The complaint seeks damages for alleged fraud, misrepresentation, conversion and assorted other claims, in the measurement and payment of gas royalties from privately held gas leases. The plaintiffs will seek class certification and expedited discovery in Kansas. The defendants have filed motions to dismiss the case. A motion in opposition to class certification was argued in January 2003.

During 2000, Virginia Power received a Notice of Violation from the EPA, alleging that Virginia Power failed to obtain New Source Review permits under the Clean Air Act prior to undertaking specified construction projects at the Mt. Storm Power Station in West Virginia. The Attorney General of New York filed a suit against Virginia Power alleging similar violations of the Clean Air Act at the Mt. Storm Power Station. Virginia Power also received notices from the Attorneys General of Connecticut and New Jersey of their intentions to file suit for similar violations. In December 2002, the Attorney General of Connecticut filed a motion to intervene as a plaintiff in the action filed by the New York State Attorney General. This action has been stayed. Management believes that Virginia Power has obtained the necessary permits for its generating facilities. Virginia Power has reached an agreement in principle with the federal government and the state of New York to resolve this situation. The agreement in principle includes payment of a $5 million civil penalty, a commitment of $14 million for environmental projects in Virginia, West Virginia, Connecticut, New Jersey and New York, and a 12-year, $1.2 billion capital investment program for environmental improvements at Virginia Power’s coal- fired generating stations in Virginia and West Virginia. Virginia Power had already committed to a substantial portion of the $1.2 billion expenditures for sulfur dioxide and nitrogen oxide emissions controls. The negotiations over the terms of a binding settlement have expanded beyond the basic agreement in principle and are ongoing. As of December 31, 2002, Virginia Power has recorded, on a discounted basis, $18 million for the civil penalty and environmental projects.

In June 2002, Wiley Fisher, Jr. and John Fisher filed a purported class action lawsuit against Virginia Power and Dominion Telecom, Inc. (Dominion Telecom) in the U.S. District Court in Richmond, Virginia. The plaintiffs claim that Virginia Power and Dominion Telecom strung fiber-optic cable across their land, along a Virginia Power electric transmission corridor without paying compensation. The plaintiffs are seeking damages for trespass and “unjust enrichment,” as well as punitive damages from the defendants.

The named plaintiffs purport to “represent a class . . . consisting of all owners of land in North Carolina and Virginia, other than public streets or highways, that underlies Virginia Power’s electric transmission lines and on or in which fiber optic cable has been installed.” The named plaintiffs have asked that the court allow the lawsuit to proceed as a class action. Discovery has begun and the court has granted a motion to add additional plaintiffs, Harmon T. Tomlinson, Jr. and Linda D. Tomlinson. The outcome of the proceeding, including an estimate as to any potential loss, cannot be predicted at this time.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Executive Officers of the Registrant

Name and Age		Business Experience Past Five Years
Thos. E. Capps (67)		Chairman of the Board of Directors, President and Chief Executive Officer of Dominion from August 2000 to date; Vice Chairman of the Board of Directors, President and Chief Executive Officer of Dominion from January 2000 to August 2000; Chairman of the Board of Directors, President and Chief Executive Officer of Dominion from September 1995 to January 2000.

Thomas F. Farrell, II (48)		Executive Vice President of Dominion from March 1999 to date; President and Chief Executive Officer of Virginia Electric and Power Company from December 2002 to date; Executive Vice President of Consolidated Natural Gas Company from January 2000 to date; Chief Executive Officer of Virginia Electric and Power Company from May 1999 to December 2002; Executive Vice President, General Counsel and Corporate Secretary of Virginia Electric and Power Company from July 1998 to April 1999; Executive Vice President and General Counsel of Virginia Electric and Power Company from April 1998 to June 1998; Executive Vice President of Virginia Electric and Power Company from September 1997 to April 1998; Senior Vice President—Corporate Affairs of Dominion from September 1997 to March 1999.

Jay L. Johnson (56)		Executive Vice President of Dominion and President and Chief Executive Officer of Virginia Electric and Power Company from December 2002 to date; Senior Vice President, Business Excellence, Dominion Energy, Inc. from September 2000 to December 2002; Chief of Naval Operations, U.S. Navy, and member of the Joint Chiefs of Staff from 1996 until July 2000.

Duane C. Radtke (54)		Executive Vice President of Dominion and Consolidated Natural Gas Company from April 2001 to date; President of Devon Energy International from August 2000 to April 2001; Executive Vice President—Production of Santa Fe Snyder Corp. from May 1999 to August 2000; Senior Vice President—Production of Santa Fe Energy Resources from April 1998 to May 1999; President of Santa Fe Energy Resources (S.E. Asia) from August 1993 to April 1998.

Thomas N. Chewning (57)		Executive Vice President and Chief Financial Officer of Dominion from May 1999 to date; Executive Vice President and Chief Financial Officer of Consolidated Natural Gas Company from January 2000 to date; Executive Vice President of Dominion prior to April 1999.

Paul D. Koonce (43)		Chief Executive Officer—Transmission of Virginia Electric and Power Company from January 2003 to date; Senior Vice President—Portfolio Management of Virginia Electric and Power Company from January 2000 to December 2002; Senior Vice President—Commercial Operations of Consolidated Natural Gas Company from January 1999 to January 2000; Vice President of Regulated Commercial Operations of Consolidated Natural Gas Company from January 1999 to June 1999; Senior Vice President—Sonat Energy Services from August 1997 to January 1999.

Mark F. McGettrick (45)		President and Chief Executive Officer—Generation of Virginia Electric and Power Company from January 2003 to date; Senior Vice President and Chief Administrative Officer of Dominion from January 2002 to December 2002; Senior Vice President—Customer Service and Metering of Virginia Electric and Power Company from January 2000 to December 2001; Vice President—Customer Service and Marketing of Virginia Electric and Power Company from January 1997 to January 2000.

Name and Age		Business Experience Past Five Years
Mary C. Doswell (44)		Senior Vice President and Chief Administrative Officer from January 2003 to date; Vice President—Billing and Credit of Virginia Electric and Power Company from October 2001 to December 2002; Vice President—Metering of Virginia Electric and Power Company from January 2000 to October 2001; General Manager—Metering of Virginia Electric and Power Company from February 1999 to January 2000; Project Manager of Virginia Electric and Power Company from December 1997 to February 1999.

Eva S. Hardy (58)		Senior Vice President—External Affairs & Corporate Communications of Dominion from May 1999 to date; Senior Vice President-External Affairs & Corporate Communications of Virginia Electric and Power Company from September 1997 to April 2000.

G. Scott Hetzer (46)		Senior Vice President and Treasurer of Dominion from May 1999 to date; Senior Vice President and Treasurer of Virginia Electric and Power Company and Consolidated Natural Gas Company from January 2000 to date; Vice President and Treasurer of Dominion from October 1997 to May 1999.

James L. Sanderlin (61)		Senior Vice President—Law of Dominion from September 1999 to date; Senior Vice President—Law of Consolidated Natural Gas Company from January 2000 to date. Partner in the law firm of McGuire, Woods, Battle & Boothe LLP prior to September 1999.

Steven A. Rogers (41)		Vice President, Controller and Principal Accounting Officer of Dominion and Consolidated Natural Gas Company and Vice President and Principal Accounting Officer of Virginia Electric and Power Company from June 2000 to date; Controller of Virginia Electric and Power Company from January 2000 to May 2000. Controller of Dominion Energy, Inc. from September 1998 to June 2000; Vice President and Controller of Optacor Financial Services Company from February 1997 to September 1998.

Any service listed for Virginia Electric and Power Company, Consolidated Natural Gas Company, Dominion Energy, Inc. and Optacor Financial Services Company reflects service at a subsidiary of Dominion.

Part II

Item 5.

Market for the Registrant’s Common Equity and Related Stockholder Matters

Dominion’s common stock is listed on the New York Stock Exchange. At December 31, 2002, there were approximately 188,000 registered shareholders, including approximately 88,000 certificate holders. The quarterly information concerning stock prices and dividends is incorporated by reference from Note 34 to the Consolidated Financial Statements.

During 2002, Dominion issued 483 shares of common stock to two former employees as a deferred payment under a 1985 performance achievement plan. These shares were not registered under the Securities Act of 1933 (Securities Act). The issuance of this stock did not involve a public offering, and is therefore exempt from registration under the Securities Act.

Item 6.

Selected Financial Data

(millions, except per share amounts)	2002		2001		2000		1999			1998

Operating revenue	$	10,218	$	10,558	$	9,246	$	5,520		$	6,081
Income before extraordinary item and cumulative effect of a change in accounting principle		1,362		544		415		552			548
Extraordinary item (net of income taxes of $197)								(255	)
Cumulative effect of a change in accounting principle (net of income taxes of $11)						21
Net income		1,362		544		436		297			548
Earnings per common share—basic		4.85		2.17		1.85		1.55			2.81
Earnings per common share—diluted		4.82		2.15		1.85		1.48			2.81
Total assets		37,909		34,369		29,297		17,782			17,549
Long-term debt, subsidiary preferred stock subject to mandatory redemption and preferred securities of subsidiary trusts		13,457		13,251		10,486		7,321			6,817
Dividends paid per share	$	2.58	$	2.58	$	2.58	$	2.58		$	2.58

Item 7.

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

Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) discusses the results of operations and general financial condition of Dominion. MD&A should be read in conjunction with the Consolidated Financial Statements. The term “Dominion” is used throughout MD&A and, depending on the context of its use, may represent any of the following: the legal entity, Dominion Resources, Inc., one of Dominion Resources, Inc.’s consolidated subsidiaries, or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries.

Risk Factors and Cautionary Statements That May Affect Future Results

This report contains statements concerning Dominion’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by words such as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “plan,” “may” or other similar words.

Dominion makes forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to be materially different from predicted results. Factors that could cause actual results to differ are often presented with the forward-looking statements themselves. In addition, other factors could cause actual results to differ materially from those indicated in any forward-looking statement. These factors include weather conditions; fluctuations in energy-related commodities prices and the effect these could have on Dominion’s earnings, liquidity position and the underlying value of its assets; trading counterparty credit risk; capital market conditions, including price risk due to marketable securities held as investments in trusts and benefit plans; fluctuations in interest rates; changes in rating agency requirements or ratings; changes in accounting standards; the risks of operating businesses in regulated industries that are becoming deregulated; the transfer of control over electric transmission facilities to a regional transmission organization; completing the divestiture of Dominion Capital, Inc. (DCI) and CNG International Corporation; collective bargaining agreements and labor negotiations; and political and economic conditions (including inflation rates). Some more specific risks are discussed below.

Dominion bases its forward-looking statements on management’s beliefs and assumptions using information available at the time the statements are made. Dominion

cautions the reader not to place undue reliance on its forward- looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, materially differ from actual results. Dominion undertakes no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

Dominion’s operations are weather sensitive. Dominion’s results of operations can be affected by changes in the weather. Weather conditions directly influence the demand for electricity and natural gas and affect the price of energy commodities. In addition, severe weather, including hurricanes, winter storms and droughts, can be destructive, causing outages, production delays and property damage that requires Dominion to incur additional expenses.

Dominion is subject to complex government regulation that could adversely affect its operations. Dominion’s operations are subject to extensive regulation and require numerous permits, approvals and certificates from federal, state and local governmental agencies. Dominion must also comply with environmental legislation and other regulations. Management believes the necessary approvals have been obtained for Dominion’s existing operations and that its business is conducted in accordance with applicable laws. However, new laws or regulations, or the revision or reinterpretation of existing laws or regulations, may require Dominion to incur additional expenses.

Costs of environmental compliance, liabilities and litigation could exceed Dominion’s estimates. Compliance with federal, state and local environmental laws and regulations may result in increased capital, operating and other costs, including remediation and containment and monitoring obligations. In addition, Dominion may be a responsible party for environmental clean up at a site identified by a regulatory body. Management cannot predict with certainty the amount and timing of all future expenditures related to environmental matters because of the difficulty of estimating clean-up costs and compliance, and the possibility that changes will be made to the current environmental laws and regulations. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all potentially responsible parties.

Capped electric rates in Virginia may be insufficient to allow full recovery of stranded and other costs. Under the Virginia Electric Utility Restructuring Act, Dominion’s electric base rates (excluding fuel costs and certain other allowable adjustments) remain unchanged until July 2007 unless modified or terminated consistent with that Act. The capped rates and wires charges that, where applicable, are being assessed to customers opting for alternative suppliers allow Dominion to recover certain generation-related costs; however, Dominion remains exposed to numerous risks of cost-recovery shortfalls.

These include exposure to potentially stranded costs, future environmental compliance requirements, changes in tax laws, inflation and increased capital costs. See Future Issues and Outlook-Regulated Electric Operations and Note 27 to the Consolidated Financial Statements.

The electric generation business is subject to competition . Effective January 1, 2002, the generation portion of Dominion’s electric utility operations in Virginia is open to competition and is no longer subject to cost-based rate regulation. As a result, there is increased pressure to lower costs, including the cost of purchased electricity. Because Dominion’s electric utility generation business has not previously operated in a competitive environment, the extent and timing of entry by additional competitors into the electric market in Virginia is unknown. Therefore, it is difficult to predict the extent to which Dominion will be able to operate profitably within this new environment. In addition, the success of Dominion’s merchant power plants depends upon its ability to find buyers willing to enter into power purchase agreements at prices sufficient to cover its operating costs. Depressed spot and forward wholesale power prices and excess capacity could result in lower than expected revenues in Dominion’s merchant power business.

There are inherent risks in the operation of nuclear facilities . Dominion operates nuclear facilities that are subject to inherent risks. These include the threat of terrorist attack and ability to dispose of spent nuclear fuel, the disposal of which is subject to complex federal and state regulatory constraints. These risks also include the cost of and Dominion’s ability to maintain adequate reserves for decommissioning, costs of plant maintenance and exposure to potential liabilities arising out of the operation of these facilities. Dominion maintains decommissioning trusts and external insurance coverage to minimize the financial exposure to these risks. However, it is possible that costs arising from claims could exceed the amount of any insurance coverage.

The use of derivative instruments could result in financial losses. Dominion uses derivative instruments including futures, forwards, options and swaps, to manage its commodity and financial market risks. In addition, Dominion purchases and sells commodity-based contracts in the natural gas, electricity and oil markets for trading purposes. In the future, Dominion could recognize financial losses on these contracts as a result of volatility in the market values of the underlying commodities or if a counterparty fails to perform under a contract. In the absence of actively quoted market prices and pricing information from external sources, the

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

valuation of these financial instruments involves management’s judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the value of the reported fair value of these contracts. For additional information concerning derivatives and commodity-based trading contracts, see Market Rate Sensitive Instruments and Risk Management and Notes 2 and 15 to the Consolidated Financial Statements.

Dominion is exposed to market risks beyond its control in its energy clearinghouse operations. Dominion’s energy clearinghouse and risk management operations are subject to multiple market risks including market liquidity, counterparty credit strength and price volatility. Many industry participants have experienced severe business downturns during the past year resulting in some being forced to exit or curtail their participation in the energy trading markets. This has led to a reduction in the number of trading partners, lower industry trading revenues and lower than expected revenues in Dominion’s energy clearinghouse operations. Declining credit worthiness of some of Dominion’s trading counterparties may limit the level of its trading activities with these parties and increase the risk that these parties may not perform under a contract.

The success of Dominion’s telecommunications business strategy is dependent upon market conditions. The current strategy of Dominion’s joint venture in the telecommunications business is based upon its ability to deliver lit capacity, dark fiber and colocation services to its customers. The market for these services, like the telecommunications industry in general, is rapidly changing, and Dominion cannot be certain that anticipated growth in demand for these services will occur. If the market for these services continues to fail to grow as quickly as anticipated or becomes saturated with competitors, including competitors using alternative technologies such as wireless, Dominion’s equity and debt investments in the telecommunications business, as well as the results from such investments, may continue to be adversely affected. Additionally, the current market values of assets in the telecommunications industry have been subject to depressed market conditions. If these conditions continue, Dominion may have to contribute cash to satisfy operating requirements and the underlying value of Dominion’s telecommunications investments could be affected adversely which, under certain circumstances, could require a write-down of the value of such investments.

Dominion’s exploration and production business is dependent on factors including commodity prices that cannot be predicted or controlled. Dominion’s exploration and production business is subject to numerous risks beyond its control. These factors include fluctuations in natural gas and crude oil prices, results of future drilling and well completion activities, Dominion’s ability to acquire additional land positions in competitive lease areas, and operational risks that are inherent in the exploration and production business and could result in disruption of production. In addition, in connection with the use of financial derivatives to hedge future sales of gas and oil production, Dominion’s liquidity may sometimes be affected by margin requirements. Under these requirements, Dominion must deposit funds with counterparties to cover the fair value of covered contracts in excess of agreed-upon credit limits. Some of these factors could have compounding effects that could also affect Dominion’s financial results. Also, because Dominion follows the full cost method of accounting for gas and oil exploration and production activities prescribed by the Securities and Exchange Commission (SEC), short-term market declines in the prices of natural gas and oil could adversely affect its financial results. Under the full cost method, all direct costs of property acquisition, exploration and development activities are capitalized. The principal limitation is that these capitalized amounts may not exceed the present value of estimated future net revenues based on hedge-adjusted period-end prices from the production of proved gas and oil reserves (the ceiling test). If net capitalized costs exceed the ceiling test, in a given country, at the end of any quarterly period, then a permanent write-down of the assets must be recognized in that period.

An inability to access financial markets could affect the execution of Dominion’s business plan. Dominion relies on access to both short-term money markets and longer-term capital markets as a significant source of liquidity for capital requirements not satisfied by the cash flows from its operations. Management believes that Dominion and its subsidiaries will maintain sufficient access to these financial markets based upon current credit ratings. However, certain disruptions outside of Dominion’s control may increase its cost of borrowing or restrict its ability to access one or more financial markets. Such disruptions could include an economic downturn, the bankruptcy of an unrelated energy company or changes to Dominion’s credit ratings. Restrictions on Dominion’s ability to access financial markets may affect its ability to execute its business plan as scheduled.

Changing rating agency requirements could negatively affect Dominion’s growth and business strategy. As of March 1, 2003, Dominion’s senior unsecured debt is rated BBB+, stable outlook, by Standard & Poor’s Rating Group, a division of the McGraw-Hill Companies, Inc. (Standard & Poor’s) and Baa1, negative outlook, by Moody’s Investor Service (Moody’s). Both agencies have recently implemented more stringent applications of the financial requirements for various ratings levels. In order to maintain its current credit

ratings in light of these or future new requirements, Dominion may find it necessary to take steps or change its business plans in ways that may adversely affect its growth and earnings per share. A reduction in Dominion’s credit ratings by either Standard & Poor’s or Moody’s could increase its borrowing costs and adversely affect operating results.

Potential changes in accounting practices may adversely affect Dominion’s financial results. Dominion cannot predict the impact of future changes in accounting regulations or practices in general with respect to public companies, the energy industry or its operations specifically. New accounting standards could be issued by the Financial Accounting Standards Board (FASB) or the SEC that could change the way Dominion records revenues, expenses, assets and liabilities. These changes in accounting standards could adversely affect Dominion’s reported earnings or increase its liabilities.

Operating Segments

In general, management’s discussion of Dominion’s results of operations focuses on the contributions of its operating segments. However, the discussion of Dominion’s financial condition under Liquidity and Capital Resources is based on legal entities as Dominion transacts business in the financial markets on that basis. Dominion’s three primary operating segments are:

Dominion Energy manages Dominion’s generation portfolio, consisting primarily of generating units and power purchase agreements. It also manages Dominion’s energy trading and marketing, hedging and arbitrage activities; and gas pipeline and certain gas production and storage operations. Dominion Energy’s operating results largely reflect: the impact of weather on demand for electricity; customer growth as influenced by overall economic conditions and acquisitions; and changes in prices of commodities, primarily electricity and natural gas, that the segment actively markets and trades, uses for hedging purposes, and consumes in generation activities. Effective January 1, 2003, Dominion’s electric transmission operations became a part of Dominion Energy.

Dominion Delivery manages Dominion’s electric and gas distribution systems, as well as customer service and electric transmission functions. Dominion Delivery’s operating results reflect the impact of weather on demand for electricity and natural gas and customer growth as influenced by overall economic conditions. Dominion Delivery’s electric and gas businesses are subject to cost-of-service rate regulation; changes in prices of commodities consumed or delivered are generally recoverable in rates charged to customers. However, certain rates may be subject to price caps, limiting recovery of higher costs in certain circumstances. Dominion Delivery also includes Dominion’s interest in Dominion Fiber Ventures LLC (DFV), a telecommunications joint venture. See Note 30 for a discussion of Dominion’s consolidation of DFV beginning in February 2003. Effective January 1, 2003, Dominion’s electric transmission operations became a part of the Dominion Energy operating segment.

Dominion Exploration & Production manages Dominion’s onshore and offshore gas and oil exploration, development and production operations. They are located in several major producing basins in the lower 48 states, including the outer continental shelf and deep-water areas of the Gulf of Mexico, and Western Canada. Dominion Exploration & Production’s operating results reflect successful discovery of and production from natural gas and oil reserves, as well as changes in prices of natural gas and oil. Dominion Exploration & Production’s commodity risk is managed by the Dominion Energy Clearinghouse (the Clearinghouse) by using derivative instruments, such as forwards, swaps, and options.

In addition, Dominion also presents its corporate functions, financial services and other operations as an operating segment.

For more information on Dominion’s segments, see Note 32 to the Consolidated Financial Statements.

Critical Accounting Policies

Dominion has identified the following accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to its financial condition or results of operations under different conditions or using different assumptions.

Accounting for risk management and energy trading contracts at fair value —Dominion uses derivative instruments to manage its commodity and financial market risks. In addition, Dominion purchases and sells commodity-based contracts in the natural gas, electricity and oil markets for trading purposes. Accounting requirements for derivatives and hedging activities are complex; interpretation of these requirements by standard-setting bodies is ongoing. All derivatives, other than specific exceptions, are reported on the Consolidated Balance Sheets at fair value, beginning in 2001. Energy trading contracts are also reported on the Consolidated Balance Sheets at fair value. Changes in fair value, except those related to derivative instruments designated as cash flow hedges, are generally included in the determination of Dominion’s net income at each financial reporting date until the contracts are ultimately settled. The measurement of fair value is based on actively quoted market prices, if available. In their absence, Dominion seeks indicative price information from external sources, including broker quotes and industry publications. If pricing information from external sources is

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

not available, measurement involves judgment and estimates. These estimates are based on valuation methodologies deemed appropriate by Dominion management. For individual contracts, the use of different assumptions could have a material effect on the contract’s estimated fair value. In addition, for hedges of forecasted transactions, Dominion must estimate the expected future cash flows of the forecasted transactions, as well as evaluate the probability of occurrence and timing of such transactions. Changes in conditions or the occurrence of unforeseen events could affect the timing of recognition of changes in fair value of certain hedging derivatives. See Selected Information — Energy Trading Activities and Market Rate Sensitive Instruments and Risk Management in MD&A and Notes 2, 4 and 15 to the Consolidated Financial Statements.

Accounting for gas and oil operations —Dominion follows the full cost method of accounting for gas and oil exploration and production activities prescribed by the SEC. Under the full cost method, all direct costs of property acquisition, exploration and development activities are capitalized and subsequently depreciated using a unit-of-production method. The depreciable base of costs includes estimated future costs to be incurred in developing proved gas and oil reserves, as well as dismantlement and abandonment costs, net of projected salvage values. The calculations under this accounting method are dependent on engineering estimates of proved reserve quantities and estimates of the amount and timing of future expenditures to develop the proved reserves. Proved reserves, and the cash flows related to these reserves, are estimated based on a combination of historical data and estimates of future activity. Actual reserve quantities and development expenditures may differ from the forecasted amounts. In addition, Dominion has significant investments in unproved properties, which are initially excluded from the depreciable base. Until the properties are evaluated, a ratable portion of the capitalized costs is periodically reclassified to the depreciable base, determined on a property-by-property basis, over terms of underlying leases. Once a property has been evaluated, any remaining capitalized costs are then transferred to the depreciable base. Capitalized costs in the depreciable base are subject to a ceiling test prescribed by the SEC. The test limits capitalized amounts to a ceiling—the present value of estimated future net revenues to be derived from the production of proved gas and oil reserves. Dominion performs the test quarterly, on a country-by-country basis, and would recognize asset impairments to the extent that total capitalized costs exceed the ceiling. Any impairment of excess gas and oil property costs over the ceiling is charged to operations. Given the volatility of natural gas and oil prices, it is possible that Dominion’s estimate of discounted future net cash flows from proved natural gas and oil reserves could change in the near term. If natural gas or oil prices decline, even if for only a short period, or if Dominion revises its estimated proved reserves downward, recognition of natural gas and oil property impairments could occur in the future. See Notes 2 and 33 to the Consolidated Financial Statements.

Use of estimates in impairment testing — Dominion is required to test at least annually its goodwill for potential impairment. As part of that test, Dominion is required to determine the fair value of its reporting units. Dominion produces this estimate by using discounted cash flow analyses and other valuation techniques based on multiples of earnings for peer group companies, as well as analyses of recent business combinations involving peer group companies. These calculations are dependent on many subjective factors, including the selection of appropriate discount and growth rates, the selection of peer group companies and recent transactions and management’s estimate of future cash flows. The cash flow estimates used by Dominion are based on the best information available at the time the estimates are made. However, estimates of future cash flows are highly uncertain by nature and may vary significantly from actual results.

Dominion performed the transitional impairment test upon adoption of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets , as of January 1, 2002 and its annual test later in the year. The fair value of each of Dominion’s reporting units exceeded the related carrying amounts, resulting in no impairment. The underlying assumptions and estimates involved in preparing these fair value calculations could change significantly from period to period. If Dominion’s estimates of the fair value of its reporting units are substantially reduced, impairment may be indicated and Dominion would be required to perform the second step of the goodwill impairment test. That step measures the amount of impairment, if any, and requires the further use of fair value estimates. A goodwill impairment charge would result in a charge to earnings, with a corresponding reduction of the carrying amount of goodwill on the balance sheet. Dominion had $4.3 billion and $4.2 billion of goodwill at December 31, 2002 and 2001, respectively. See Notes 2 and 18 to the Consolidated Financial Statements for further discussion of goodwill impairment tests.

Impairment testing for long-lived assets and intangible assets with definite lives is required when circumstances indicate that such assets may be impaired. In performing the impairment test, Dominion would estimate the future cash flows associated with individual assets or groups of assets. Impairment results when the undiscounted estimated future cash flows are less than the related asset’s carrying amount. If

impaired, the asset must be written down to its fair value, which is generally calculated using the present value of its expected future net cash flows, using an appropriate discount rate. Although cash flow estimates used by Dominion are based on the best information available at the time the estimates are made, estimates of future cash flows are by nature highly uncertain and may vary significantly from actual results.

Accounting for retained interests from securitizations— Securitizations involve selling loans to qualifying unconsolidated trusts in exchange for cash and retained interests. Retained interests may include unsecured debt of the trust or retained interests in the transferred loans. Dominion holds retained interests from mortgage and commercial loans securitized in prior years and classifies them as available-for-sale investments, carried on the Consolidated Balance Sheets at fair value. Quarterly, Dominion evaluates the key assumptions relating to valuing the retained interests. Those key assumptions include loan prepayment speeds, credit losses, forward yield curves and discount rates. Using a published forward yield curve, cash flows, net of adjustments for expected credit losses and loan prepayments, are discounted to determine the estimated fair value of the retained interests. Loan prepayments speeds and credit loss assumptions are based on actual historical results and future estimates. The discount rate is risk adjusted and is periodically compared to industry averages and recent or similar transactions for reasonableness. Changes in interest rates will result in a change in the forward yield curve and can result in a change in the assumed amount of loan prepayments. Changes in general economic conditions may impact actual credit losses, thus impacting the credit loss assumption used in Dominion’s quarterly evaluation. Income from the residual interests is reported as other revenue. As discussed in Note 9 to the Consolidated Financial Statements, during 2002, 2001 and 2000, Dominion made changes to these key assumptions, resulting in impairment charges for those years. See also Notes 2 and 13 to the Consolidated Financial Statements for additional discussion of securitizations and retained interests and a sensitivity analysis of key assumptions.

Accounting for regulated operations —Methods of allocating costs to accounting periods for operations subject to federal or state cost-of-service rate regulation may differ from accounting methods generally applied by nonregulated companies. When the timing of cost recovery prescribed by regulatory authorities differs from the timing of expense recognition used for accounting purposes, Dominion’s Consolidated Financial Statements may recognize a regulatory asset for expenditures that otherwise would be expensed. Regulatory assets represent probable future revenue associated with certain costs that will be recovered from customers through rates. Regulatory liabilities represent probable future reductions in revenue associated with expected customer credits through rates. Management makes assumptions regarding the probability of regulatory asset recovery through future rates approved by applicable regulatory authorities. The expectations of future recovery are generally based upon historical experience, as well as discussions with applicable regulatory authorities. If recovery of regulatory assets is determined to be less than probable, they would be expensed in the period such assessment is made. See Notes 2 and 19 to the Consolidated Financial Statements.

Results of Operations

Dominion’s discussion of its results of operations includes a tabular summary of contributions by its operating segments to net income and diluted earnings per share, an overview of 2002 and 2001 results of operations for consolidated Dominion, as well as a more detailed discussion of operating segment results of operations.

	2002						2001						2000

(millions, except per share amounts)	Net Income			EPS			Net Income			EPS			Net Income			EPS


Dominion Energy	$	770		$	2.72		$	723		$	2.86		$	489		$	2.07
Dominion Delivery		455			1.61			366			1.45			339			1.43
Dominion E&P		380			1.34			320			1.27			255			1.08

Net income contribution—operating segments		1,605			5.67			1,409			5.58			1,083			4.58
Corporate and Other		(243	)		(0.85	)		(865	)		(3.43	)		(647	)		(2.73	)

Total—Consolidated Dominion	$	1,362		$	4.82		$	544		$	2.15		$	436		$	1.85

Consolidated operating revenue	$	10,218					$	10,558					$	9,246
Consolidated operating expense	$	7,333					$	8,773					$	7,731

Overview of Consolidated Operating Results—2002

Dominion earned $4.82 per diluted share on net income of $1.36 billion in 2002, an increase of $818 million and $2.67 per diluted share over 2001. The increase includes higher net income contributions by all operating segments, partially offset by approximately $0.57 of share dilution, reflecting a substantial increase in the number of average common shares outstanding during 2002. In addition, Dominion recognized fewer specific charges in 2002, as described in Corporate and Other segment results below.

Regulated electric sales and non-regulated retail energy sales increased as a result of favorable weather conditions and growth in customer base. Nonregulated electric sales by Dominion’s merchant generation fleet declined primarily due to lower electricity prices, partially offset by sales from recently acquired and constructed assets. Sales of gas and oil production increased as a result of higher production levels, reflecting Dominion’s ongoing drilling programs, the operations of Louis Dreyfus Natural Gas Corp. (Louis Dreyfus), partially offset by natural production declines and by lower average realized prices for gas and oil, including the

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

effects of hedging. Overall, net revenue from Dominion’s energy trading operations decreased for 2002. Gas trading activities contributed less for 2002, reflecting the effects of net unfavorable price changes on unsettled contracts and lower trading margins, partially offset by higher overall trading volumes. Electric trading activities increased for 2002, reflecting favorable price changes on unsettled contracts and higher trading margins. Energy trading operations are discussed in more detail as part of the Dominion Energy segment results of operations.

In addition to the contributions by its operating segments, the discontinuance of goodwill amortization resulted in a $95 million increase in net income. During 2002, Dominion did not recognize any significant specific charges, as compared to 2001 when those charges totaled $797 million, as described in the Corporate and Other segment results. Interest and related charges decreased $52 million, reflecting lower overall interest rates on outstanding debt, partially offset by interest on new issues of debt and distributions on trust preferred securities issued in late 2001 and during 2002. Dominion’s effective income tax rate decreased, reflecting the net $33 million effect of including certain subsidiaries in Dominion’s consolidated state income tax returns. In addition, the effective tax rate decreased for foreign earnings, the discontinuance of goodwill amortization for book purposes and other factors.

Overview of Consolidated Operating Results—2001

Dominion earned $2.15 per diluted share on net income of $544 million in 2001, an increase of $108 million and $0.30 per diluted share over 2000. The increase includes higher net income contributions by all operating segments, partially offset by a higher number of specific charges in 2001 as compared to 2000, as discussed in Corporate and Other segment results below.

The increase in results for Dominion’s operating segments for 2001 reflect the operations of businesses acquired during the year. Dominion acquired Millstone Power Station (Millstone) on March 31, 2001. Its operations contributed significantly to the increase in nonregulated electric sales. Regulated gas sales, nonregulated gas sales and gas and oil production revenue increased as Consolidated Natural Gas Company’s (CNG) operations were included for all of 2001. In addition, 2001 gas and oil production results reflected the inclusion of Louis Dreyfus for two months as well as higher realized prices for gas. Dominion’s energy trading operations, recorded as nonregulated gas and electric sales, net of cost of sales, also contributed to the overall operating revenue increase.

The increase in net income contribution by the segments’ operations was partially offset by a higher-level of specific charges in 2001, as compared to 2000, as described in the discussion of the Corporate and Other segment results. Such charges for 2001 and 2000 totaled $797 million and $579 million, respectively. Interest expense and related charges decreased $27 million, reflecting lower overall interest rates on outstanding debt. Dominion’s effective income tax rate increased and its other taxes decreased in 2001 because its utility operations in Virginia became subject to state income taxes in lieu of gross receipts taxes effective January 2001. In addition, Dominion recognized higher effective rates for foreign earnings and higher pretax income in relation to non-conventional fuel tax credits realized.

Dominion Energy

(millions, except per share amounts)	2002		2001		2000

Operating revenue	$	5,940	$	6,144	$	4,894
Operating expenses		4,520		4,749		3,939
Net income contribution		770		723		489
Earnings per share contribution	$	2.72	$	2.86	$	2.07

Electricity supplied* (million mwhrs)		101		95		83
Gas transmission throughput (bcf)		597		553		567

Amounts presented are for electricity supplied by utility and merchant generation operations.

Operating Results—2002

Dominion Energy contributed $2.72 per diluted share on net income of $770 million for 2002, a net income increase of $47 million and an earnings per share decrease of $0.14 over 2001. Net income for 2002 reflected lower operating revenue ($204 million), operating expenses ($229 million) and other income ($27 million). Interest expense and income taxes, which are discussed on a consolidated basis, decreased $50 million over 2001. The earnings per share decrease reflected share dilution.

Regulated electric sales revenue increased $179 million. Favorable weather conditions, reflecting increased cooling and heating degree-days, as well as customer growth, are estimated to have contributed $133 million and $41 million, respectively. Fuel rate recoveries increased approximately $65 million for 2002. These recoveries are generally offset by increases in electric fuel expense and do not materially affect income. Partially offsetting these increases was a net decrease of $60 million due to other factors not separately measurable, such as the impact of economic conditions on customer usage, as well as variations in seasonal rate premiums and discounts.

Nonregulated electric sales revenue increased $9 million. Sales revenue from Dominion’s merchant generation fleet decreased $21 million, reflecting a $201 million decline due to lower prices partially offset by sales from assets acquired and constructed in 2002 and the inclusion of Millstone operations for all of 2002. Revenue from the wholesale marketing of utility generation decreased $74 million. Due to the higher

demand of utility service territory customers during 2002, less production from utility plant generation was available for profitable sale in the wholesale market. Revenue from retail energy sales increased $71 million, reflecting primarily customer growth over the prior year. Net revenue from Dominion’s electric trading activities increased $33 million, reflecting the effect of favorable price changes on unsettled contracts and higher trading margins.

Nonregulated gas sales revenue decreased $351 million. The decrease included a $239 million decrease in sales by Dominion’s field services and retail energy marketing operations, reflecting to a large extent declining prices. Revenue associated with gas trading operations, net of related cost of sales, decreased $112 million. The decrease included $70 million of realized and unrealized losses on the economic hedges of natural gas production by the Dominion Exploration & Production segment. As described below under Selected Information—Energy Trading Activities, sales of natural gas by the Dominion Exploration & Production segment at market prices offset these financial losses, resulting in a range of prices contemplated by Dominion’s overall risk management strategy. The remaining $42 million decrease was due to unfavorable price changes on unsettled contracts and lower overall trading margins. Those losses were partially offset by contributions from higher trading volumes in gas and oil markets.

Gas transportation and storage revenue decreased $44 million, primarily reflecting lower rates.

Electric fuel and energy purchases expense increased $94 million which included an increase of $66 million associated with Dominion’s energy marketing operations that are not subject to cost-based rate regulation and an increase of $28 million associated with utility operations. Substantially all of the increase associated with non-regulated energy marketing operations related to higher volumes purchased during the year. For utility operations, energy costs increased $66 million for purchases subject to rate recovery, partially offset by a $38 million decrease in fuel expenses associated with lower wholesale marketing of utility plant generation.

Purchased gas expense decreased $245 million associated with Dominion’s field services and retail energy marketing operations. This decrease reflected approximately $162 million associated with declining prices and $83 million associated with lower purchased volumes.

Liquids, pipeline capacity and other purchases decreased $64 million, primarily reflecting comparably lower levels of rate recoveries of certain costs of transmission operations in the current year period. The difference between actual expenses and amounts recovered in the period are deferred pending future rate adjustments.

Other operations and maintenance expense decreased $14 million, primarily reflecting an $18 million decrease in outage costs due to fewer generation unit outages in the current year.

Depreciation expense decreased $11 million, reflecting decreases in depreciation associated with changes in the estimated useful lives of certain electric generation property, partially offset by increased depreciation associated with State Line and Millstone operations.

Other income decreased $27 million, including a $14 million decrease in net realized investment gains in the Millstone decommissioning trusts. In addition, the decrease included a $12 million decline in equity income from Elwood Energy, an equity method investment, reflecting higher interest expense due to the issuance of additional debt by that company in 2002.

Operating Results—2001

Dominion Energy contributed $2.86 per diluted share on net income of $723 million for 2001, an increase of $234 million and $0.79 per diluted share over 2000 results. The increase in net income reflected a full year of CNG operations in 2001, the acquisition of Millstone and reductions in certain operating expenses.

Operating revenue increased $1.3 billion to $6.1 billion in 2001, as compared to 2000 reflecting the acquisition of Millstone and a full year of CNG operations for 2001. Regulated electric sales for 2001 reflected customer growth and comparatively higher fuel rates; however, these increases were largely offset by comparatively mild weather. Millstone operations largely contributed to the increase in non-regulated electric sales. Non-regulated gas sales and gas transportation and storage revenue increased, reflecting a full year of CNG operations and increased transportation rates. The results of Dominion’s trading and marketing operations contributed to the overall increase in operating revenue.

Operating expenses increased $810 million to $4.7 billion for 2001, as compared to 2000. Higher commodity prices contributed to increased electric fuel and energy purchases and purchased gas. In addition, purchased gas increased, reflecting CNG operations for the entirety of 2001. Depreciation increased overall due to the inclusion of Millstone. This increase was partially offset by an extension of the estimated useful lives of Dominion’s nuclear plants in connection with the expected relicensing of those plants. This change in estimate resulted in a $78 million decrease in depreciation expense. Purchased capacity decreased as Dominion terminated certain contracts in early 2001. Other operations and maintenance increased due to the inclusion of Millstone operations and scheduled outages at both nuclear and fossil plants.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

Selected Information—Energy Trading Activities

As previously described, Dominion Energy manages Dominion’s energy trading, hedging and arbitrage activities through the Clearinghouse. Dominion believes these operations complement its integrated energy businesses and facilitate its risk management activities. As part of these operations, the Clearinghouse enters into contracts for purchases and sales of energy-related commodities, including natural gas, electricity and oil. Settlement of a contract may require physical delivery of the underlying commodity or, in some cases, an exchange of cash. These contracts are classified as energy trading contracts for financial accounting purposes. The contracts are included in the Consolidated Balance Sheets as components of current and non-current derivative and energy trading assets and liabilities. Gains and losses from energy trading contracts, including both realized and unrealized amounts, are reported net in the Consolidated Statements of Income as revenue.

In accordance with generally accepted accounting principles, Dominion reports energy trading contracts in its financial statements at fair value. A discussion of how Dominion determines fair value for its energy trading contracts, can be found in Critical Accounting Policies presented earlier in MD&A.

The Clearinghouse enters into contracts with the objective of benefiting from changes in the prices of energy commodities. Clearinghouse management continually monitors its contract positions, considering location and timing of delivery or settlement for each energy commodity in relation to market price activity, seeking arbitrage opportunities. For example, after entering into a contract to purchase a commodity, the Clearinghouse typically enters into a sales contract, or a combination of sales contracts, with quantities and delivery or settlement terms that are identical or very similar to those of the purchase contract. When the purchase and sales contracts are settled either by physical delivery of the underlying commodity or by net cash settlement, the Clearinghouse may receive a net cash margin (a realized gain), or sometimes will pay a net cash margin (a realized loss).

Until the contracts are settled, however, Dominion must record the changes in the fair value of both contracts. These changes in fair value represent unrealized gains and losses. To the extent purchase and sales contracts with identical or similar terms are held by the Clearinghouse, the changes in their fair values will generally offset one another. Although the Clearinghouse may hold purchase or sales contracts for delivery of commodities at particular locations and times that have not been offset, such exposures are monitored and actively managed on a daily basis. Dominion’s risk management policies and procedures are designed to limit its exposure to commodity price changes.

Additional discussion can be found in Market Rate Sensitive Instruments and Risk Management and Notes 2, 15 and 29 to the Consolidated Financial Statements. Also, see Note 4 to the Consolidated Financial Statements for a discussion of Dominion’s implementation of new accounting requirements effective January 1, 2003 to reflect the decision of the Emerging Issues Task Force (EITF) in Issue No. 02-3, Issues Involved in Accounting for Contracts under Issue No. 98-10 . As a result, some energy-related contracts are no longer subject to fair value accounting.

During 2002, the Clearinghouse also held derivative financial contracts to manage the price risk of certain anticipated sales of Dominion Exploration & Production’s 2002 and 2003 natural gas production (economic hedges). Dominion did not designate these derivatives as hedges for accounting purposes and, as a result, any change in the fair value of these derivatives is included in earnings. During 2002, Dominion Energy recognized a loss of $48 million related to the 2002 economic hedges, representing $43 million from contract settlements and $5 million for the reversal of unrealized gains that existed at December 31, 2001. In addition, Dominion Energy recognized $22 million of unrealized losses in 2002 related to the change in the fair value of the 2003 economic hedges. As anticipated, Dominion Exploration & Production sold sufficient volumes of natural gas in 2002 at market prices, which, when combined with the settlement of the 2002 economic hedges, resulted in a range of prices for those sales contemplated by the risk management strategy. Similarly, Dominion expects the combination of anticipated gas sales and the 2003 economic hedges to result in a range of prices for those sales as contemplated by this risk management strategy in 2003.

A summary of the changes in the unrealized gains and losses in Dominion’s energy trading contracts, including the economic hedges described above, during 2002 follows:

(millions)	Energy Trading Contracts


Net unrealized gain at December 31, 2001	$	165
Contracts realized or otherwise settled during the period		(40	)
Net unrealized gain at inception of contracts initiated during the period		39
Changes in valuation techniques		6
Other changes in fair value		—

Net unrealized gain at December 31, 2002	$	170

The balance of net unrealized gains and losses in Dominion’s energy trading contracts, including the economic hedges discussed above, at December 31, 2002 is summarized

in the following table based on the approach used to determine fair value and the contract settlement or delivery dates:

(millions)	Maturity Based on Contract Settlement or Delivery Date(s)

Source of Fair Value	Less Than 1 Year		1-2 Years		2-3 Years		3-5 Years		In Excess of 5 Years		Total

Actively quoted ⁽¹⁾	$	8	$	15	$	13					$	36
Other external sources ⁽²⁾				19		13	$	13	$	8		53
Models and other valuation techniques ⁽³⁾		19		15		14		10		23		81

Total	$	27	$	49	$	40	$	23	$	31	$	170

⁽¹⁾

Exchange-traded and over-the-counter contracts.

⁽²⁾

Values based on prices from over-the-counter broker activity and industry services and, where applicable, conventional option pricing models.

⁽³⁾

Values based on Dominion’s estimate of future commodity prices when information from external sources is not available and use of internally-developed models, reflecting option pricing theory, discounted cash flow concepts, etc.

Dominion Delivery

(millions, except per share amounts)	2002		2001		2000

Operating revenue	$	2,552	$	2,963	$	2,826
Operating expenses		1,653		2,202		2,123
Net income contribution		455		366		339
Earnings per share contribution	$	1.61	$	1.45	$	1.43

Electricity delivered (million mwhrs)		75		72		74
Gas throughput (mmcf)		364		357		356

Operating Results—2002

Dominion Delivery contributed $1.61 per diluted share on net income of $455 million for 2002, an increase of $89 million and $0.16 per diluted share over 2001. Net income for 2002 reflected lower operating revenue ($411 million), operating expenses ($549 million) and other income ($37 million). Changes in interest and income taxes, which are discussed on a consolidated basis, were not significant.

Regulated electric sales revenue increased $58 million. Favorable weather conditions, reflecting increased cooling and heating degree-days, as well as customer growth, are estimated to have contributed $62 million and $19 million, respectively. Partially offsetting these increases was a net decrease of $23 million due to other factors not separately measurable, such as the impact of economic conditions on customer usage, as well as variations in seasonal rate premiums and discounts.

Regulated gas sales revenue decreased $533 million, reflecting $550 million for lower gas cost recoveries attributable to lower prices and customer migration, partially offset by the impact of slightly colder weather and other factors. The decrease was substantially offset by a $489 million decrease in purchased gas expense, reflecting the matching of purchased gas costs and gas cost recoveries in rates, and increased gas transportation service revenue.

Gas transportation and storage revenue increased $36 million, primarily reflecting the shift of customer status from regulated gas sales to gas transportation service in connection with the switch by distribution customers to other natural gas suppliers. The migration of customers does not generally affect net income, as the recognition of the cost of gas delivered for regulated gas sales customers is matched against rate recoveries.

Other operations and maintenance expense decreased $50 million, primarily reflecting lower general and administrative expenses.

Depreciation decreased $11 million as a result of changes in the estimated useful lives of electric distribution assets.

Other income decreased $37 million, reflecting to a large extent a $27 million increase in equity losses on Dominion’s telecommunications joint venture. The increased losses reflected lower revenue and increased operating expenses resulting from the expansion into several new markets in 2002. See Notes 30 and 32 to the Consolidated Financial Statements.

Operating Results—2001

Dominion Delivery contributed $1.45 per diluted share on net income of $366 million for 2001, an increase of $27 million and $0.02 per diluted share over 2000 results. The increase in net income reflects slightly higher gas throughput and slightly lower volumes of electricity delivered, as well as overall higher gas and electric rates.

Operating revenue increased $137 million to $3.0 billion for 2001, reflecting a full year of CNG operations for 2001. This is reflected in higher regulated gas sales and gas transportation and storage revenue as a result of higher overall throughput and rates. Regulated electric sales for 2001 reflect customer growth and comparatively higher fuel rates, partially offset by the effect of comparatively milder weather.

Operating expenses increased $79 million to $2.2 billion for 2001. Higher prices for commodities delivered or consumed contributed to increased purchased gas expense. In addition, purchased gas increased, as 2000 amounts only included 11 months of CNG operations.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

Dominion Exploration & Production

(millions, except per share amounts)	2002		2001		2000

Operating revenue	$	1,719	$	1,460	$	1,330
Operating expenses		1,111		934		920
Net income contribution		380		320		255
Earnings per share contribution	$	1.34	$	1.27	$	1.08

Gas production (bcf)		385		283		258
Oil production (million bbls)		10		7		8

Average realized prices with hedging results: ⁽¹⁾
Gas (per mcf)	$	3.40	$	3.80	$	3.07
Oil (per bbl)		23.28		23.42		22.26
Average prices without hedging results:
Gas (per mcf)		3.03		3.87		3.70
Oil (per bbl)	$	24.44	$	23.53	$	23.98

⁽¹⁾

Average realized prices with hedging results do not include the financial losses incurred on the economic hedges which are reported in and discussed as part of the operating results of the Dominion Energy segment.

Operating Results—2002

Dominion Exploration & Production contributed $1.34 per diluted share on net income of $380 million, an increase of $60 million and $0.07 per diluted share over 2001.

Operating revenue increased $259 million to $1.7 billion for 2002, reflecting higher overall production as a result of the full year operations of Louis Dreyfus and Dominion’s ongoing drilling programs, partially offset by natural production declines. Average realized gas and oil prices, including the effects of hedging, decreased for the comparative years.

Operating expenses increased $177 million to $1.1 billion for 2002, and reflect primarily the impact of including Louis Dreyfus operations in 2002. The increase includes an increase in depreciation, depletion and amortization expense of $138 million in connection with the higher levels of production noted above, partially offset by lower depletion rates due primarily to the inclusion of properties from the Louis Dreyfus acquisition.

Operating Results—2001

Dominion Exploration & Production contributed $1.27 per diluted share on net income of $320 million, an increase of $65 million and $0.19 per diluted share, as compared to 2000 results. Operating revenue increased $130 million to $1.5 billion for 2001, reflecting a full year of CNG operations for 2001, two months of Louis Dreyfus operations and higher average realized gas and oil prices. The production increases reflect the addition of Louis Dreyfus operations in the fourth quarter of 2001, offset somewhat by natural declines at certain Dominion gas and oil production properties.

Operating expenses increased $14 million to $934 million for 2001, as compared to 2000, and include the acquisition of Louis Dreyfus in the fourth quarter of 2001, as well as higher operations and maintenance expenses associated with service industry and contractor costs. Purchases of gas and oil for brokered sales decreased in 2001.

Corporate and Other

(millions, except per share amounts)	2002			2001			2000

Net loss	$	(243	)	$	(865	)	$	(647	)
Earnings per share impact	$	(0.85	)	$	(3.43	)	$	(2.73	)

Operating Results—2002

The net loss associated with corporate and other operations for 2002 was $243 million and $(0.85) per diluted share, a decrease of $622 million and $2.58 per diluted share over 2001. The decrease in net loss reflected higher operating expenses for 2001 as a result of specific charges described in Operating Results—2001 below. In addition, the decreased net loss for 2002 included an $88 million decrease in operating expenses, due to the discontinuance of goodwill amortization.

Operating Results—2001

The net loss associated with corporate and other operations for 2001 was $865 million and $(3.43) per diluted share, an increase of $218 million and $0.70 per diluted share over 2000. These results reflect comparatively higher operating expenses for 2001 that included the following specific items, which are discussed in Notes 6, 8, 9, 15 and 27 to the Consolidated Financial Statements:

n a $105 million charge for restructuring activities, including employee severance and termination benefits and costs associated with the termination of leases;

n a $281 million charge, reported in other operations and maintenance expense, for the impairment of various DCI investments;

n a $151 million charge for credit exposure associated with the bankruptcy of Enron;

n a $220 million charge, reported in operations and maintenance expense, related to the termination of certain long-term power purchase contracts; and

n a $40 million loss on the sale of Saxon Capital, reported in other operations and maintenance expense.

Charges in 2000 included restructuring and acquisition-related charges of $460 million and DCI impairments of $119 million. These charges were partially offset by the cumulative effect of an accounting change of $21 million. These items are discussed in Notes 3, 8 and 9 to the Consolidated Financial Statements.

Liquidity and Capital Resources

Dominion and its subsidiaries depend on both internal and external sources of liquidity to provide working capital and to fund capital requirements. Short-term cash requirements not met by cash provided by operating activities are generally satisfied with proceeds from short-term borrowings. Long-term cash needs are met through sales of securities and additional long-term debt financing.

Internal Sources of Liquidity

As presented on Dominion’s Consolidated Statements of Cash Flows, net cash flows from operating activities were $2.4 billion, $2.4 billion and $1.3 billion for the years ended December 31, 2002, 2001 and 2000, respectively. Dominion’s management believes that its operations provide a stable source of cash flow sufficient to contribute to planned levels of capital expenditures and maintain current shareholder dividend levels. As noted above, Dominion uses a combination of debt and equity securities to fund capital requirements not covered by the timing or amounts of operating cash flows. As discussed under Credit Ratings and Cash Requirements for Planned Capital Expenditures below, Dominion is taking steps to improve its financial position in response to current credit rating requirements. As a result of these measures, Dominion may choose to postpone or cancel certain planned capital expenditures, to the extent they are not fully covered by operating cash flows. Dominion would do this in order to mitigate the need for future debt financings, beyond those needed to cover normal maturities and redemptions.

Dominion’s operations are subject to risks and uncertainties that may negatively impact cash flows from operations. Such risks and uncertainties include, but are not limited to, the following:

n unusual weather and its effect on energy sales to customers and energy commodity prices;

n extreme weather events that could disrupt offshore gas and oil production or cause catastrophic damage to Dominion’s electric distribution and transmission systems;

n exposure to unanticipated changes in prices for energy commodities purchased or sold, including the effect on derivative instruments that may require the use of funds to post margin deposits with counterparties;

n effectiveness of Dominion’s risk management activities and underlying assessment of market conditions and related factors, including energy commodity prices, basis, liquidity, volatility, counterparty credit risk, availability of generation and transmission capacity, currency exchange rates and interest rates;

n the cost of replacement electric energy in the event of longer-than-expected or unscheduled generation outages;

n contractual or regulatory restrictions on transfers of funds among Dominion and its subsidiaries; and

n timeliness of recovery for costs subject to cost-of-service utility rate regulation.

External Sources of Liquidity

Dominion Resources, Inc., Virginia Electric and Power Company (Virginia Power) and CNG (collectively the Dominion Companies) rely on bank and capital markets as a significant source of funding for capital requirements not satisfied by cash provided by the companies’ operations. As discussed further in the Credit Ratings section below, the Dominion Companies’ ability to borrow funds or issue securities and the return demanded by investors are affected by the issuing company’s credit ratings. In addition, the raising of external capital is subject to certain regulatory approvals, including the SEC and, in the case of Virginia Power, the Virginia State Corporation Commission (Virginia Commission).

During 2002, the Dominion Companies issued long-term debt (net of exchanged debt), trust preferred securities, preferred stock and common stock totaling approximately $4.85 billion. The proceeds were used primarily to repay other debt and to finance capital expenditures.

Credit Facilities and Short-Term Debt

The Dominion Companies use short-term debt, primarily commercial paper, to fund working capital requirements and as bridge financing for acquisitions. The levels of borrowing may vary significantly during the course of the year, depending upon the timing and amount of cash requirements not satisfied by cash from operations. The commercial paper programs are supported by the credit facilities discussed below.

At December 31, 2002, the Dominion Companies had the following short-term debt outstanding and capacity available under credit facilities:

(millions)	Facility Limit		Outstanding Commercial Paper		Outstanding Letters of Credit		Facility Capacity Remaining

364-day revolving joint credit facility	$	1,250
Three-year revolving joint credit facility		750

Total joint credit facilities ⁽¹⁾		2,000	$	1,193	$	106	$	701
CNG credit facility ⁽²⁾		500				500
Cove Point bridge facility ⁽³⁾		250						250

Totals	$	2,750	$	1,193	$	606	$	951

⁽¹⁾

The joint credit facilities support borrowings by the Dominion Companies. The 364-day revolving credit facility terminates in May 2003 and the three-year revolving credit facility terminates in May 2005. Dominion expects to renew the 364-day revolving credit facility prior to its maturity.

⁽²⁾

This credit facility is used to support the issuance of letters of credit and commercial paper by CNG to fund collateral requirements under its gas and oil hedging program. The credit facility terminates in August 2003.

⁽³⁾

Dominion financed its acquisition of Cove Point with commercial paper supported by this facility. The facility terminated on March 5, 2003 and was not renewed.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

Long-Term Debt

During 2002, Dominion Resources, Inc. and its subsidiaries issued the following long-term debt:

Type	Principal		Rate		Maturity		Issuing Company

(millions)
Medium-term notes	$	250	3.875	%	2004		Dominion Resources

Equity-linked debt securities		330	5.75	%	2008		Dominion Resources

Senior notes		1,620	5.125 6.75	%– %	2009 2032	–	Dominion Resources

Senior notes		650	5.375	%	2007		Virginia Power

Medium-term notes ⁽¹⁾		83	5.72	%	2005		Dominion Canada Finance Company

Bankers acceptances ⁽¹⁾		13	3.58	%	2003		Dominion Exploration Canada Ltd.


Total long-term debt issued		2,946

Less direct exchanges ⁽²⁾		(637)


Total long-term debt issued, excluding direct exchanges	$	2,309

⁽¹⁾

Securities are denominated in Canadian dollars but presented here in US dollars, based on exchange rates as of date of issuance.

⁽²⁾

During 2002, Virginia Power redeemed $117 million of 6.75 percent mortgage bonds due 2007 in a direct exchange for 5.375 percent senior notes due 2007. Also during 2002, Dominion redeemed $200 million of 7.40 percent remarketable senior notes and $250 million variable rate remarketable senior notes, both due 2012, in a direct exchange for $520 million 5.70 percent senior notes due 2012. That principal amount was determined by an exchange ratio based on the fair value of the remarketable senior notes. The direct exchanges are discussed in Note 21 to the Consolidated Financial Statements.

In December 2002, Dominion issued $300 million of 5.125 percent senior notes due 2009 and $300 million of 6.75 percent senior notes due 2032. Dominion placed $500 million of proceeds in escrow to be used solely to repay a portion of certain Dominion senior notes maturing in January 2003. The remaining principal amount of the maturing senior notes was repaid through the issuance of additional commercial paper in January 2003.

In February 2003, Dominion Resources issued $300 million of 2.80 percent senior notes due 2005 and $400 million of 4.125 percent senior notes due 2008. Also in February 2003, Dominion Resources issued $500 million of variable rate senior notes due 2013, in a private placement of the securities. In February 2003, Virginia Power issued $400 million of 4.75 percent senior notes due 2013. In March 2003, Dominion issued $300 million of 5.0 percent senior notes due 2013 and $300 million of 6.30 percent senior notes due 2033. The proceeds from these debt issuances were used primarily for Dominion’s tender offering for Dominion Fiber Ventures, LLC senior notes, debt maturities, commercial paper and other general corporate purposes. The acquisition of Dominion Fiber Ventures, LLC senior notes is discussed in MD&A under Off-Balance Sheet Arrangements and Note 30 to the Consolidated Financial Statements.

During 2002, Dominion and its subsidiaries repaid $1.6 billion of long-term debt securities.

Trust Preferred Securities

During 2002, Virginia Power, through a capital trust subsidiary, issued $400 million of 7.375 percent trust preferred securities. The trust preferred securities must be redeemed when the trust’s sole assets, the junior subordinated notes due 2042 issued by Virginia Power, are repaid. Virginia Power used the net proceeds from the sale of trust preferred securities primarily to redeem its variable rate preferred stock as discussed under Preferred Stock below for $250 million and $135 million of 8.05 percent trust preferred securities of Virginia Power Capital Trust I. Trust preferred securities are discussed in Note 22 to the Consolidated Financial Statements.

Preferred Stock

During 2002, Virginia Power issued 1,250 units consisting of 1,000 shares per unit of cumulative preferred stock for $125 million. Proceeds were used for general corporate purposes. The preferred stock has a dividend rate of 5.50 percent until the end of the initial dividend period on December 20, 2007. The dividend rate for subsequent periods will be determined according to periodic auctions. The preferred stock has a liquidation preference of $100 per share plus accumulated and unpaid dividends. During 2002, Virginia Power used the proceeds from the sale of trust preferred securities to redeem its variable rate preferred stock October 1988 Series, June 1989 Series, September 1992A Series, and September 1992B Series for $250 million. Preferred stock is discussed in Note 23 to the Consolidated Financial Statements.

Common Stock

During 2002, Dominion issued 44 million shares of common stock and received proceeds of $2.0 billion. Approximately 38 million shares and proceeds of $1.7 billion resulted from two public offerings. Net proceeds were used for general corporate purposes, principally repayment of debt. The remainder of the shares issued and proceeds received during 2002 occurred through Dominion Direct ^® (a dividend reinvestment and open enrollment direct stock purchase plan), employee savings plans and the exercise of employee stock options. During 2002, Dominion also reacquired approximately one million shares of its common stock for $66 million primarily with proceeds received from the exercise of employee stock options.

Amounts Available under Shelf Registrations

At March 6, 2003, Dominion Resources, Inc., Virginia Power, and CNG had approximately $1.1 billion, $1.3 billion, and $1.5 billion, respectively, of available capacity under currently

effective shelf registrations. Securities that may be issued under these shelf registrations, depending upon the registrant, include senior notes (including medium-term notes), subordinated notes, first and refunding mortgage bonds, trust preferred securities, preferred stock and common stock.

Credit Ratings

Credit ratings are intended to provide banks and capital market participants with a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold securities. Management believes that the current credit ratings of the Dominion Companies provide sufficient access to the capital markets. However, disruptions in the bank and capital markets not specifically related to Dominion may affect the Dominion Companies’ ability to access these funding sources or cause an increase in the return required by investors.

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

Credit ratings for the Dominion Companies as of March 1, 2003 follow:

	Standard & Poor’s	Moody’s

Dominion Resources, Inc.
Senior unsecured debt securities	BBB+	Baa1
Preferred securities of subsidiary trusts	BBB-	Baa2
Commercial paper	A-2	P-2

Virginia Power
Mortgage bonds	A-	A2
Senior unsecured (including tax-exempt) debt securities	BBB+	A3
Preferred securities of subsidiary trust	BBB	Baa1
Preferred stock	BBB	Baa2
Commercial paper	A-2	P-1

CNG
Senior unsecured debt securities	BBB+	A3
Preferred securities of subsidiary trust	BBB-	Baa1
Commercial paper	A-2	P-2

These credit ratings reflect Standard & Poor’s downgrade of its credit ratings for Virginia Power’s debt, preferred securities of subsidiary trusts, preferred stock and commercial paper in October 2002. Based on its conclusions about regulatory insulation in Virginia being no better than other states, Standard & Poor’s concluded that Virginia Power’s ratings should be no more than one-notch above the ratings of its parent, Dominion Resources, Inc. Standard & Poor’s noted that Virginia Power’s downgrade is not reflective of any diminished credit protection measures, as Virginia Power’s credit protection measures on a stand-alone basis remain strong. As of March 1, 2003, Moody’s maintains a negative outlook for its ratings of Dominion Resources, Inc. and CNG.

Generally, a downgrade in an individual company’s credit rating would not restrict its ability to raise short-term and long-term financing so long as its credit rating remains “investment grade,” but it would increase the cost of borrowing. Dominion has been working closely with both Standard & Poor’s and Moody’s with the objective of maintaining its current credit ratings. Recent steps to improve the agencies’ view of Dominion’s financial position include the reduction of planned capital spending and related borrowings, as discussed below, and the issuance of $2.0 billion of common stock during 2002. As discussed in Risk Factors and Cautionary Statements That May Affect Future Results, in order to maintain its current ratings, Dominion may find it necessary to take further steps or change its business plans, and such changes may adversely affect its growth and earnings per share.

Debt Covenants

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

n the timely payment of principal and interest;

n information requirements, including submittal of financial reports filed with the SEC to lenders;

n keeping books and records in accordance with generally accepted accounting principles;

n payment of taxes, maintaining insurance;

n performance obligations, audits/inspections, continuation of the basic nature of business, restrictions on certain matters related to merger or consolidation, restrictions on disposition of substantial assets;

n financial covenants, such as a limit on total funded debt to total capitalization;

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

n compliance with collateral minimums or requirements related to mortgage bonds; and

n limitations on liens.

Dominion monitors the covenants on a regular basis in order to provide assurance that events of default will not occur. As of December 31, 2002, there were no events of default under the Dominion Companies’ covenants.

Investing Activities

During 2002, investing activities resulted in a net cash outflow of $4.0 billion, reflecting the following:

n $1.3 billion that included construction and expansion of generation facilities, including environmental upgrades, purchase of nuclear fuel, and construction and improvements of gas and electric transmission and distribution assets;

n $1.5 billion for the purchase and development of gas and oil producing properties, drilling and equipment costs and undeveloped lease acquisitions;

n the acquisitions of State Line for $185 million and Cove Point for $225 million; and

n contributions to escrow of $500 million that were subsequently used to repay a portion of certain Dominion senior notes maturing in January 2003.

Cash Requirements for Planned Capital Expenditures

Cash requirements for Dominion’s planned capital expenditures during 2003, 2004 and 2005 are expected to total approximately $2.5 billion, $2.3 billion and $2.2 billion, respectively. These expenditures include construction and expansion of generation facilities, environmental upgrades, construction improvements and expansion of gas and electric transmission and distribution assets, purchases of nuclear fuel and expenditures to develop natural gas and oil properties. Dominion expects to fund its capital expenditures with cash from operations, and a combination of sales of securities and short-term borrowings.

Off-Balance Sheet Arrangements

Leasing Arrangements

As of December 31, 2002, Dominion, through certain subsidiaries, has entered into agreements with special purpose entities (lessors) in order to finance and lease several new power generation projects, as well as its corporate headquarters and aircraft. As Dominion is considered the owner of the leased property for tax purposes, it is entitled to tax deductions for depreciation not recognized for financial accounting purposes. In addition, because the leases are structured to be operating leases for financial accounting purposes, the assets and related borrowings used to finance the construction of the assets are not included on Dominion’s Consolidated Balance Sheets. Although this improves measures of leverage calculated using amounts reported in Dominion’s Consolidated Financial Statements, credit rating agencies view such amounts as debt obligations in evaluating Dominion’s credit profile. These leasing structures provide a desirable level of operational flexibility. Dominion has been appointed to act as the construction agent for the lessor and controls the design and construction of the facility. Also, Dominion has the option to purchase the facility at the expiration or termination of the lease and thus may benefit from any appreciation in the value of the facility. While Dominion is exposed to sharing in any loss that could occur if the project were terminated prior to completion or sold after being completed, such exposure is limited to a stated percentage of the realized loss, as discussed below. In addition, under the terms of each lease, the lessee generally retains operational control of the facility.

At December 31, 2002, the lessors had an aggregate financing commitment from equity and debt investors of $2.2 billion. Of that amount, $1.6 billion had been used for total project costs. Total project costs at December 31, 2002 included approximately $288 million of costs advanced by Dominion to the lessor, that will be reimbursed by the lessor during the second quarter of 2003. Dominion, in its role as construction agent for the lessors, is responsible for completing construction by a specified date. In the event a project is terminated before completion, Dominion has the option either to purchase the project for 100 percent of project costs or terminate the project and make a payment to the lessor of approximately, but no more, than 89.9 percent of project costs. Upon completion of each individual project, Dominion has use of the project assets subject to an operating lease. Dominion’s lease payments to the lessors are sufficient to provide a return to the investors. At the end of each individual project’s lease term, Dominion may renew the lease at negotiated amounts based on project costs and current market conditions, subject to investors’ approval; purchase the project at its original construction cost; or sell the project, on behalf of the lessors, to an independent third party. If the project is sold and the proceeds from the sale are insufficient to repay the investors, Dominion may be required to make a payment to the lessors up to an amount ranging from 81 percent to 85 percent of the project cost, depending on the individual project and applicable agreement. Dominion has guaranteed a portion of the obligations of its subsidiaries to the lessors during the construction and post-construction periods. Neither the guarantees nor the underlying transaction documents contain any type of credit rating or stock price trigger events.

In February 2003, pursuant to the terms of its lease agreement, Dominion purchased the electric generation facility under construction in Dresden, Ohio for $266 million. This amount was included in total project costs of $1.6 billion as of December 31, 2002. Dominion expects to complete construction in 2005 at an estimated cost of $350 million.

Annual minimum lease payments under these leases for assets currently in use total approximately $38 million. Projects being developed under leasing arrangements are scheduled for completion in 2003 and 2004. Annual lease payments for these projects are estimated to be $7 million for 2003 and $79 million by 2005. The leases are discussed in Notes 4 and 27 to the Consolidated Financial Statements.

Securitizations of Mortgages and Loans

As of December 31, 2002, Dominion held $448 million of retained interests from securitizations of mortgage and commercial loans completed in prior years. Dominion did not securitize or originate loans in 2002. Investors in the securitization trusts have no recourse to Dominion’s other assets for failure of debtors to repay principal and interest on the underlying loans when due. Therefore, Dominion’s exposure to any future losses from this activity is limited to its investment in retained interests. Securitizations are discussed in Accounting for retained interests from securitizations under Critical Accounting Policies and Notes 2, 9 and 13 to the Consolidated Financial Statements.

Dominion Fiber Ventures, LLC

As discussed in Note 30 to the Consolidated Financial Statements, Dominion has accounted for its 50 percent voting interest in Dominion Fiber Ventures, LLC (DFV), a telecommunications joint venture, under the equity method. In connection with its formation, DFV issued $665 million of senior notes due March 2005. As DFV was not consolidated by Dominion, these notes were not reported on Dominion’s Consolidated Balance Sheet at December 31, 2002. The DFV senior notes were secured in part by Dominion convertible preferred stock held in trust. Dominion was the beneficial owner of the trust and included it in the preparation of its Consolidated Financial Statements. Prior to Dominion’s repurchase of substantially all of the outstanding DFV senior notes in February 2003, as described below, the preferred stock would have been subject to being remarketed in an amount sufficient to retire the notes at maturity or earlier if the credit ratings for Dominion Resources, Inc. senior unsecured debt were BBB– or Baa3 during a period when the closing price of Dominion’s common stock was below $45.97 for ten consecutive trading days. If the remarketing of the preferred stock occurred, the convertible preferred stock would have been considered in the calculation of diluted earnings per share of Dominion’s common stock or could have resulted in the issuance of additional shares of Dominion common stock, if converted. Related-party transactions between Dominion and DFV included borrowings, payment of interest and the provision of support services by Dominion to DFV. These transactions are discussed in Note 30 to the Consolidated Financial Statements.

On January 23, 2003, Dominion and DFV made a tender and consent offering for the DFV senior notes. Under the terms of the offering, DFV sought the consent of the note holders to remove the stock price and credit downgrade trigger described above as well as certain other related modifications to the indenture. Dominion offered to purchase for cash all of the outstanding notes. The consent and tender offer was successful, resulting in the removal of the stock price and credit downgrade trigger and the purchase of $633 million of the outstanding notes by Dominion on February 21, 2003. Dominion paid a total of $664 million for the notes acquired, using proceeds from the sale of $700 million of senior notes in February 2003. As a result of this transaction, Dominion will consolidate the results of DFV in its financial statements beginning in February 2003. The DFV senior notes held by Dominion will be eliminated in consolidation. Furthermore, since Dominion holds substantially all of the DFV Senior Notes, it is unlikely that the remarketing of the Dominion convertible preferred stock held in trust, discussed above, would ever occur. After the transaction, $21 million of the DFV senior notes remain outstanding in the hands of the third parties. Dominion will recognize a pre-tax charge of approximately $60 million on the effective extinguishment of the acquired notes in the first quarter of 2003. The charge will consist primarily of the premium paid to acquire the notes, the consent fee paid to the note holders and the write-off of unamortized debt costs related to the original issuance of the DFV senior notes. The charge will be reported in the Corporate and Other segment. See Outlook for 2003 .

Contractual Obligations

Presented below is a summary of Dominion’s contractual obligations as of December 31, 2002. These items are discussed in Notes 21, 22 and 27 to the Consolidated Financial Statements.

	Payments Due by Period

Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

(millions)
Long-term debt	$	14,205	$	2,125	$	2,259	$	2,766	$	7,055
Trust preferred securities		1,400								1,400
Lease obligations ⁽¹⁾		478		94		176		129		79
Power purchase contracts		8,606		687		1,315		1,232		5,372
Fuel and other commitments		1,844		645		686		365		148

Total	$	26,533	$	3,551	$	4,436	$	4,492	$	14,054

⁽¹⁾

Amounts relate to in-service assets as of December 31, 2002. Estimated lease payments for leased assets under construction, as described in Note 27 to the Consolidated Financial Statements, are estimated to be $7 million in 2003 increasing to $79 million by 2005, as projects are completed.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

Dominion expects to fund these obligations and commitments with cash flow from operations and a combination of sales of securities and short-term borrowings. These amounts do not include planned capital expenditures or working capital commitments, such as the repayment of short-term debt and settlement of derivative and energy trading contracts, or amounts for interest or distributions payable on securities issued by Dominion.

As described in Note 27 to the Consolidated Financial Statements, Dominion Resources, Inc. and certain subsidiaries have entered agreements that provide financial or performance assurance to third parties on behalf of unconsolidated entities and officers. At December 31, 2002, these guarantees totaled $102 million. See Note 27 to the Consolidated Financial Statements.

Future Issues and Outlook

Regulated Electric Operations

Electric Deregulation Legislation

Virginia —Enacted In 1999, the Virginia Electric Utility Restructuring Act (the Virginia Restructuring Act) establishes a plan to restructure Virginia’s electric utility industry. The Act provides for the phase-in of choice for retail customers from January 1, 2002 through January 1, 2004. As ordered by the Virginia Commission, Dominion made retail choice available to all of its Virginia regulated electric customers as of January 1, 2003.

Under the Virginia Restructuring Act, the generation portion of Dominion’s Virginia jurisdictional operations was no longer subject to cost-based rate regulation as of January 1, 2002. Dominion’s base rates (excluding fuel costs and certain other allowable adjustments) will remain capped until July 2007, unless modified or terminated sooner under the Act. Recovery of generation-related costs will continue through capped rates, and, where applicable, a wires charge assessed on those customers opting for alternative suppliers. Dominion may petition the Virginia Commission to terminate the capped rates after January 1, 2004. If Dominion were to request that the capped rates be terminated, the Virginia Commission may terminate the capped rates if it finds that a competitive generation services market exists within Dominion’s service area.

Additionally, the Virginia Restructuring Act provides that after the end of the capped rate period, any default service provided by Dominion will be based upon competitive market prices for electric generation services. The Virginia Commission has opened a proceeding to determine the components of default service in Virginia.

North Carolina —The North Carolina General Assembly has been exploring the future of electric service in North Carolina, the development of a competitive wholesale market and retail competition. However, to date, there has been no significant activity.

Virginia Commission Report on the Status of Competition in Virginia

In August 2002, the Virginia Commission submitted to the Governor and the Legislative Transition Task Force (Task

Force) its status report on the development of a competitive retail market for electric generation within Virginia.

In an addendum to the report, the Virginia Commission recommended that state policymakers should decide promptly whether to proceed with or delay implementation of the Virginia Restructuring Act, in light of recent developments impacting electric industry restructuring in Virginia, including the Federal Energy Regulatory Commission’s (FERC) issuance of a notice of proposed rule making on Standard Market Design. No assessment can be made at this time concerning future developments.

Legislation that would delay entry into a regional transmission organization (RTO) until on or after July 1, 2004 was approved by the Virginia General Assembly in February 2003 and is now awaiting action by the Governor. The proposed legislation also would require Dominion to file an application with the Virginia Commission by July 1, 2003 to join a RTO. Subject to Virginia Commission approval, Dominion would be required to transfer management and control of its transmission assets to a RTO by January 1, 2005.

Separation of Generation and Delivery Operations in Virginia

Under the Virginia Restructuring Act, Virginia Power separated its generation, distribution, and transmission functions through creation of divisions within Virginia Power. Virginia codes of conduct ensure that Virginia Power’s generation and other divisions operate independently and prevent cross-subsidies between the generation and other divisions.

Economic Risks and Benefits During the Transition to a Competitive Electric Marketplace in Virginia

As previously discussed, Dominion will recover generation-related costs through capped rates and wires charges, where applicable, assessed to those customers opting for alternative suppliers during the transition period, which extends until July 2007, unless modified or terminated earlier under the Virginia Restructuring Act. Under the Act, Dominion may request a termination of the capped rates at any time after January 1, 2004, and the Virginia Commission may grant Dominion’s request to terminate the capped rates, if it finds that a competitive generation services market exists in Dominion’s service area. While Dominion is exposed to certain risks as a result of the deregulation of its utility

operations, it also has the opportunity to realize potential benefits during this transition period, if management is successful in preparing for the change in the environment in which its generation-related business operates.

Stranded Costs— Stranded costs are those costs incurred or commitments made by utilities under cost-based regulation that may not be reasonably expected to be recovered in a competitive market. At December 31, 2002, Dominion’s exposure to potentially stranded costs consisted of long-term purchased power contracts that could ultimately be determined to be above market; generating plants that could possibly become uneconomical in a deregulated environment; and unfunded obligations for nuclear plant decommissioning and postretirement benefits not yet recognized in the financial statements. Dominion believes capped electric retail rates and, where applicable, wires charges will provide an opportunity to recover a portion of its potentially stranded costs, depending on market prices of electricity and other factors. Recovery of Dominion’s potentially stranded costs remains subject to numerous risks even in the capped-rate environment. These include, among others, exposure to long-term power purchase commitment losses, future environmental compliance requirements, changes in tax laws, nuclear decommissioning costs, inflation, increased capital costs, and recovery of certain other items. These items are discussed in Notes 16, 26 and 27 to the Consolidated Financial Statements.

The enactment of deregulation legislation in 1999 not only caused the discontinuance of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation , for Dominion’s utility generation-related operations but also caused Dominion to review its utility generation assets for impairment and long-term power purchase contracts for potential loss at that time. Significant assumptions considered in that review included possible future market prices for fuel and electricity, load growth, generating unit availability and future capacity additions in Dominion’s market, capital expenditures, including those related to environmental improvements, and decommissioning activities. Based on those analyses, no recognition of plant impairments or contract losses was appropriate at that time. In response to future events resulting from the development of a competitive market structure in Virginia and the expiration or termination of capped rates and wires charges, Dominion may have to reevaluate its utility generation assets for impairment and long-term power purchase contracts for potential losses. Assumptions about future market prices for electricity represent a critical factor that affects the results of such evaluations. Since 1999, market prices for electricity have fluctuated significantly and will continue to be subject to volatility. Any such review in the future, which would be highly dependent on assumptions considered appropriate at the time, could possibly result in the recognition of plant impairment or contract losses that would be material to Dominion’s results of operations or its financial position.

In December 2002, the Task Force requested the Virginia Commission to convene a work group on stranded costs. The work group will attempt to develop a consensus methodology for determining the over- or under-recovery of stranded costs. The Virginia Commission will report the work group’s findings to the Task Force by July 1, 2003. No assessment can be made at this time concerning future developments.

Changes to Cost Structure —While the Virginia Restructuring Act did not define specific generation-related costs to be recovered, it did provide generation-related cash flows (through the combination of capped rates and wires charges billed to customers) during the transition period. The generation-related cash flows provided by the Virginia Restructuring Act are intended to compensate Dominion for continuing to provide generation services and to allow Dominion management to incur costs to restructure such operations during the transition period. As a result, during the transition period, Dominion may realize an increased rate of return on its generation-related operations to the extent that management can favorably alter the cost structure underlying its utility generation-related operations. Conversely, the same risks affecting the recovery of Dominion’s stranded costs, discussed above, may also adversely impact its cost structure during the transition period. Accordingly, Dominion could realize the negative economic impact of any such adverse event. In addition to managing the cost of its generation-related operations, Dominion may also seek opportunities to sell available electric energy and capacity to customers beyond its electric utility service territory. Using cash flows from operations during the transition period, Dominion may further alter its cost structure or choose to make additional investment in its business.

The capped rates were derived from rates established as part of the 1998 Virginia rate settlement and do not provide for specific recovery of particular generation-related expenditures, except for certain regulatory assets. See Note 19 to the Consolidated Financial Statements. To the extent that Dominion manages its operations to reduce its overall operating costs below those levels contemplated by the capped rates, Dominion’s earnings may increase. Since the enactment of the Virginia Restructuring Act, Dominion has been reviewing its cost structure to identify opportunities to reduce the annual operating expenses of its generation-related operations. For example, in 2001 Dominion terminated certain long-term power purchase agreements resulting in an after-tax charge of $136 million. By avoiding fixed capacity payments that would have otherwise been required under the contracts, annual after-tax earnings will increase by approximately $30 million during the transition period. See Note 27 to the Consolidated Financial Statements.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

Also in 2002 and 2001, Dominion revised the estimated useful lives of its electric generation, transmission and distribution assets. The changes in estimates were based upon expected life-extensions of nuclear plants and new engineering studies of the other assets. As a result of these changes, annual after-tax earnings will increase by approximately $88 million during the transition period. See Note 2 to the Consolidated Financial Statements.

RTO

The Virginia Restructuring Act requires that Dominion join a RTO. FERC encourages RTO formation as a means to foster the formation of wholesale markets. FERC Order No. 2000 requires each public utility that owns or operates transmission facilities to make certain filings with respect to RTO formation, but will rely on voluntary formation of RTOs to advance its energy policies. By joining a RTO, Dominion’s regulated electric utility subsidiary, Virginia Power, would transfer functional control of its transmission assets to a RTO, a third party.

Dominion intends to file for FERC approval to join PJM in the future. Dominion will also seek authorization from the Virginia Commission and the North Carolina Utilities Commission to become a member of PJM at that time. Dominion will incur integration and operating costs associated with joining a RTO. Dominion has deferred certain of those costs for future recovery and is giving further consideration to seeking regulatory approval to defer the balance of such costs.

In December 2002, American Electric Power, Commonwealth Edison Company, Dayton Power and Light Company (collectively, the New PJM Companies), PJM and Dominion tendered a joint filing with FERC. The joint filing proposes to (1) include the New PJM Companies’ transmission facilities within PJM functional control; (2) establish a transmission rate for the existing PJM region, Dominion and the New PJM Companies; (3) adopt a transitional rate method to maintain transmission revenue for Dominion and the New PJM Companies and (4) amend certain agreements on file with FERC concerning the PJM energy market, planning processes and system operations as related to the integration of the New PJM Companies into PJM.

Also in December 2002, Dominion filed with FERC an amendment to its open access transmission tariff to establish a transitional transmission rate method that would apply from the time American Electric Power and Commonwealth Edison Company would begin to participate under the PJM transmission tariff until Dominion joins PJM.

FERC Standard Market Design Proposal

In July 2002, FERC issued proposed rules that would establish a standardized transmission service and wholesale electric market design for entities participating in wholesale electric markets. FERC proposed to exercise jurisdiction over the transmission component of bundled retail transactions, modify the existing electric transmission tariff to include a single tariff service applicable to all transmission customers and provide a standard market design for wholesale electric markets. FERC also proposed that transmission owners that have not yet joined a RTO must contract with a separate entity, an independent transmission provider, to operate their transmission facilities. FERC scheduled a number of technical conferences and meetings with interested parties and has indicated that the market design and timing of the rule is subject to change. No assessment can be made at this time concerning future developments.

Wholesale Competition

Dominion’s electric utility subsidiary sells electricity in the wholesale market under its market-based sales tariff authorized by FERC but has agreed not to make wholesale power sales under this tariff to loads located within its service territory. In February 2002, Dominion’s electric utility subsidiary received FERC approval of a tariff to sell wholesale power at capped rates based on its embedded cost of generation. This cost-based sales tariff could be used to sell to loads within or outside its service territory. Any such sales would be voluntary. Dominion’s sales of natural gas, liquid hydrocarbon by-products and oil in wholesale markets are not regulated by FERC.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

Rate Matters—Electric

Virginia— Dominion filed its Virginia Commission-approved unbundled rates reflecting the functional separation of generation, transmission and distribution in January 2002. Base rates (excluding fuel costs and certain other allowable adjustments) are capped and will remain unchanged until July 2007, unless modified or terminated sooner as provided by the Virginia Restructuring Act. Under the Act, Dominion may request a termination of the capped rates at any time after January 1, 2004, and the Virginia Commission may grant Dominion’s request to terminate the capped rates, if it finds that a competitive generation services market exists in Dominion’s service area. Where applicable, wires charges, effective January 1, 2002 and subject to annual adjustment, will be paid by Dominion’s Virginia jurisdictional retail customers who choose an alternative generation supplier during the capped rate period.

In October 2002, the Virginia Commission approved Dominion’s methodology for its 2003 market prices for generation, including a capacity adder, and the resulting wires charges. The capacity adder reflects the capacity value that the sale of generation is expected to produce in addition to an energy value in market prices. Inclusion of the capacity adder in the market price calculation will reduce wires charge revenues by the amount of the expected additional revenue from the sale of the displaced capacity in the wholesale market.

Dominion’s fuel factor for sales to Virginia jurisdictional customers will remain unchanged for 2003.

North Carolina— Dominion’s regulated electric utility cannot request an increase in its North Carolina jurisdictional base rates until 2006, except for certain events that would have a significant financial impact. Fuel rates, however, are still subject to change under annual proceedings.

Regulated Gas Distribution Operations

Gas Deregulation Legislation

Each of the three states in which Dominion has gas distribution operations has enacted or considered legislation regarding deregulation of natural gas sales at the retail level.

Ohio— Ohio has not enacted legislation requiring supplier choice for residential and commercial natural gas consumers. However, in cooperation with the Public Utilities Commission of Ohio (Ohio Commission), Dominion on its own initiative offers retail choice to customers. At December 31, 2002, approximately 647,000 of Dominion’s 1.2 million Ohio customers were participating in this open-access program. Large industrial customers in Ohio also source their own natural gas supplies.

Pennsylvania— At December 31, 2002, approximately 106,000 residential and small commercial customers had opted for Energy Choice in Dominion’s Pennsylvania service area. Nearly all Pennsylvania industrial and large commercial customers buy natural gas from unregulated suppliers.

West Virginia— At this time, West Virginia has not enacted legislation to require customer choice in its retail natural gas markets. However, the West Virginia Public Service Commission (West Virginia Commission) has issued regulations to govern pooling services, one of the tools that natural gas suppliers may utilize to provide retail customer choice in the future. In addition, the West Virginia Commission is developing rules for a code of conduct between utilities and their marketing affiliates, as well as Consumer Protection regulations and Marketer Licensing Rules. In 2002, the West Virginia Commission proposed rules that require that competitive gas service providers be licensed in West Virginia.

Rate Matters—Gas Distribution

When necessary, Dominion’s gas distribution subsidiaries in Ohio, Pennsylvania and West Virginia seek general rate increases on a timely basis to recover increased operating costs and to ensure that rates of return are compatible with the cost of raising capital. In addition to general rate increases, certain gas distribution subsidiaries make routine separate filings with their respective state regulatory commissions to reflect changes in the costs of purchased gas. These purchased gas costs are recovered through a mechanism that ensures dollar for dollar recovery of prudently incurred costs. Costs incurred that are expected to be recovered in future rates are deferred as regulatory assets.

Interstate Gas Transmission Operations

FERC Policy Developments

In October 2002, FERC hosted a public policy conference regarding various short- and long-term issues that impact federal regulation of the natural gas industry. Among other issues, FERC examined supply and demand forecasts, the adequacy of natural gas infrastructure, regulatory policies applicable to liquefied natural gas facilities, offshore gathering policies, and the flexibility of interstate pipeline operations. As a result, FERC is considering adjustments to its future regulatory policies concerning the natural gas industry, including modification of its approach to regulation of liquefied natural gas (LNG) projects. The policy change is intended to encourage additional development of LNG terminals and to increase the availability of imported gas supplies.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

FERC also continues to pursue rulemaking that will eliminate separate standards of conduct regulations for natural gas pipelines and electric transmission utilities, and replace these requirements with uniform standards applicable to interstate “Transmission Providers.” The proposed standards would redefine the scope of affiliates covered by standards of conduct for most FERC-regulated companies. If the proposed policy is adopted, it will supersede the existing standards, that are applicable to Dominion. Dominion supports the policy goal to ensure competitive interstate energy markets; however, Dominion has advocated adjustments to the proposed rules.

Dominion anticipates further action by FERC in early 2003. While Dominion expects the outcome of a final rule to improve its ability to compete with similarly-situated transmission providers, it does not expect a final rule to have a short-term material impact on its results of operations, financial position or cash flows.

Rate Matters—Gas Transmission

Dominion implemented various rate filings, tariff changes and negotiated rate service agreements for its FERC-regulated businesses during 2002. In all material respects, these filings were approved by FERC in the form requested by Dominion and were subject to only minor modifications. Dominion has no significant rate matters pending before FERC at this time.

Merchant Generation Operations

Dominion’s focus in its power generation business is to participate in power generation projects in the MAIN-to-Maine region, with the focus on a balanced portfolio of generation assets, while maintaining fuel and regional diversity. The region begins at the Mid-America Interconnected Network (MAIN) that includes electric service territories of the upper Midwest and is home to Dominion’s Kincaid, State Line, and Elwood generating facilities. The target region extends east to Virginia Power’s service territory and north to New England, where Dominion operates its Millstone power station. Dominion is benefiting from the CNG acquisition, as it is developing and operating natural gas-fired power generation facilities along its natural gas pipeline system. Dominion is in various stages of development for new natural gas-fired power generation facilities throughout the MAIN-to-Maine region with estimated completion dates from 2003 and beyond.

Exploration and Production Operations

Dominion continues to focus on increasing earnings from gas and oil properties primarily through acquisition and development activities, exploration, and operating efficiencies. The November 2001 acquisition of Louis Dreyfus represented the addition of significant, long-lived natural gas reserves located in several onshore United States regions serving northeast markets. This addition also provided significant new development drilling opportunities, complementing Dominion’s existing development and exploration activities. The emphasis toward increased acquisition and development activities, as a complement to the higher risk exploration program, was further supported by the 2002 purchase of several onshore properties having additional development drilling and production enhancement potential.

Pipeline Operations

Dominion plans to expand its natural gas transmission system with a $497 million, 279-mile interstate pipeline. The Greenbrier Pipeline will originate in Kanawha County, West Virginia, and extend through southwest Virginia into Granville County, North Carolina. Piedmont Natural Gas is a 33 percent owner in the pipeline project.

Telecommunications Operations

Dominion continues the expansion of its operations as a competitive provider of telecommunications services. These services include providing facilities-based, high-bandwidth capacity throughout the eastern United States with particular concentration on under-served markets. The future growth of its business will involve adding new customers and revenues, lighting its network, developing product extensions, and acquiring select assets. Dominion is building a balanced portfolio of customers representing multiple industry segments. See Note 30 to the Consolidated Financial Statements for a discussion of the consolidation of Dominion’s telecommunications joint venture beginning in February 2003.

Environmental Matters

Dominion is subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations. Historically, Dominion recovered such costs arising from regulated electric operations through utility rates. However, to the extent that environmental costs are incurred in connection with operations regulated by the Virginia Commission, during the period ending June 30, 2007, in excess of the level currently included in the Virginia jurisdictional electric retail rates, Dominion’s results of operations will decrease. After that date, recovery through regulated rates may be sought for only those environmental costs related to regulated electric transmission and distribution operations. Dominion also may seek recovery through regulated rates for environmental expenditures related to regulated gas transmission and distribution operations.

Environmental Protection and Monitoring Expenditures

Dominion incurred approximately $123 million, $116 million and $94 million of expenses (including depreciation) during 2002, 2001 and 2000, respectively, in connection with environmental protection and monitoring activities, and expects these expenses to be approximately $120 million in 2003. In addition, capital expenditures related to environmental controls were $335 million, $221 million and $214 million for 2002, 2001 and 2000, respectively. The estimated amount for these expenditures is $260 million for 2003.

Clean Air Act Compliance

The Clean Air Act requires Dominion to reduce its emissions of sulfur dioxide (SO ₂ ) and nitrogen oxide (NO _X ), which are gaseous by-products of fossil fuel combustion. The Clean Air Act’s SO ₂ reduction program is based on the issuance of a limited number of SO ₂ emission allowances. Each allowance permits the emission of one ton of SO ₂ into the atmosphere. The allowances may be transacted with a third party. Implementation of projects to comply with SO ₂ and NO _X limitations are ongoing and will be influenced by changes in the regulatory environment, availability of allowances, various state and federal control programs, and emission control technology. In response to NO _X reduction requirements mandated by the Environmental Protection Agency (EPA) for states in which it operates, Dominion plans to install NO _X reduction equipment by 2005 at its affected coal-fired generating facilities. The installation of this equipment is estimated to cost approximately $715 million, of which $445 million has been incurred as of December 31, 2002.

EPA is planning to issue additional regulations to address non-attainment of the new ozone and fine particulate standards within the next few years, as well as ongoing regulatory action associated with regional haze. That regulatory action could require additional reductions in SO ₂ and NO _X emissions from Dominion’s fossil fuel-fired generating facilities. In addition, EPA is in the process of developing a proposed standard for mercury emissions for electric utility coal-fired boilers that could require significant mercury emission reductions from all of Dominion’s coal-fired generating units. If these more stringent emission reduction requirements are imposed in the future, new and perhaps significant expenditures could be required. Dominion cannot predict the future financial impact of implementing these potential requirements on its operations at this time.

The United States Congress is considering various “multi-pollutant” legislative proposals that would require fossil-fuel fired generating units to comply with more stringent pollution control standards for air emissions. Many of the proposals would rely upon flexible cap and trade programs for compliance and would exempt covered facilities from other Clean Air Act requirements. They would phase-in the emission reduction requirements under a variety of timeframes, up to 16 years. Dominion cannot predict whether any of these proposals will pass this year or in the future. However, if more stringent emissions standards are ultimately imposed on Dominion’s generating units, new, perhaps significant, expenditures could be required. Dominion cannot predict the future financial impact on its operations at this time.

During 2000, Virginia Power received a Notice of Violation from EPA, alleging that Virginia Power failed to obtain New Source Review permits under the Clean Air Act prior to undertaking specified construction projects at the Mt. Storm Power Station in West Virginia. The Attorney General of New York filed a suit against Virginia Power alleging similar violations of the Clean Air Act at the Mt. Storm Power Station. Virginia Power also received notices from the Attorneys General of Connecticut and New Jersey of their intentions to file suit for similar violations. In December 2002, the Attorney General of Connecticut filed a motion to intervene as a plaintiff in the action filed by the New York State Attorney General. This action has been stayed. Management believes that Virginia Power has obtained the necessary permits for its generating facilities. Virginia Power has reached an agreement in principle with the federal government and the state of New York to resolve this situation. The agreement in principle includes payment of a $5 million civil penalty, a commitment of $14 million for environmental projects in Virginia, West Virginia, Connecticut, New Jersey and New York, and a 12-year, $1.2 billion capital investment program for environmental improvements at the Company’s coal-fired generating stations in Virginia and West Virginia. Virginia Power had already committed to a substantial portion of the $1.2 billion expenditures for SO ₂ and NO _x emissions controls. The negotiations over the terms of a binding settlement have expanded beyond the basic agreement in principle and are ongoing. As of December 31, 2002, Virginia Power has recorded, on a discounted basis, $18 million for the civil penalty and environmental projects.

In 2002, EPA issued a Section 114 request for information about whether projects undertaken at Virginia Power’s Chesterfield, Chesapeake, Yorktown, Possum Point and Bremo Bluff power stations were properly permitted under the Clean Air Act’s New Source Review requirements, to which Virginia Power responded in a timely manner.

In 2002, the EPA issued a Section 114 request for information about whether Morgantown Energy Associates’ (MEA) facility in Morgantown, West Virginia is in

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

compliance with environmental requirements. MEA is a 50 percent-owned equity-method investment. EPA made a site visit and at that time received the requested information. In September 2002, MEA received a copy of EPA’s inspection report summarizing the facts surrounding the visit. MEA is prepared to resolve follow-up questions from EPA.

Global Climate Change

In 1997, the United States signed an international Protocol to limit man-made greenhouse emissions under the United Nations Framework Convention on Climate Change. However, the Protocol will not become binding unless approved by the U.S. Senate. Currently, the Bush Administration has indicated that it will not pursue ratification of the Protocol, and has set a voluntary goal of reducing the nation’s greenhouse gas emission intensity by 18 percent over the next ten years. However, the United States Congress is considering legislation that could impose mandatory reductions of greenhouse gas emissions. The cost of compliance with the Protocol or other mandatory greenhouse gas reduction obligations could be significant for Dominion. Given the highly uncertain outcome and timing of future action by the U.S. federal government on this issue, Dominion cannot predict the future financial impact of climate change action on its operations at this time.

Accounting Matters

The FASB has issued several new standards that will affect Dominion beginning in 2003. These include: SFAS No. 143, Accounting for Asset Retirement Obligations ; Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—An Interpretation of FASB Statements No. 5, 57 and 107 ; and Interpretation No. 46, Consolidation of Variable Interest Entities . In addition, the EITF rescinded EITF Issue No. 98-10. See Note 4 to the Consolidated Financial Statements for further discussion of the impact of adopting these new accounting standards and information about other standard-setting activities.

Outlook for 2003

Dominion believes its operating businesses will provide a stable contribution to net income on a per share basis in 2003, with future growth in 2004. However, Dominion’s earnings per share for 2003, on a consolidated basis, will include the effects of the following items: severance costs under the plan discussed below; fees paid to modify the DFV notes (see Note 30 to the Consolidated Financial Statements); and the cumulative effect of implementing changes in accounting for asset retirement obligations and energy trading activities (see Note 4 to the Consolidated Financial Statements). The 2003 projections for Dominion’s operating businesses anticipate the following:

n Higher sales of gas and oil, reflecting continued growth in production and higher realized prices;

n Improved contributions from Millstone’s operations, resulting from fewer planned outage days and more favorable sales prices;

n Expected Six Sigma cost savings;

n Potential decrease in regulated electric sales, as compared to 2002, assuming Dominion’s utility service territories experience a return to normal weather in 2003, partially offset by continued growth in electric utility customers;

n Expiration of production tax credits;

n Lower pension benefit credits; and

n Increased losses from telecommunications operations.

Based on these projections, Dominion estimates that cash flow from operations will increase in 2003, as compared to 2002. Such increase, coupled with reductions in discretionary and developmental capital expenditures previously planned for power generation and gas and oil exploration and production projects, will provide sufficient cash flow to maintain Dominion’s current dividend to common shareholders.

Other Matters

Pension Costs

As discussed in Note 26 to the Consolidated Financial Statements, Dominion maintains qualified noncontributory defined benefit retirement plans. Generally, Dominion’s funding policy is to contribute annually an amount that is in accordance with the provisions of the Employment Retirement Income Security Act of 1974. Investment experience and market conditions, including interest rates, impact the measurement of these benefit obligations and the cost of providing such benefits. Accordingly, assumptions for discount rates and the expected long-term rate of return on investments are important considerations under SFAS No. 87, Employers’ Accounting for Pensions. However, since the objective of SFAS No. 87 is to recognize the cost of providing benefits over employees’ service period, it permits the delayed recognition of certain elements of retirement plan results.

Dominion has reviewed the assumption used for expected long-term rate of return on plan assets to better reflect anticipated future market conditions and has adopted an expected rate of 8.75 percent for 2003. This change, combined with other factors such as a revised discount rate assumption of 6.75 percent for 2003, will reduce Dominion’s 2003 pension credit by an estimated $66 million, as compared to 2002. In addition, in order to maintain the funded status of its retirement plans, Dominion may have to contribute increased amounts to the plans in future years. If, in the future, the accumulated benefit obligations of Dominion’s retirement

plans should exceed the fair value of the plans’ investments at year-end, Dominion would have to recognize a minimum pension liability for that amount. Furthermore, the recognition of a minimum pension liability would require the elimination of any prepaid pension cost reported on Dominion’s Consolidated Balance Sheet at that time, resulting in a charge to other comprehensive income and a material adverse impact on common shareholders’ equity.

Workforce Reductions

In January 2003, Dominion announced plans to eliminate some union and salaried positions during 2003. The workforce reductions will affect primarily support positions, including meter readers, supply and warehouse workers and auto mechanics. Many of the reductions result from investments in automated meter-reading technology and the purchases of newer, lower maintenance vehicles. Affected workers will be offered severance packages, and benefits for union workers will be negotiated during 2003. Pending completion of the process to identify affected positions, Dominion has not estimated the cost of the workforce reductions.

Expiration of Section 29 Tax Credits

The Internal Revenue Code Section 29 “Credit for the Production of Fuel from Nonconventional Sources” (also referred to as the production tax credit) allows income tax credits for certain qualified production, including some natural gas, sold before January 1, 2003. Congress has not acted on legislation to extend this credit beyond 2002 for most qualified production. Whether Congress will take any action to extend the credit during the current term is uncertain. Dominion utilized approximately $36 million of these credits for the year ending December 31, 2002.

Nuclear Relicensing

Dominion filed applications with the Nuclear Regulatory Commission (NRC) for 20-year life-extensions for the North Anna and Surry units in May 2001. The NRC has completed its review of the applications and Dominion expects to receive a renewed license for these units in 2003.

Dominion has also performed an internal assessment on the probability of a successful license renewal application for both of its operating Millstone units. Based on this assessment and other factors, Dominion has initiated preparations to apply for a 20-year extension of the licenses for both its operating Millstone units. Dominion expects to file a completed application based on NRC guidelines in 2004.

Nuclear Insurance

The Price Anderson Act expired in August 2002, but operating nuclear reactors would continue to be covered by the law, which would channel and cap claims if a nuclear accident should occur. The Act has been renewed three times since 1957, and Congress is currently holding hearings to reauthorize the legislation. The expiration of the Act does not impact the coverage of existing nuclear license holders.

Effect of Changes in Commodity Prices

Dominion’s operations are impacted by changes in energy commodity prices. When energy commodities are sold by one of Dominion’s utilities subject to cost-of-service rate regulation, commodity costs are generally recovered through rates. Market price changes impact Dominion’s revenue from natural gas and oil production and from commodity sales through unregulated subsidiaries. Dominion has established an enterprise risk management function to evaluate these risks and to recommend actions to management that are intended to mitigate such risks.

Future Acquisitions

Because Dominion’s industry is rapidly changing, there are many opportunities for acquisitions of assets, as well as for business combinations. Dominion investigates any opportunity that may increase shareholder value and build on existing businesses, with an objective to enter into transactions that would be immediately accretive to earnings per share. Dominion has participated in the past—and its security holders may assume that at any time Dominion may be participating—in bidding or other negotiations for such transactions. Such participation may or may not result in a transaction for Dominion. However, any such transaction that does take place may involve consideration in the form of cash, debt or equity securities. It may also involve payment of a premium over book or market values. Such transactions or payments could affect the market prices and rates for Dominion’s securities.

Market Rate Sensitive Instruments and Risk Management

Dominion’s financial instruments, commodity contracts and related derivative instruments are exposed to potential losses due to adverse changes in interest rates, commodity prices and equity security prices as described below. Interest rate risk generally is related to Dominion’s outstanding debt and financial services activities. Commodity price risk is present in Dominion’s electric operations, gas production and procurement operations, and energy marketing and trading operations due to the exposure to market shifts for prices received and paid for natural gas, electricity and other commodities. Dominion uses derivative instruments to manage price risk exposures for these operations. Dominion is exposed to equity price risk through various portfolios of equity securities.

Dominion’s sensitivity analysis estimates the potential loss of future earnings or fair value from market risk sensitive

Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

instruments over a selected time period due to a 10 percent unfavorable change in interest rates and commodity prices.

Commodity Price Risk—Trading Activities

As part of its strategy to market energy and to manage related risks, Dominion manages a portfolio of commodity-based derivative instruments held for trading purposes. These contracts are sensitive to changes in the prices of natural gas, electricity and certain other commodities. Dominion uses established policies and procedures to manage the risks associated with these price fluctuations and uses derivative instruments, such as futures, forwards, swaps and options, to mitigate risk by creating offsetting market positions. In addition, Dominion seeks to use its generation capacity, when not needed to serve customers in its service territory, to satisfy commitments to sell energy.

A hypothetical 10 percent unfavorable change in commodity prices would have resulted in a decrease of approximately $41 million and $12 million in the fair value of its commodity contracts held for trading purposes as of December 31, 2002 and 2001, respectively.

Commodity Price Risk—Non-Trading Activities

Dominion manages the price risk associated with purchases and sales of natural gas, oil and electricity by using derivative commodity instruments including futures, forwards, options and swaps. For sensitivity analysis purposes, the fair value of Dominion’s non-trading derivative commodity instruments is determined based on models that consider the market prices of commodities in future periods, the volatility of the market prices in each period, as well as the time value factors of the derivative instruments. Market prices and volatility are principally determined based on quoted prices on the futures exchange. A hypothetical 10 percent unfavorable change in market prices of Dominion’s non-trading derivative commodity instruments would have resulted in a decrease in fair value of approximately $331 million and $155 million as of December 31, 2002 and December 31, 2001, respectively.

The impact of a change in energy commodity prices on Dominion’s non-trading derivative commodity instruments at a point in time is not necessarily representative of the results that will be realized when such contracts are ultimately settled. Net losses from derivative commodity instruments used for hedging purposes, to the extent realized, are generally offset by recognition of the hedged transaction, such as revenue from sales.

Interest Rate Risk

Dominion manages its interest rate risk exposure predominantly by maintaining a balance of fixed and variable rate debt. Dominion also enters into interest rate sensitive derivatives, including interest rate swaps and interest rate lock agreements. In addition, Dominion, through subsidiaries, retains ownership of mortgage investments, including subordinated bonds and interest-only residual assets retained at securitization of mortgage loans originated and purchased. For financial instruments outstanding at December 31, 2002, a hypothetical 10 percent increase in market interest rates would decrease annual earnings by approximately $4 million. A hypothetical 10 percent increase in market interest rates, as determined at December 31, 2001, would have resulted in a decrease in annual earnings of approximately $10 million. In addition, Note 13 to the Consolidated Financial Statements discussed investments in retained interests from prior securitizations.

Foreign Exchange Risk

Dominion’s Canadian natural gas and oil exploration and production activities are relatively self-contained within Canada. As a result, Dominion’s exposure to foreign currency exchange risk for these activities is limited primarily to the effects of translation adjustments that arise from including that operation in its Consolidated Financial Statements. Dominion’s management monitors this exposure and believes it is not material. In addition, Dominion manages its foreign exchange risk exposure associated with anticipated future purchases of uranium enrichment services denominated in foreign currencies by utilizing currency forward contracts. As of result of holding these contracts as hedges, Dominion’s exposure to foreign currency risk is minimal. A hypothetical 10 percent unfavorable change in relevant foreign exchange rates would have resulted in a decrease of approximately $22 million and $5 million in the fair value of currency forward contracts held by Dominion at December 31, 2002 and 2001, respectively.

Investment Price Risk

Dominion is subject to investment price risk due to marketable securities held as investments in decommissioning trust funds. In accordance with current accounting standards, these marketable securities are reported on the Consolidated Balance Sheets at fair value. As described in Note 16 to the Consolidated Financial Statements, Dominion recognized net realized and unrealized losses on decommissioning trust investments of $150 million for 2002 and $14 million for 2001.

Dominion also sponsors employee pension and other postretirement benefit plans that hold investments in trusts to fund benefit payments. To the extent that the values of investments held in these trusts decline, the effect will be reflected in Dominion’s recognition of the periodic cost of such employee benefit plans and the determination of the amount of cash to be contributed to the employee benefit

plans. The net realized and unrealized losses on pension trust investments was $241 million for 2002 and $91 million for 2001.

Risk Management Policies

Dominion has operating procedures in place that are administered by experienced management to help ensure that proper internal controls are maintained. In addition, Dominion has established an independent function at the corporate level to monitor compliance with the risk management policies of all subsidiaries. Dominion maintains credit policies that include the evaluation of a prospective counterparty’s financial condition, collateral requirements where deemed necessary, and the use of standardized agreements which facilitate the netting of cash flows associated with a single counterparty. In addition, Dominion also monitors the financial condition of existing counterparties on an ongoing basis. Based on credit policies and the December 31, 2002 provision for credit losses, management believes that it is unlikely that a material adverse effect on its financial position, results of operations or cash flows would occur as a result of counterparty nonperformance. See Note 15 to the Consolidated Financial Statements for discussion of the effects of Enron’s bankruptcy on Dominion’s Consolidated Financial Statements.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

See Risk Factors and Cautionary Statements That May Affect Future Results and Market Rate Sensitive Instruments and Risk Management in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 8.

Financial Statements and Supplementary Data

Index

		Page No.
Report of Management’s Responsibilities		47

Independent Auditors’ Report		48

Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000		49

Consolidated Balance Sheets at December 31, 2002 and 2001		50

Consolidated Statements of Common Shareholders’ Equity at December 31, 2002, 2001 and 2000		52

Consolidated Statements of Comprehensive Income for the years ended December 31, 2002, 2001 and 2000		53

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000		54

Notes to Consolidated Financial Statements		55

REPORT OF MANAGEMENT’S RESPONSIBILITIES

The management of Dominion Resources, Inc. is responsible for all information and representations contained in the Consolidated Financial Statements and other sections of the annual report on Form 10-K. The Consolidated Financial Statements, which include amounts based on estimates and judgments of management, have been prepared in conformity with accounting principles generally accepted in the United States of America. Other financial information in the Form 10-K is consistent with that in the Consolidated Financial Statements.

Management maintains a system of internal controls designed to provide reasonable assurance, at a reasonable cost, that Dominion’s and its subsidiaries’ assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed and recorded in accordance with established procedures. Management recognizes the inherent limitations of any system of internal control, and therefore cannot provide absolute assurance that the objectives of the established internal controls will be met.

This system includes written policies, an organizational structure designed to ensure appropriate segregation of responsibilities, careful selection and training of qualified personnel and internal audits. Management believes that during 2002 the system of internal control was adequate to accomplish the intended objectives.

The Consolidated Financial Statements have been audited by Deloitte & Touche LLP, independent auditors, who were designated by the Board. Their audits were conducted in accordance with auditing standards generally accepted in the United States of America and include a review of Dominion’s and its subsidiaries’ accounting systems, procedures and internal controls, and the performance of tests and other auditing procedures sufficient to provide reasonable assurance that the Consolidated Financial Statements are not materially misleading and do not contain material errors.

The Audit Committee of the Board of Directors of Dominion Resources, Inc., composed entirely of directors who are not officers or employees of Dominion Resources, Inc. or its subsidiaries, meets periodically with the independent auditors, the internal auditors and management to discuss auditing, internal accounting control and financial reporting matters of Dominion and to ensure that each is properly discharging its responsibilities. Both independent auditors and the internal auditors periodically meet alone with the Audit Committee and have free access to the Committee at any time.

Management recognizes its responsibility for fostering a strong ethical climate so that Dominion’s affairs are conducted according to the highest standards of personal corporate conduct. This responsibility is characterized and reflected in Dominion’s code of ethics, which addresses potential conflicts of interest, compliance with all domestic and foreign laws, the confidentiality of proprietary information, and full disclosure of public information.

D OMINION R ESOURCES , I NC .

/s/ T HOS . E. C APPS

Thos. E. Capps

Chairman, President and Chief Executive Officer

/s/ T HOMAS N. C HEWNING

Thomas N. Chewning

Executive Vice President and

Chief Financial Officer

/s/ S TEVEN A. R OGERS

Steven A. Rogers

Vice President, Controller and
Principal Accounting Officer

INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Board of Directors of

Dominion Resources, Inc.

Richmond, Virginia

We have audited the accompanying consolidated balance sheets of Dominion Resources, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, comprehensive income, common shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Dominion Resources, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 18 to the consolidated financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Asset s. As discussed in Note 15 to the consolidated financial statements, effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities , as amended. Also, as discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting used to develop the market-related value of pension plan assets in 2000.

/s/ D ELOITTE & T OUCHE LLP

Richmond, Virginia

January 21, 2003

(February 19, 2003 as to the last two paragraphs of the Lease

Commitments section of Note 27 and February 21, 2003 as to

the last three paragraphs of Note 30)

Consolidated Statements of Income

	Year Ended December 31,

(millions, except per share amounts)	2002			2001		2000

Operating Revenue	$	10,218		$	10,558	$	9,246
Operating Expenses
Electric fuel and energy purchases, net		1,447			1,369		1,106
Purchased electric capacity		691			680		741
Purchased gas, net		1,159			1,822		1,453
Liquids, pipeline capacity and other purchases		159			219		299
Restructuring and other acquisition-related costs		(8	)		105		460
Other operations and maintenance		2,198			2,938		2,011
Depreciation, depletion and amortization		1,258			1,245		1,176
Other taxes		429			395		485

Total operating expenses		7,333			8,773		7,731

Income from operations		2,885			1,785		1,515

Other income		103			126		109
Interest and related charges:
Interest expense		826			899		958
Subsidiary preferred dividends and distributions of subsidiary trusts		119			98		66

Total interest and related charges		945			997		1,024

Income before income taxes and minority interests		2,043			914		600
Income taxes		681			370		183
Minority interests							2

Income before cumulative effect of a change in accounting principle		1,362			544		415

Cumulative effect of a change in accounting principle (net of income taxes of $11)							21

Net Income	$	1,362		$	544	$	436

Earnings Per Common Share—Basic:
Income before cumulative effect of a change in accounting principle	$	4.85		$	2.17	$	1.76
Cumulative effect of a change in accounting principle							0.09

Net income	$	4.85		$	2.17	$	1.85

Earnings Per Common Share—Diluted:
Income before cumulative effect of a change in accounting principle	$	4.82		$	2.15	$	1.76
Cumulative effect of a change in accounting principle							0.09

Net income	$	4.82		$	2.15	$	1.85

Dividends paid per common share	$	2.58		$	2.58	$	2.58

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Balance Sheets

	At December 31,

(millions)	2002			2001

ASSETS
Current Assets
Cash and cash equivalents	$	291		$	486
Customer accounts receivable (net of allowance of $63 and $76)		2,568			1,770
Other accounts receivable		486			226
Inventories:
Materials and supplies		269			245
Fossil fuel		137			150
Gas stored—current portion		231			182
Investment securities—trading					244
Derivative and energy trading assets		1,365			1,311
Margin deposit assets		149			30
Prepayments		347			384
Escrow account for debt refunding		500
Other		482			375

Total current assets		6,825			5,403

Investments
Available for sale securities		564			393
Nuclear decommissioning trust funds		1,599			1,697
Other		1,011			1,070

Total investments		3,174			3,160

Property, Plant and Equipment, Net
Property, plant and equipment		32,631			29,797
Less accumulated depreciation, depletion and amortization		(12,374	)		(11,433	)

Total property, plant and equipment, net		20,257			18,364

Deferred Charges and Other Assets
Goodwill, net		4,301			4,210
Intangible assets, net		313			317
Regulatory assets, net		580			574
Prepaid pension cost		1,710			1,511
Derivative and energy trading assets		482			545
Other		267			285

Total deferred charges and other assets		7,653			7,442

Total assets	$	37,909		$	34,369

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Balance Sheets (Continued)

	At December 31,

(millions)	2002			2001

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Securities due within one year	$	2,125		$	1,354
Short-term debt		1,193			1,859
Accounts payable, trade		2,310			1,776
Accrued interest, payroll and taxes		606			564
Derivative and energy trading liabilities		1,609			1,086
Other		600			839

Total current liabilities		8,443			7,478

Long-Term Debt
Long-term debt		11,968			11,797
Notes payable—affiliates		92			322

Total long-term debt		12,060			12,119

Deferred Credits and Other Liabilities
Deferred income taxes		4,099			3,812
Deferred investment tax credits Derivative and energy trading liabilities		110 690			128 322
Other		640			626

Total deferred credits and other liabilities		5,539			4,888

Total liabilities		26,042			24,485

Commitments and Contingencies (see Note 27)

Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts ⁽¹⁾		1,397			1,132

Subsidiary Preferred Stock Not Subject To Mandatory Redemption		257			384

Common Shareholders’ Equity
Common stock—no par ⁽²⁾		9,051			7,129
Other paid-in capital		47			28
Accumulated other comprehensive income (loss)		(446	)		289
Retained earnings		1,561			922

Total common shareholders’ equity		10,213			8,368

Total liabilities and shareholders’ equity	$	37,909		$	34,369

⁽¹⁾

As described in Note 22, the debt securities issued by Dominion Resources, Inc. and certain subsidiaries constitute 100 percent of the trusts’ assets.

⁽²⁾

500 million shares authorized; 308 million shares and 265 million shares outstanding at December 31, 2002 and 2001, respectively.

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Statements of Common Shareholders’ Equity

	Common Stock					Other Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
(millions)	Shares		Amount			Other Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total

Balance at January 1, 2000	186		$	3,561		$	16		$	(15	)	$	1,212		$	4,774
Issuance of stock—CNG acquisition	87			3,527												3,527
Issuance of stock—public offering	6			354												354
Issuance of stock—employee, executive loan and direct stock purchase plans	4			195												195
Stock awards and stock options exercised (net of change in unearned compensation)				4												4
Stock repurchase and retirement	(37	)		(1,641	)											(1,641	)
Accrued contract payments—equity-linked securities				(21	)											(21	)
Comprehensive income										(8	)		436			428
Dividends and other adjustments													(620	)		(620	)

Balance at December 31, 2000	246			5,979			16			(23	)		1,028			7,000
Issuance of stock and stock options—Louis Dreyfus acquisition	14			894												894
Issuance of stock—employee and direct stock purchase plans	3			185												185
Stock awards and stock options exercised (net of change in unearned compensation)	2			79												79
Tax benefit from stock options exercised							12									12
Comprehensive income										312			544			856
Dividends and other adjustments				(8	)								(650	)		(658	)

Balance at December 31, 2001	265			7,129			28			289			922			8,368
Issuance of stock—public offering	38			1,712												1,712
Issuance of stock—employee and direct stock purchase plans	3			199												199
Stock awards and stock options exercised (net of change in unearned compensation)	3			113												113
Stock repurchase and retirement	(1	)		(66	)											(66	)
Accrued contract payments—equity-linked securities				(36	)											(36	)
Tax benefit from stock options exercised							21									21
Comprehensive income										(735	)		1,362			627
Dividends and other adjustments							(2	)					(723	)		(725	)

Balance at December 31, 2002	308		$	9,051		$	47		$	(446	)	$	1,561		$	10,213

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

	Year Ended December 31,

(millions)	2002			2001			2000

Net income	$	1,362		$	544		$	436
Other comprehensive income, net of taxes:
Net deferred gains (losses) on derivatives—hedging activities, net of tax (expense) benefit of $345 and $(263)		(663	)		465
Unrealized gains (losses) on investment securities, net of tax (expense) benefit of $41, $(10) and $(6)		(68	)		11			9
Foreign currency translation adjustments		6			(9	)		(4	)
Minimum pension liability adjustment, net of tax (expense) benefit of $1, $(3) and $8		(2	)		4			(16	)
Cumulative effect of a change in accounting principle, net of tax benefit of $106					(183	)
Amounts reclassified to net income:
Realized (gains) losses on investment securities, net of tax expense (benefit) of $6 and $(2)					(8	)		3
Net (gains) losses on derivatives—hedging activities, net of tax expense (benefit) of $4 and $(19)		(8	)		32

Other comprehensive income (loss)		(735	)		312			(8	)

Comprehensive income	$	627		$	856		$	428

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Statements of Cash Flows

	Year Ended December 31,

(millions)	2002			2001			2000

Operating Activities
Net income	$	1,362		$	544		$	436
Adjustments to reconcile net income to net cash from operating activities:
Cumulative effect of a change in accounting principle, net of income taxes								(21	)
DCI impairment losses		13			281			291
Net unrealized gains on energy trading contracts		(5	)		(140	)		(25	)
Depreciation, depletion and amortization		1,379			1,322			1,268
Deferred income taxes and investment tax credits, net		714			201			(92	)
Changes in:
Accounts receivable		(814	)		414			(953	)
Inventories		(55	)		(170	)		(62	)
Deferred fuel and purchased gas costs, net		(143	)		293			(250	)
Prepaid pension cost		(198	)		(122	)		(68	)
Purchase and origination of mortgages					(1,528	)		(4,281	)
Proceeds from sale and principal collections of mortgages					993			4,295
Accounts payable, trade		527			(25	)		626
Accrued interest, payroll and taxes		58			(111	)		173
Margin deposit assets and liabilities		(186	)		346			(244	)
Other items, net		(204	)		105			239

Net cash provided by operating activities		2,448			2,403			1,332

Investing Activities
Plant construction and other property additions		(1,339	)		(1,224	)		(1,385	)
Purchases of gas and oil properties, prospects and equipment		(1,489	)		(944	)		(353	)
Loan originations								(2,911	)
Repayment of loan originations		19			283			4,255
Proceeds from sale of businesses					141			836
Acquisition of businesses		(410	)		(2,215	)		(2,779	)
Proceeds from sale of securities		54			30			137
Purchase of securities					(104	)		(235	)
Escrow deposit for debt refunding		(500	)
Other		(295	)		(160	)		(162	)

Net cash used in investing activities		(3,960	)		(4,193	)		(2,597	)

Financing Activities
Issuance of common stock		2,020			245			532
Repurchase of common stock		(66	)					(1,641	)
Issuance of preferred securities of subsidiary trusts		400			747
Repayment of preferred securities of subsidiary trusts		(135	)
Issuance of long-term debt and preferred stock		2,434			7,365			8,108
Repayment of long-term debt and preferred stock		(1,904	)		(4,193	)		(6,813	)
Issuance (repayment) of short-term debt, net		(666	)		(1,620	)		1,820
Common dividend payments		(723	)		(649	)		(615	)
Other		(43	)		21			(46	)

Net cash provided by financing activities		1,317			1,916			1,345

(Decrease) increase in cash and cash equivalents		(195	)		126			80
Cash and cash equivalents at beginning of period		486			360			280

Cash and cash equivalents at end of period	$	291		$	486		$	360

Supplemental cash flow information:
Cash paid (received) during the year for:
Interest and related charges, excluding capitalized amounts	$	912		$	952		$	1,054
Income taxes		(8	)		284			240
Noncash transactions from investing and financing activities:
Exchange of debt securities		567
Stock and stock option issuance—Louis Dreyfus acquisition					894
Note received in sale of business					25
Stock issuance—CNG acquisition								3,527

The accompanying notes are an integral part of the Consolidated Financial Statements.

Notes to Consolidated Financial Statements

1 . Nature of Operations

Dominion Resources, Inc. (Dominion) is a holding company headquartered in Richmond, Virginia. Its principal subsidiaries are Virginia Electric and Power Company (Virginia Power), Consolidated Natural Gas Company (CNG), and Dominion Energy, Inc. (DEI). Dominion and CNG are registered public utility holding companies under the Public Utility Holding Company Act of 1935 (1935 Act).

Virginia Power is a regulated public utility that generates, transmits and distributes electricity within a 30,000-square-mile area in Virginia and northeastern North Carolina. Virginia Power sells electricity to approximately 2.2 million retail customers, including governmental agencies, and to wholesale customers such as rural electric cooperatives, municipalities, power marketers and other utilities. Virginia Power has trading relationships beyond its retail service territory and buys and sells wholesale electricity and natural gas off-system.

CNG operates in all phases of the natural gas business. Its regulated retail gas distribution subsidiaries serve approximately 1.7 million residential, commercial and industrial gas sales and transportation customers in Ohio, Pennsylvania and West Virginia. Its interstate gas transmission pipeline system serves each of its distribution subsidiaries, non-affiliated utilities and end use customers in the Midwest, Mid-Atlantic and Northeast. CNG’s exploration and production operations are located in several major natural gas and oil producing basins in the United States, both onshore and offshore. CNG also provides a variety of energy marketing services.

DEI is an independent power producer and a natural gas and oil exploration and production company active in the U.S. and Canada.

Dominion has substantially exited the core operating businesses of Dominion Capital, Inc. (DCI), as required by the Securities and Exchange Commission (SEC) under the 1935 Act. Currently, Dominion is required to divest of all remaining DCI holdings by January 2006. DCI’s primary business was financial services, including loan administration, commercial lending and residential mortgage lending. See Note 6.

Dominion manages its daily operations along three primary operating segments: Dominion Energy, Dominion Delivery and Dominion Exploration & Production. In addition, Dominion also reports the operations of DCI and its corporate and other operations as a segment. Assets remain wholly owned by its legal subsidiaries. See Note 32.

2 . Significant Accounting Policies

General

Dominion makes certain estimates and assumptions in preparing its Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles). 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 Consolidated Financial Statements represent Dominion’s accounts after the elimination of intercompany transactions. Dominion follows the equity method of accounting for investments with less than a 50 percent interest in partnerships and corporate joint ventures when Dominion is able to influence the financial and operating policies of the investee. For all other investments, the cost method is applied.

Certain amounts in the 2001 and 2000 Consolidated Financial Statements have been reclassified to conform to the 2002 presentation.

Use of Fair Value Measurements

Dominion reports certain contracts and instruments at fair value in accordance with applicable generally accepted accounting principles. Fair value is based on actively quoted market prices, if available. In the absence of actively quoted market prices, Dominion seeks indicative price information from external sources, including broker quotes and industry publications. If pricing information from external sources is not available, Dominion must estimate prices based on available historical and near-term future price information and certain statistical methods, including regression analysis.

For options and contracts with option-like characteristics where pricing information is not available from external sources, Dominion uses a modified Black-Scholes model and considers time value, the volatility of the underlying commodities and other relevant assumptions when estimating fair value. For contracts with unique characteristics, Dominion estimates fair value using a discounted cash flow approach deemed appropriate in the circumstances and applied consistently from period to period. If pricing information is not available from external sources, judgment is required to develop the estimates of fair value. For individual contracts, the use of different assumptions could have a material effect on the contract’s estimated fair value.

Notes to Consolidated Financial Statements—(Continued)

Operating Revenue

Operating revenue is recorded on the basis of services rendered, commodities delivered or contracts settled and includes amounts yet to be billed to customers. Operating revenue from energy trading activities includes realized commodity contract revenue, net of related cost of sales, and unrealized gains and losses resulting from marking to market those commodity contracts not yet settled. See Note 7. Beginning October 25, 2002 and January 1, 2003, in accordance with new accounting requirements discussed further in Note 4, Dominion discontinued marking to market unsettled commodity contracts that are not otherwise accounted for as derivatives under Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.

Electric Fuel, Purchased Energy and Purchased Gas—Deferred Costs

Where permitted by regulatory authorities, the differences between actual electric fuel, purchased energy and purchased gas expenses and levels of recovery for these expenses in current rates are deferred and matched against recoveries in future periods. See Regulatory Assets and Liabilities below and Note 19.

Income Taxes

Dominion and its subsidiaries file a consolidated federal income tax return. Where permitted by regulatory authorities, the treatment of temporary differences can differ from the requirements of SFAS No. 109, Accounting for Income Taxes. Accordingly, a regulatory asset has been recognized if it is probable that future revenues will be provided for the payment of deferred tax liabilities. Deferred investment tax credits are amortized over the service lives of the properties giving rise to the credits.

Stock-based Compensation

Dominion sponsors two stock plans that provide stock-based awards to directors, executives and other key employees. Under the plans, Dominion grants stock options and restricted stock awards that vest over periods ranging from three to five years. Options have contractual terms that range from seven to ten years. Forty million shares of common stock may be issued under the plans and approximately 12 million of those are available for new grants as of December 31, 2002.

Dominion measures compensation cost for stock-based awards issued to its employees in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Compensation expense is measured based on the intrinsic value, the difference between fair market value of Dominion common stock and the exercise price of the underlying award, on the date when both the price and number of shares the recipient is entitled to receive are known, generally the grant date. Compensation expense is recognized on a straight-line basis over the stated vesting period of the award. See Note 24 for more information on stock-based awards.

The following table illustrates the pro forma effect on net income and earnings per share if Dominion had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation , to stock-based employee compensation:

	Year Ended December 31,

(millions)	2002			2001			2000

Net income—as reported	$	1,362		$	544		$	436
Add: actual stock-based compensation expense, net of tax ⁽¹⁾		5			18			6
Deduct: pro forma stock-based compensation expense, net of tax		(52	)		(49	)		(12	)

Net income—pro forma	$	1,315		$	513		$	430

Basic EPS—as reported	$	4.85		$	2.17		$	1.85
Basic EPS—pro forma		4.68			2.05			1.82
Diluted EPS—as reported		4.82			2.15			1.85
Diluted EPS—pro forma		4.65			2.03			1.82

⁽¹⁾

Actual stock-based compensation expense reflects primarily the issuance of restricted stock. For 2001, stock-based compensation expense also includes an after-tax charge of $11 million for stock options modified in the 2001 restructuring initiative discussed in Note 8.

Cash and Cash Equivalents

Current banking arrangements generally do not require checks to be funded until actually presented for payment. At December 31, 2002 and 2001, accounts payable included the net effect of checks outstanding but not yet presented for payment of $101 million and $214 million, respectively. For purposes of the Consolidated Statements of Cash Flows, Dominion considers cash and cash equivalents to include cash on hand, cash in banks and temporary investments purchased with a remaining maturity of three months or less. In December 2002, Dominion deposited $500 million in escrow to be used solely for repayment of debt maturing in January 2003. Those restricted funds are not included as cash and cash equivalents on the Consolidated Balance Sheets or Consolidated Statements of Cash Flows.

Margin Deposit Assets and Liabilities

Amounts reported as margin deposit assets represent funds held on deposit by various trading counterparties that resulted from Dominion exceeding agreed-upon credit limits established by the counterparties. Amounts reported as margin deposit liabilities represent funds held by Dominion that resulted from various trading counterparties exceeding agreed- upon credit limits established by Dominion. These credit limits and the mechanism for calculating the amounts to be held on deposit are determined in the International Swap

Dealers Association master agreements and the Master Power Purchase & Sale Agreement of the Edison Electric Institute in place between Dominion and the counterparties. As of December 31, 2002 and December 31, 2001, Dominion had margin deposit assets of $149 million and $30 million, respectively, and margin deposit liabilities (reported in other current liabilities) of $22 million and $88 million, respectively.

Property, Plant and Equipment

Property, plant and equipment, including additions and replacements, is recorded at original cost, including labor, materials, other direct costs and capitalized interest. The costs of repairs and maintenance, including minor additions and replacements, are charged to expense as incurred. In 2002, 2001 and 2000, Dominion capitalized interest costs of $95 million, $41 million and $30 million, respectively.

For electric and gas distribution and transmission property subject to cost-of-service utility rate regulation, the cost of such property and related cost of removal, less salvage, are charged to accumulated depreciation at retirement. For generation-related property, cost of removal is charged to expense as incurred. Dominion records gains and losses upon retirement of generation-related property based upon the difference between proceeds received, if any, and the property’s undepreciated basis at the retirement date.

Depreciation of property, plant and equipment is computed on the straight-line method based on projected service lives. Dominion’s depreciation rates on property, plant and equipment for 2002, 2001 and 2000 are as follows: generation – 2.34 percent, 2.78 percent, 2.79 percent, respectively; transmission – 2.26 percent, 2.58 percent, 2.59 percent, respectively; distribution – 3.27 percent, 3.43 percent, 3.48 percent, respectively; storage – 2.47 percent, 2.57 percent, 2.61 percent, respectively; gas gathering and processing – 2.31 percent, 2.19 percent, 2.62 percent, respectively; and general and other – 5.74 percent, 4.94 percent, 5.18 percent, respectively. Amortization of nuclear fuel used in electric generation is provided on a unit-of-production basis sufficient to fully amortize, over the estimated service life, the cost of the fuel plus permanent storage and disposal costs.

In 2002, Dominion extended the estimated useful lives of most of its fossil fuel stations and electric transmission and distribution property based on depreciation studies that indicated longer lives were appropriate. These changes in estimated useful lives reduced depreciation expense by $42 million for the entirety of 2002 and will reduce depreciation expense by approximately $68 million on an annual basis thereafter. In 2001, Dominion increased its estimate of the useful lives of its nuclear facilities by 20 years, which reduced depreciation expense by $78 million for the entirety of 2001 and approximately $94 million on an annual basis thereafter. This change in estimate was made in connection with current and planned filings of applications for re-licensing with the Nuclear Regulatory Commission (NRC).

Dominion follows the full cost method of accounting for gas and oil exploration and production activities prescribed by the SEC. Under the full cost method, all direct costs of property acquisition, exploration and development activities are capitalized. The full cost method limits these capitalized amounts to no more than the present value of estimated future net revenues derived from the production of proved gas and oil reserves as determined under a method established by the SEC (the ceiling test). If net capitalized costs exceed the ceiling test at the end of any quarterly period, then a permanent write-down of the assets must be recognized in that period. The ceiling test is performed separately for each cost center, with cost centers established on a country-by-country basis. As currently permitted by the SEC, Dominion uses hedge-adjusted period-end prices to calculate the present value of estimated future net revenues. Such prices are used for the portion of anticipated production from proved reserves that is hedged by qualifying cash flow hedges. As of December 31, 2002, the use of period-end market prices rather than hedge-adjusted prices, as otherwise required by the full cost method, would not have resulted in an impairment charge. Due to the volatility of gas and oil prices, it is reasonably possible that for some periods, Dominion may satisfy the ceiling test using hedge-adjusted prices, whereas the use of period-end market prices without the effects of hedging could have resulted in an impairment charge.

Depreciation of gas and oil producing properties is computed using the unit-of-production method. Under the full cost method of accounting, amortization is also accrued on estimated future costs to be incurred in developing proved gas and oil reserves and on estimated dismantlement and abandonment costs, net of projected salvage values. The costs of investments in unproved properties are initially excluded from the depreciable base. Until the properties are evaluated, a ratable portion of the capitalized costs is periodically reclassified to the depreciable base, determined on a property by property basis, over terms of underlying leases. Once a property has been evaluated, any remaining capitalized costs are then transferred to the depreciable base. For a discussion of a change in the accounting for future dismantlement and abandonment costs, see Asset Retirement Obligations in Note 4.

Impairment of Long-Lived and Intangible Assets

Dominion performs an evaluation for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets or intangible assets with finite lives may not be recoverable. These assets are written down to fair value if the sum of the expected future undiscounted cash flows is less than the carrying amounts.

Notes to Consolidated Financial Statements—(Continued)

Investment Securities

Dominion accounts for and classifies investments in marketable equity and debt securities in two categories. Debt and equity securities purchased and held with the intent of selling them in the near term are classified as trading securities. Trading securities are reported at fair value with net realized and unrealized gains and losses included in earnings. All other debt and equity securities are classified as available-for-sale securities. These are reported at fair value with realized gains and losses included in earnings and unrealized gains and losses reported as a component of accumulated other comprehensive income, net of tax.

Loans Receivable, Net

Loans receivable are stated at their outstanding principal balance, net of the allowance for credit losses and any deferred fees or costs. Origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield of loans receivable. Each loan is evaluated for impairment by discounting estimated future cash flows at the loan’s original contractual rate. In assessing the recoverability of future cash flows, Dominion management considers the debtor’s financial strength and market position, general economic conditions and other factors. If it is determined that a loan has become impaired, an additional allowance for credit losses is established through provisions for credit losses and is charged against income. Loans receivable deemed to be uncollectible are charged against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance. At December 31, 2002 and 2001, the carrying amount of loans receivable was $87 million and $106 million, respectively, net of the allowance for credit losses of $69 million and $79 million, respectively.

Securitizations by Financial Services Businesses

Prior to being divested, Dominion’s financial services businesses would periodically securitize mortgages and loans. Securitizations resulted from the process of selling loans to unconsolidated special purpose trusts in exchange for cash and certain retained interests. Retained interests include subordinated bonds or other securities issued by the trusts or interests in the loans sold. Cash proceeds were determined based on the difference between interest rates to be received on the loans sold and the interest rate to be paid to investors participating in the securitizations. The determination of cash proceeds was also affected by estimates of prepayments, credit losses, servicing costs and non-refundable fees and premiums. Gains and losses realized on the sale of loans were recognized based on the difference between 1) the carrying amount of the loans sold and 2) the sum of the cash proceeds received and the fair value of interests retained in the securitization on the settlement date. Fair value was based on the present value of estimated cash flows, adjusted to reflect the effects of credit losses, prepayments and other factors appropriate in each securitization. Dominion securitized commercial loans receivable in collateralized loan obligation (CLO) and collateralized debt obligation (CDO) transactions. Retained interests in CLO and CDO transactions are reported as available-for-sale securities. In addition, before selling its residential mortgage business, Dominion securitized residential mortgage loans.

Retained interests from the securitization of mortgage loans include interest-only strips, which are recorded, based on the net present value of projected cash flows, using management’s best estimates of key assumptions. These assumptions include credit losses, prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. Interest-only strips are amortized in proportion to the estimated income received. They are analyzed quarterly to determine whether prepayment experience, losses and changes in the interest rate environment have had an impact on the valuation. Expected cash flows of the underlying loans sold are reviewed based on current economic conditions and the types of loans originated and are revised as necessary. See Notes 9 and 13 for more information about Dominion’s investments in retained interests, including the recognition of impairments in 2002, 2001 and 2000.

Derivative Instruments

Dominion uses derivative instruments such as futures, swaps, forwards and options to manage the commodity, currency exchange and financial market risks of its business operations. Dominion also manages a portfolio of commodity contracts held for trading purposes as part of its strategy to market energy and to manage related risks. Derivative instruments are generally recognized on the Consolidated Balance Sheets at fair value. See Note 15 for further discussion of Dominion’s use of derivative instruments and energy trading contracts, including its risk management policy, its accounting policy for derivatives under SFAS No. 133 and the results of its hedging activities for the years ended December 31, 2002 and 2001.

Prior to January 1, 2001, Dominion considered derivative instruments to be effective hedges when the item being hedged and the underlying financial instrument or commodity contract showed strong historical correlation. Dominion used deferral accounting to account for futures, forwards and other derivative instruments that were designated as hedges. Under this method, realized gains and losses (including the payment of any premium) related to effective hedges of existing assets and liabilities were recognized in earnings in conjunction with the designated asset or liability. Gains and losses related to effective hedges of firm commitments and anticipated transactions were included in the measurement of the subsequent transaction.

Goodwill, Net

Prior to the adoption of SFAS No. 142, Goodwill and Other Intangible Assets , on January 1, 2002, goodwill arising from acquisitions completed before July 1, 2001 was amortized on a straight-line basis over periods up to 40 years. In accordance with SFAS No. 142, Dominion did not amortize goodwill arising from acquisitions initiated after June 30, 2001 and ceased amortization of all goodwill upon adoption of the standard. Dominion evaluates goodwill for impairment on at least an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. See Note 18 for further discussion of the adoption of SFAS No. 142 and the goodwill impairment charge recorded in 2002. See Note 5 for discussion of Dominion’s recent significant acquisitions.

Regulatory Assets and Liabilities

Methods of allocating costs to accounting periods for operations subject to federal or state cost-of-service rate regulation may differ from accounting methods generally applied by non-regulated companies. The economic effects of allocations prescribed by regulatory authorities for rate-making purposes must be considered in the application of generally accepted accounting principles. See Notes 19 and 27 for additional information on regulatory assets and liabilities and the impact of legislation on continued application of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation .

Amortization of Debt Issuance Costs

Dominion defers and amortizes debt issuance costs and debt premiums or discounts over the lives of the respective debt issues. As permitted by regulatory authorities, gains or losses resulting from the refinancing of debt allocable to utility operations subject to cost-based rate regulation have also been deferred and amortized over the lives of the new issues.

3 . Accounting Change for Pension Costs

Effective January 1, 2000 and in connection with Dominion’s acquisition of CNG, Dominion adopted a new company-wide method of calculating the market-related value of pension plan assets used to determine the expected return on pension plan assets, a component of net periodic pension cost. Dominion believes the new method enhances the predictability of the expected return on pension plan assets; provides consistent treatment of all investment gains and losses; and results in calculated market-related pension plan asset values that are closer to market value than the values calculated under the pre-acquisition methods used by Dominion or CNG.

The $21 million cumulative effect of the change on prior years (net of income taxes of $11 million) was included in income for the year ended December 31, 2000. The change increased income before cumulative effect of a change in accounting principle for 2000 by $11 million ($0.05 per share-basic and diluted) and net income by $32 million ($0.14 per share-basic and diluted).

4 . Recently Issued Accounting Standards

Asset Retirement Obligations

In 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143 , Accounting for Asset Retirement Obligations , which provides accounting requirements for the recognition and measurement of liabilities associated with the retirement of tangible long-lived assets. Dominion adopted the standard effective January 1, 2003.

Dominion has identified certain asset retirement obligations that are subject to the standard. These obligations are primarily associated with the decommissioning of its nuclear generation facilities, abandoning certain natural gas pipelines and dismantling and removing gas and oil wells and platforms.

Under SFAS No. 143, asset retirement obligations will be recognized at fair value as incurred and capitalized as part of the cost of the related tangible long-lived assets. Under the present value approach used to estimate the fair value of asset retirement obligations, accretion of the liabilities due to the passage of time will be recognized as an operating expense. As a result, the adoption of SFAS No. 143 requires changes in Dominion’s accounting and reporting for certain asset retirement obligations already being recognized under its accounting policies prior to the adoption of SFAS No. 143. For example, Dominion recognizes amounts related to future decommissioning activities at its utility nuclear plants. As discussed in Note 16, the accumulated provision for decommissioning is presented on the balance sheet at December 31, 2002 as a component of accumulated depreciation. Under SFAS No. 143, the asset retirement obligation will be reported as a liability.

In addition, the reporting of realized and unrealized earnings of external trusts available for funding decommissioning activities at Dominion’s utility nuclear plants will be recorded in other income and other comprehensive income, as appropriate. Through 2002, Dominion recorded these trusts’ earnings in other income with an offsetting charge to expense, also recorded in other income, for the accretion of the decommissioning liability.

On January 1, 2003, Dominion implemented SFAS No. 143 and recognized an after-tax gain of $180 million, representing the cumulative effect of a change in accounting principle. Under Dominion’s accounting policy prior to the

Notes to Consolidated Financial Statements—(Continued)

adoption of SFAS No. 143, $1.6 billion had previously been accrued for future asset removal costs, primarily related to future nuclear decommissioning. Such amounts are included in the accumulated provision for depreciation, depletion and amortization as of December 31, 2002. With the adoption of SFAS No. 143, Dominion calculated its asset retirement obligations to be $1.5 billion. In recording the cumulative effect of the accounting change, Dominion recognized the reduction attributable to the re-measurement of asset retirement obligations and reclassified such amount from the accumulated provision for depreciation, depletion and amortization to other non-current liabilities. The cumulative effect of the accounting change also reflected a $350 million increase in property, plant and equipment for capitalized asset retirement costs and a $90 million increase in the accumulated provision for depreciation, depletion and amortization, representing the depreciation of such costs through December 31, 2002.

In accordance with SFAS No. 71, Accounting for the Effects of Certain Types of Regulation , Dominion will continue its practice of accruing for future costs of removal for its cost-of-service rate regulated gas and electric utility assets, even if no legal obligation to perform such activities exists. At December 31, 2002, Dominion’s accumulated depreciation, depletion and amortization included $596 million, representing the estimated future cost of such removal activities.

Energy Trading Contracts

In October 2002, the Emerging Issues Task Force (EITF) rescinded EITF Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities (EITF 98-10). As a result, certain energy-related commodity contracts held for trading purposes will no longer be subject to fair value accounting. The affected contracts are those energy-related contracts held for trading purposes that are not considered to be derivatives under SFAS No. 133 . Under EITF 98-10 accounting, the fair value of energy contracts was measured at each reporting date, with changes in fair value, including unrealized amounts, reported in earnings. Energy-related contracts affected by the rescission of EITF 98-10 will be subject to accrual accounting and recognized as revenue or expense at the time of contract performance, settlement or termination.

The rescission of EITF 98-10 primarily affects the timing of recognition in earnings from Dominion’s energy-related trading contracts. In addition, affected contracts will no longer be reported at fair value on Dominion’s balance sheet. The EITF 98-10 rescission was effective for all non-derivative energy trading contracts initiated after October 25, 2002. As a result of implementing the change for all non-derivative energy trading contracts initiated prior to October 25, 2002, Dominion recognized a loss of $67 million (net of taxes of $43 million) as the cumulative effect of this change in accounting principle effective January 1, 2003.

Accounting for Guarantees

In November 2002, FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—An Interpretation of FASB Statements No. 5, 57 and 107 (FIN No. 45). Under FIN No. 45, issuers of certain types of guarantees must recognize a liability based on the fair value of the guarantee issued, even when the likelihood of making payments is remote. In addition, FIN No. 45 requires increased disclosures for specific types of guarantees.

FIN No. 45’s initial recognition requirements apply only to guarantees issued or modified after December 31, 2002. Dominion does not anticipate any material impact on its future results of operations or financial condition as a result of recording newly issued or modified guarantees at fair value. FIN No. 45’s disclosure requirements are effective for financial statements ending after December 15, 2002. See Note 27.

Consolidation of Variable Interest Entities

In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities , (FIN No. 46) which addresses consolidation by business enterprises of entities that are not controllable through voting interests or in which the equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as “special purpose entities.” The underlying principle behind the new Interpretation is that if a business enterprise has the majority financial interest in an entity, defined in the guidance as a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity should be included in consolidated financial statements with those of the business enterprise. FIN No. 46 explains how to identify variable interest entities and how an enterprise should assess its interest in an entity to decide whether to consolidate that entity. Dominion will apply the provisions of FIN No. 46 prospectively for all variable interest entities created after January 31, 2003. For variable interest entities created before January 31, 2003, Dominion will be required to consolidate all entities in which it was deemed to be the primary beneficiary beginning July 1, 2003.

As discussed in Note 27, Dominion, through certain subsidiaries, has entered into agreements with variable interest entities in order to finance and lease several new power generation projects, as well as its corporate headquarters and aircraft. Under existing accounting guidance, neither the project assets nor related obligations are currently reported on

Dominion’s Consolidated Balance Sheets. As these variable interest entities are currently structured, Dominion would be determined to be the primary beneficiary under FIN No. 46 and would be required to consolidate these variable interest entities beginning in the third quarter of 2003. Based upon total project costs incurred through December 31, 2002, consolidation of these variable interest entities would result in an additional $1.6 billion in property, plant and equipment and related debt. Dominion’s maximum exposure to loss resulting from these agreements is $1.3 billion as of December 31, 2002. This assessment is based upon total project costs through December 31, 2002 and assumes the property, plant and equipment will have no value at the end of their lease terms, which management believes is highly unlikely. Dominion is considering other financing structures for these projects in the future that may result in continued off-balance sheet treatment.

As discussed in Note 30, Dominion has a 50 percent membership interest in Dominion Fiber Ventures, LLC (DFV), a telecommunications joint venture with approximately $850 million in total assets at December 31, 2002. Under existing accounting guidance, Dominion’s investment in this variable interest entity has been accounted for under the equity method. Under FIN No. 46, Dominion would have been determined to be DFV’s primary beneficiary and thus would have been required to consolidate DFV beginning July 1, 2003. However, as described in Note 30 under Subsequent Event , Dominion began consolidating DFV in February 2003 following its acquisition of substantially all of DFV’s outstanding senior notes, which significantly increased Dominion’s financial interest in DFV. Dominion’s maximum exposure to loss related to its involvement with DFV consists of its $85 million investment in DFV as of December 31, 2002, as well as the $633 million invested in DFV in February 2003 through the acquisition of DFV’s senior notes. In addition, under the joint venture agreements, Dominion must absorb substantially all future DFV operating losses and is exposed to DFV’s obligation for payments to the other DFV investor, representing a return on its investment.

Dominion, through a Dominion Capital subsidiary, has an interest in a developer and manufacturer of engineered polymer products. It is likely that Dominion would be determined to be the primary beneficiary of this variable interest entity under FIN No. 46. Dominion’s maximum exposure to loss as a result of its involvement with this entity is $44 million at December 31, 2002.

Dominion’s management does not anticipate that the changes in accounting requirements will impact planned levels of financing or its credit ratings. Dominion does not anticipate that the adoption of FIN No. 46 will have a material impact on its results of operations for the year ended December 31, 2003.

Other

SFAS No. 133 Guidance —In connection with the January 2003 EITF meeting, FASB was requested to reconsider an interpretation of SFAS No. 133. The interpretation, which is contained in the Derivatives Implementation Group’s C11 guidance, relates to contracts with pricing terms that include broad market indices. In particular, that guidance discusses whether the pricing in a contract that contains broad market indices (e.g., consumer price index) could qualify as a normal purchase or sale and therefore not be subject to fair value accounting. Dominion has certain power purchase and sale contracts that are subject to the guidance addressed in the request for reconsideration. Dominion does not expect the effect of implementing any change, that would ultimately be required as a result of the guidance being clarified, to be material to its results of operations or financial position.

Future Accounting Changes —FASB’s standard-setting process is ongoing. Some of the projects currently on FASB’s agenda include: financial instruments, revenue recognition and procedures related to the purchase method of accounting used for business combinations. In the financial instruments project, FASB is considering whether certain financial instruments should be classified as equity or liabilities on the balance sheet. FASB plans to issue a limited scope statement in 2003. In December 2002, FASB decided to broaden the scope of this project to include development of guidance related to measuring the fair value of financial instruments. The fair value measurement guidance developed in this project would supersede existing guidance. In establishing its revenue recognition project, FASB recognized that no comprehensive standard on revenue recognition exists. FASB plans to issue exposure drafts on a comprehensive accounting standard on revenue recognition and related amendments of its concepts statements in mid-2004 and to finalize the standard and related amendments in 2005. In its project concerned with the purchase method of accounting for business combinations, FASB’s deliberations are expected to consider the following: how to measure the fair value of the exchange; recognition and measurement of acquired assets and assumed liabilities, including pre-acquisition contingencies; and issues related to non-controlling interests. Until new standards have been finalized and issued by FASB, Dominion cannot determine the impact on the reporting of its operations that may result from any such future changes.

Notes to Consolidated Financial Statements—(Continued)

5 . Acquisitions

Cove Point LNG Limited Partnership

In September 2002, Dominion acquired 100 percent ownership of Cove Point LNG Limited Partnership (Cove Point), a cost-based rate-regulated entity, from a subsidiary of The Williams Companies for $225 million in cash. Dominion recorded $75 million of goodwill representing the excess of the purchase price over the regulatory basis of Cove Point’s assets acquired and liabilities assumed. Cove Point’s assets include a liquefied natural gas import facility located near Baltimore, Maryland that is under reconstruction, a liquefied natural gas storage facility and an approximately 85-mile natural gas pipeline. Dominion expects Cove Point to become fully operational in 2003. Dominion incurred $33 million of additional development costs during 2002 and expects to incur $84 million of costs in 2003. Cove Point is included in the Dominion Energy operating segment and all of the goodwill arising from the acquisition has been allocated to that segment for purposes of impairment testing under SFAS No. 142.

Mirant State Line Ventures, Inc.

In June 2002, Dominion acquired 100 percent ownership of Mirant State Line Ventures, Inc. (State Line) from a subsidiary of Mirant Corporation for $185 million in cash. State Line’s assets include a 515-megawatt coal-fired generation facility located near Hammond, Indiana. Its operations are included in the Dominion Energy operating segment.

Louis Dreyfus Natural Gas Corp.

In November 2001, Dominion acquired all of the outstanding shares of common stock of Louis Dreyfus Natural Gas Corp. (Louis Dreyfus), a natural gas and oil exploration and production company headquartered in Oklahoma City, Oklahoma. The aggregate purchase price was $1.8 billion, which consisted of approximately 14 million shares of Dominion common stock valued at $881 million, $902 million in cash and employee stock options with a fair value on the date of grant of approximately $13 million. Dominion initially recorded $519 million of goodwill, representing the excess of purchase price over amounts allocated to Louis Dreyfus’ assets acquired and liabilities assumed. The purchase price allocation was completed during the first quarter of 2002 upon receipt of information from outside specialists, increasing liabilities and goodwill each by $24 million.

The operations of Louis Dreyfus are included in the Dominion Exploration & Production operating segment. All of the goodwill arising from the acquisition has been allocated to that segment for purposes of impairment testing under SFAS No. 142. In accordance with SFAS No. 142, no goodwill amortization was recorded related to the acquisition.

Millstone Power Station

In March 2001, Dominion acquired Millstone Power Station (Millstone), a nuclear power station located in Waterford, Connecticut. The aggregate purchase price was $1.3 billion in cash, consisting of approximately $1.2 billion for plant assets and $105 million for nuclear fuel. Dominion recorded $302 million of goodwill representing the excess of the purchase price over amounts allocated to Millstone’s assets acquired and liabilities assumed. The operations of Millstone are included in the Dominion Energy operating segment and all of the goodwill arising from the acquisition has been allocated to that segment for purposes of impairment testing under SFAS No. 142.

CNG

In January 2000, Dominion acquired all of the outstanding shares of CNG and accounted for the acquisition under the purchase method of accounting. The aggregate purchase price was $6.4 billion, consisting of approximately 87 million shares of Dominion common stock valued at $3.5 billion and approximately $2.9 billion in cash. Dominion recorded $3.5 billion of goodwill, representing the excess of the purchase price over the fair value of CNG’s operations not subject to cost-based rate regulation and the historical carrying value of CNG’s operations subject to cost-of-service rate regulation. The operations of CNG are reported in Dominion’s Energy, Delivery and Exploration & Production operating segments and the goodwill arising from the CNG acquisition has been allocated among those segments for purposes of impairment testing under SFAS No. 142.

6 . Divestitures

As of December 31, 2002, Dominion had substantially completed its strategy to exit the core operating businesses of DCI as required by the SEC under the 1935 Act. Currently, Dominion is required to divest of all remaining DCI holdings by January 2006. See Note 9 for charges recognized in connection with the DCI exit strategies in 2001 and 2000. In 2001, Dominion sold Saxon Capital, Inc. and recognized an after-tax loss of $25 million. Under the terms of the sale, Dominion received $116 million in cash, a $25 million note and a non-controlling equity interest that was subsequently sold for $25 million. In addition, Dominion retained approximately $300 million in retained interests related to prior mortgage loan securitizations. Dominion held $185 million and $269 million of retained interests from mortgage loan securitizations at December 31, 2002 and 2001, respectively.

In 2000, Dominion sold $600 million of commercial loans and transferred $223 million of outstanding commercial

loan commitments. As of December 31, 2002, Dominion held commercial and other loans receivable of $87 million, net of allowances for loan losses, and $266 million of CLO and CDO-related retained interests. At December 31, 2001, Dominion held commercial and other loans receivable of $106 million, net of allowances for loan losses, and $268 million of CLO and CDO-related retained interests.

In 2000, Dominion completed the sales of Virginia Natural Gas, Inc. and CNG International’s Argentine assets for $678 million. Representing assets held for sale from the CNG acquisition, those transactions did not result in the recognition of any gain or loss. Also in 2000, Dominion completed the sale of its interest in Corby Power Limited for $78 million, resulting in an after-tax gain of $13 million. Dominion completed the sale of its interests in electric generation capacity in Latin America for $405 million in 2000 and 1999, for which Dominion recognized an after-tax impairment loss of $21 million in 1999.

7 . Operating Revenue

	Year Ended December 31,

(millions)	2002		2001		2000

Regulated Sales
Electric	$	4,856	$	4,619	$	4,492
Gas		876		1,409		1,374
Nonregulated Sales
Electric		1,017		1,022		318
Gas		778		1,073		671
Gas transportation and storage		705		702		486
Gas and oil production		1,334		1,057		857
Other		652		676		1,048

Total operating revenue	$	10,218	$	10,558	$	9,246

The primary types of sales and service activities reported as operating revenue include:

Regulated electric sales consist primarily of state-regulated retail electric sales and federally regulated wholesale electric sales and electric transmission services subject to cost-of-service rate regulation.

Regulated gas sales consist primarily of state-regulated retail natural gas sales and related distribution services.

Nonregulated electric sales consist primarily of sales of electricity from utility, independent power production and merchant nuclear plant resources at market-based rates and net operating revenue from electric trading activities.

Nonregulated gas sales consist primarily of sales of natural gas at market-based rates, brokered gas sales and net operating revenue from gas trading activities. Natural gas sold includes gas produced by Dominion as well as purchased gas.

Gas transportation and storage consists primarily of federally-regulated sales of gathering, transmission, distribution and storage services. Also included are gas distribution charges to retail distribution service customers opting for alternate suppliers.

Gas and oil production consists primarily of sales of natural gas, oil and condensate produced by Dominion. Gas and oil production revenue is reported net of royalties.

Other revenue consists primarily of miscellaneous service revenue from electric and gas distribution operations; sales of coal, brokered oil and other extracted products; gas and oil processing; gas transmission capacity release; and interest and other income from financial services operations.

Dominion’s customer accounts receivable at December 31, 2002 and 2001 included $334 million and $307 million, respectively, of accrued unbilled revenue based on estimated electric energy or natural gas delivered but not yet billed to its utility customers. Considering historical usage and applicable customer rates, Dominion estimates unbilled utility revenue based on weather factors and, for electric customers, total daily electric generation supplied after adjusting for estimated losses of energy during transmission.

8 . Restructuring and Acquisition-Related Activities

2001 Restructuring Costs

In the fourth quarter of 2001, after fully integrating CNG’s organization and operations with those of Dominion, management initiated a focused review of Dominion’s combined operations and developed a plan of reorganization. As a result, Dominion recognized $105 million of restructuring costs which included employee severance and termination benefits and the abandonment of leased office space no longer needed. In addition, restructuring charges included approximately $46 million related to departing employees for modifications of stock options, special termination benefits and losses related to the settlement of the related nonqualified pension obligation and plan curtailment attributable to reductions in expected future years of service of plan participants. See Note 26.

Under the 2001 restructuring plan, Dominion identified approximately 340 salaried positions to be eliminated and recorded $42 million in employee severance-related costs. Severance payments were based on the individual’s base salary and years of service at the time of termination. In 2002, Dominion recorded an $8 million adjustment to the liability for severance and related costs and reported it in restructuring and other acquisition-related costs in the Consolidated Statements of Income. With 303 positions actually being eliminated under the plan, the adjustment reflected a reduction in the number of employee positions being

Notes to Consolidated Financial Statements—(Continued)

eliminated and a reduction for differences between actual and estimated base salaries and years of service for those employees actually terminated under the plan.

Restructuring and related costs for the year ended December 31, 2001 were as follows:

	(millions)

Severance and related costs	$	42
Nonqualified plan benefits, settlement and other costs		46
Lease termination and restructuring		13
Other		4

Total restructuring costs	$	105

The change in the liabilities for severance and related costs and lease termination costs during 2002 is presented below:

(millions)	Severance Liability			Lease Liability

Balance at December 31, 2001	$	42		$	10
Amounts paid		(24	)		(1	)
Revision of estimate		(8	)

Balance at December 31, 2002	$	10		$	9

2000 Restructuring and Acquisition-Related Activities

During 2000, Dominion incurred charges associated with the divestiture of certain businesses and the implementation of a restructuring plan for the operations of Dominion and its subsidiaries. The divestitures and restructuring plans were driven by certain requirements associated with the CNG acquisition and a focus on operations in the region that begins at the Mid-America Interconnected Network (MAIN) and extends north-eastward through Maine (MAIN-to-Maine). The restructuring plan included an involuntary severance program, a voluntary early retirement program (ERP) and a transition plan to consolidate operations after the CNG acquisition.

For the year ended December 31, 2000, Dominion recorded $460 million of restructuring and acquisition-related costs, including those incurred from exiting certain businesses of DCI, as follows:

	(millions)

Severance and related costs	$	70
Commodity contract losses		55
Information technology related costs		35
Lease termination and restructuring		14
DCI exit strategies (see Note 9)		172
ERP benefit costs (see Note 26)		114
Curtailment gains (see Note 26)		(26	)
Other		26

Total	$	460

Employee Severance Programs— As a result of the 2000 restructuring activities, Dominion eliminated 750 salaried positions. Severance payments were based on the individual’s base salary and years-of-service at the time of termination. In addition, severance payments were provided to employees at DCI who were terminated as part of Dominion’s strategy to exit certain businesses of DCI. At December 31, 2001, $3 million of severance and related benefit costs accrued under the plan had not yet been paid; such amounts were paid during 2002.

Change in Risk Management Strategy— During the first quarter of 2000, Dominion created an enterprise risk management group with responsibility for managing Dominion’s aggregate energy portfolio, including the related commodity price risk, across its consolidated operations. In connection with this change in risk management strategy, management evaluated CNG’s hedging strategy in relation to Dominion’s combined operations and designated CNG’s portfolio of derivative contracts that existed on January 28, 2000, as held for purposes other than hedging for accounting purposes. This action required a change to mark-to-market accounting and resulted in $55 million of losses recognized in the first quarter of 2000 before Dominion had either financially settled the contracts or had entered into offsetting contracts.

Other— Restructuring and other acquisition-related costs included amounts paid to employees to retain their services during the post-acquisition transition period, amounts payable under certain employee contracts and information technology systems and operations integration costs. The information technology costs included excess amortization expense attributable to shortening the useful lives of capitalized software being impacted by systems integration and related conversion costs. Dominion also incurred lease termination and restructuring costs as a result of the consolidation of operations.

9 . Impairment Losses—DCI Operations

In 2002, Dominion recognized impairment losses of $24 million ($16 million after-tax) on its retained interests in mortgage securitizations and goodwill associated with a DCI subsidiary. These impairment losses were reported in other operations and maintenance expenses. See Note 18 for a discussion of the goodwill impairment. In 2001, Dominion recognized impairment losses of $281 million on various investments at DCI and reported the losses in other operations and maintenance expenses. These charges, after-tax, reduced 2001 net income by $183 million. In 2000, Dominion recognized impairment losses of $291 million, of which $172 million was determined to be attributable to Dominion’s DCI exit strategy and were included in restructuring and other acquisition-related costs. The remaining $119 million of impairment charges were related to normal operations of DCI

and are included in other operations and maintenance expenses. See Notes 6, 8 and 13. These charges, after-tax, reduced 2000 net income by $186 million. The 2002, 2001 and 2000 impairments are reflected in the Corporate and Other operating segment. See Note 32.

The table below presents a summary of the impairment losses recorded in 2002, 2001 and 2000:

(millions)	2002		2001		2000

Retained interests from mortgage securitizations	$	11	$	21	$	106
Retained interests from CLO/CDO securitizations				81
Loans receivable				94		36
Venture capital and other equity investments		13		64		46
Investment in First Source Financial LLP						49
Real-estate projects and other				21		54

Total	$	24	$	281	$	291

Retained Interests—Mortgage, CLO and CDO Securitizations

As part of routine quarterly reviews of its retained interests in mortgage securitizations during the fourth quarter of 2002, Dominion revised its prepayment speed assumptions for estimating fair values and, as a result, recognized an $11 million write-down of the carrying values of those investments. During its review of its retained interests in mortgage, CLO and CDO securitizations in 2001, Dominion considered the following: historical performance of its securitized pools; recent prepayment and credit loss experience of loans in those pools; other industry data; and economic factors prevailing in the U.S. economy, particularly conditions brought about by the September 11, 2001 events and the mortgage interest rate environment at the time of the assessment. In light of actual credit loss experience and actual prepayment activity of certain mortgage and commercial loans in the securitization trusts, Dominion increased its credit loss and prepayment speed assumptions used to estimate the fair value of its retained interests in mortgage, CLO and CDO securitizations. With these changes in estimates, Dominion recognized a write-down of the carrying values of its retained interests in mortgage and CLO and CDO securitizations of $21 million and $81 million, respectively. During the first half of 2000, in response to changes in market conditions, Dominion increased the discount rate used to value the interest-only strips included in its retained interests in mortgage securitizations from 12 percent to 17 percent and recognized a loss of $106 million. See Note 13 for significant credit loss, prepayment and discount rate assumptions.

Loans and Other Investments

The other impairments and loss provisions in 2001 reflect Dominion’s current estimate of net realizable values considering the dramatically weakened economy and increasing instances of bankruptcies, defaults and major restructurings that significantly diminished investment values. Dominion’s valuation methodologies and assumptions vary by investment and include cash flow analysis, signed contracts, independent third-party appraisals and, in certain cases, liquidation value.

10. Income Taxes

Income before provision for income taxes, classified by source of income, before minority interests, was as follows:

	Year Ended December 31,

(millions)	2002		2001		2000

U.S.	$	2,018	$	816	$	552
Non-U.S.		25		98		48

Total	$	2,043	$	914	$	600

Details of income tax expense were as follows:

	Year Ended December 31,

(millions)	2002			2001			2000

Current
Federal	$	(46	)	$	104		$	255
State		13			62			20
Non-U.S.					3

Total current		(33	)		169			275

Deferred
Federal		654			151			(111	)
State		65			24			16
Non-U.S.		13			45			22

Total deferred		732			220			(73	)

Amortization of deferred investment tax credits—net		(18	)		(19	)		(19	)

Total income tax expense	$	681		$	370		$	183

Notes to Consolidated Financial Statements—(Continued)

The statutory U.S. federal income tax rate reconciles to the effective income tax rates as follows:

	Year Ended December 31,

	2002 ⁽¹⁾		2001 ⁽²⁾		2000

U.S. statutory rate	35.0	%	35.0	%	35.0	%
Increases (reductions) resulting from:
Utility plant differences	(0.1	)	0.5		0.8
Preferred dividends	0.3		0.9		2.1
Amortization of investment tax credits	(0.7	)	(1.7	)	(2.3	)
Nonconventional fuel credit	(1.8	)	(4.6	)	(7.1	)
Other benefits and taxes related to foreign operations	0.2		3.0		(2.7	)
State taxes, net of federal benefit	2.5		5.9		4.3
Goodwill amortization			3.3		4.4
Employee pension and other benefits	(0.6	)	(1.4	)	(1.4	)
Employee stock ownership plan deduction	(0.8	)
Other, net	(0.7	)	(0.5	)	(2.6	)

Effective tax rate	33.3	%	40.4	%	30.5	%

⁽¹⁾

Dominion’s effective income tax rate decreased, reflecting the effect of including certain subsidiaries in Dominion’s consolidated state income tax returns. In addition, the effective tax rate decreased for foreign earnings, the impact of discontinuing goodwill amortization for book purposes and other factors.

⁽²⁾

Dominion’s effective income tax rate increased in 2001 due to its utility operations in Virginia becoming subject to state income taxes in lieu of gross receipts taxes, higher effective rates associated with foreign earnings and higher pretax income in relation to nonconventional fuel tax credits realized.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Dominion’s net deferred taxes consist of the following:

	At December 31,

(millions)	2002		2001

Deferred income tax assets:
Other comprehensive income	$	246
Deferred investment tax credits		37	$	43
Other		18		122

Total deferred income tax assets		301		165

Deferred income tax liabilities:
Depreciation method and plant basis differences		2,007		1,911
Income taxes recoverable through future rates		15		19
Partnership basis differences		184		113
Investee earnings reported in different tax periods		149		143
Postretirement and pension benefits		517		464
Intangible drilling costs		723		520
Geological, geophysical and other exploration differences		196		170
Deferred state income taxes		222		221
Other comprehensive income				182
Other		298		113

Total deferred income tax liabilities		4,311		3,856

Total net deferred income tax liabilities ⁽¹⁾	$	4,010	$	3,691

⁽¹⁾

For 2002 and 2001, total net deferred income tax liabilities include $89 million and $121 million, respectively, of current deferred tax assets reported in other current assets.

At December 31, 2002, Dominion had U.S. federal net operating loss carryforwards of $107 million. These carryforwards are expected to be fully utilized between 2003 and 2007. These amounts resulted from the acquisition of subsidiaries.

11 . Earnings Per Share

The following table presents Dominion’s basic and diluted earnings per share (EPS) calculation:

	Year ended December 31,

(millions, except per share amounts)	2002		2001		2000

Basic
Income before cumulative effect of a change in accounting principle	$	1,362	$	544	$	415
Average shares of common stock outstanding—basic		281.0		250.2		235.2
Basic EPS	$	4.85	$	2.17	$	1.76

Diluted
Income before cumulative effect of a change in accounting principle	$	1,362	$	544	$	415
Average shares of common stock outstanding		281.0		250.2		235.2
Net effect of dilutive stock options ⁽¹⁾		1.6		2.3		0.7

Average shares of common stock outstanding—diluted		282.6		252.5		235.9
Diluted EPS	$	4.82	$	2.15	$	1.76

Average anti-dilutive shares excluded from the EPS calculation		11.0		3.0		4.0

⁽¹⁾

Represents the effect of “in-the-money” stock options on the calculation of average outstanding shares of common stock.

12 . Inventories

At December 31, 2002 and 2001, stored gas inventory used in local gas distribution operations was valued at $52 million and $84 million, respectively, under the last-in-first-out (LIFO) method. Based on the average price of gas purchased during 2002, the current cost of replacing the current portion of stored gas inventory exceeded the amount stated on a LIFO basis by approximately $163 million. At December 31, 2002 and 2001, the stored gas inventory of certain of Dominion’s nonregulated gas operations was valued at $179 million and $98 million, respectively, using primarily the weighted average cost method.

A portion of gas in underground storage used as a pressure base and for operational balancing was included in property, plant and equipment in the amount of $124 million at December 31, 2002 and 2001. Property, plant and equipment also reflected a reduction for volumes temporarily withdrawn from storage and valued at replacement costs of $53 million and $25 million as of December 31, 2002 and 2001, respectively.

Materials and supplies and fossil fuel inventories are valued using primarily the weighted average cost method.

13 . Securitization of Financial Assets

In prior years, Dominion sold residential mortgage loans and commercial loans in securitization transactions. In those securitizations, Dominion retained servicing responsibilities

and interests which are subordinate to the interests of investors participating in the securitizations. The investors and the securitization trusts have no recourse to Dominion’s other assets for failure of debtors to pay when due. In 2001 and 2000, Dominion recognized pretax gains of $21 million and $85 million, respectively, on the securitization of residential mortgage loans.

Dominion’s retained interests in mortgage securitizations were based on rights to annual servicing fees approximating 50 basis points of the outstanding balance and rights to future cash flows from the performance of the loan portfolios after the investors in the securitization trusts have received their contracted return. In addition, Dominion will continue to receive future cash flows from prepayment penalties on mortgage loans that payoff during the contractual penalty period. The value of the retained interests is subject to credit, prepayment and interest rate risks related to the mortgage loans sold. For CLOs, Dominion receives annual servicing fees of 38 basis points of the outstanding balance and rights to future cash flows after the investors in the securitization trusts have received their contracted return. The estimated fair value of Dominion’s retained interests at the time of the 2001 and 2000 securitizations was based on expected cash flow recoveries from the loan portfolios. The majority of the commercial loans securitized were variable rate loans. As a result, changes in interest rates will not cause a material change in the performance of the loan portfolios. See Notes 2 and 9 for a discussion of Dominion’s accounting policy for securitizations and the outcome of routine quarterly reviews of retained interests in mortgage, CLO and CDO securitizations during 2002, 2001 and 2000 and related impairment charges.

Activity for the retained interests from securitizations of mortgage loans, including interest-only strips and servicing rights, and the CLO and CDO retained interests is summarized as follows:

(millions)	Interest-Only Strips— Mortgage Loans ⁽¹⁾			Servicing Rights Mortgage Loans			Retained Interest— CLO			Retained Interest— CDO

Balance at January 1, 2000	$	347		$	39					$	58
Retained from securitization		99			18		$	76			30
Amortization		(16	)		(7	)
Cash received		(51	)								(4	)
Gain on trading securities		25
Fair value adjustment		(102	)		(5	)					(1	)

Balance at December 31, 2000		302			45			76			83
Retained from securitization		33						196
Amortization		(9	)
Cash received		(55	)								(6	)
Gain on trading securities		19
Servicing rights sold ⁽²⁾					(45	)
Fair value adjustment		(21	)					(67	)		(14	)

Balance at December 31, 2001		269			—			205			63
Amortization		(5	)
Cash received		(49	)								(2	)
Loss on securities		(19	)
Fair value adjustment		(11	)

Balance at December 31, 2002	$	185			—		$	205		$	61

⁽¹⁾

Includes prepayment penalties.

⁽²⁾

Dominion sold all of its servicing rights as part of its sale of Saxon Mortgage in 2001.

Notes to Consolidated Financial Statements—(Continued)

Presented below are the fair values of Dominion’s retained interests and related key economic assumptions as of December 31, 2002 and the sensitivity of the retained interests’ fair value to adverse changes of 10 percent and 20 percent in those assumptions:

(millions, except percentages)	Retained Interest— Mortgage Loans			Retained Interest— CLO			Retained Interest— CDO

Carrying amount/fair value	$	182		$	205		$	61
Weighted-average life (in years)		3.54			1.87			3.69

Prepayment speed assumption (annual rate)		⁽¹	⁾		N/A			N/A
Impact on fair value of 10% adverse change	$	(12	)		N/A			N/A
Impact on fair value of 20% adverse change		(23	)		N/A			N/A

Expected credit losses (annual rate)		3.6	%		4	% ⁽²⁾		2	% ⁽³⁾
Impact on fair value of 10% adverse change	$	(7	)	$	(6	)	$	(3	)
Impact on fair value of 20% adverse change		(14	)		(10	)		(7	)

Residual cash flows discount rate (annual)		17	%		10	%		16.9	%
Impact on fair value of 10% adverse change	$	(6	)	$	(10	)	$	(4	)
Impact on fair value of 20% adverse change		(11	)		(15	)		(8	)

Interest rates on variable and adjustable contracts		⁽⁴	⁾		N/A			N/A
Impact on fair value of 10% adverse change	$	(2	)		N/A			N/A
Impact on fair value of 20% adverse change		(4	)		N/A			N/A

⁽¹⁾

Fixed rate loans ramp up to 25 constant prepayment rate (CPR) over 16 months. Adjustable rate loans ramp up to 65 CPR over 16 months, ramping down to 40 CPR over 12 months. Second liens ramp up to 35 CPR over 16 months, ramping down to 22 CPR over 26 months. Two-year hybrid loans ramp up to 32 CPR over 14 months; ramping up to 65 CPR in month 25; ramping to 31 CPR over 7 months. Three-year hybrid loans ramp up to 32 CPR over 14 months; ramping up to 60 CPR in month 37; ramping down to 31 CPR over 7 months.

⁽²⁾

Defaults occur at the beginning of each period. They are applied on constant percentage to the period’s beginning collateral balance.

⁽³⁾

Assets rated Caa1 and lower are defaulted using a cumulative default rate (CDR) vector based upon Moody’s Cumulative Default Rates for Caa1-C securities. A 2 percent per annum CDR is applied to remaining assets with ongoing recoveries of 40 percent and 80 percent on bonds and loans, respectively.

⁽⁴⁾

Based on the full forward 1-month LIBOR, 6-month LIBOR or 1-year constant maturity treasury rate through January 1, 2006 based on the variable component of the variable rate contracts.

These sensitivities are hypothetical. Changes in fair value based on a 10 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interests was calculated without changing any other assumption. In reality, changes in one factor may result in changes in another factor which might magnify or counteract the sensitivities. For example, increases in market interest rates may result in lower prepayments and increased credit losses.

14 . Investment Securities

Dominion holds marketable debt and equity securities classified as available-for-sale. Those investments are reported as available-for-sale securities on the Consolidated Balance Sheets in Other Investments. In addition, the Millstone nuclear decommissioning trust funds holds marketable debt and equity securities classified as available-for-sale. See Note 16 for additional disclosure of Dominion’s accounting for the Millstone decommissioning trusts. Available-for-sale securities as of December 31, 2002 and 2001 are summarized below:

(millions)	Fair Value		Total Unrealized Gains Included in AOCI		Total Unrealized Losses Included In AOCI

2002
Equity securities	$	489	$	1	$	118
Debt securities		758		14		14

Total	$	1,247	$	15	$	132

2001
Equity securities	$	551	$	11	$	4
Debt securities		684		1		16

Total	$	1,235	$	12	$	20

Debt securities backed by mortgages and loans do not have stated contractual maturities as borrowers have the right to call or repay obligations with or without call or prepayment penalties. At December 31, 2002, these debt securities totaled $448 million. See Note 13 for a discussion of the assumed weighted average life of those investments. The fair value of all other debt securities at December 31, 2002 by contractual maturity are as follows:

	(millions)

Due in one year or less	$	4
Due after one year through five years		56
Due after five years through ten years		96
Due after ten years		146

Total	$	302

Proceeds from sales of available-for-sale securities were $577 million for 2002, $484 million for 2001 and $3 million for 2000. Realized gains associated with sales of available-for-sale securities totaled $58 million for 2002, $18 million for 2001 and $1 million for 2000. Realized losses on those sales totaled $58 million, $4 million and $6 million for 2002, 2001 and 2000, respectively. Beginning in 2001, proceeds and realized gains and losses included activity in the Millstone nuclear decommissioning trusts. The cost of these securities was determined on a specific identification basis. For 2002, Dominion recognized net unrealized losses of $5 million on trading securities, other than those associated with its retained interests from previously securitized mortgages, which are discussed below. For 2001 and 2000, net unrealized holding gains on trading securities increased pre-tax earnings by $21 million and $6 million, respectively. Net unrealized holding gains for 2000 included a $14 million loss relating to the reclassification of certain available-for-sale securities to the trading category.

During the second quarter of 2002, Dominion evaluated its ability to sell its retained interests from previously securitized mortgages. The evaluation process included discussions with various investment advisors, securitizers of mortgages and others in the mortgage industry. The result of that evaluation was that the retained interests were not readily marketable on terms that would be acceptable to Dominion. Therefore, during the second quarter of 2002, Dominion reclassified its retained interests from trading to available-for-sale. While classifying the retained interests as trading, Dominion recognized $5 million of net realized and unrealized pre-tax losses in earnings through May 1, 2002. Beginning on May 1, 2002, unrealized gains and losses on the retained interests were recorded in other comprehensive income.

15 . Derivative Instruments, Hedge Accounting and Energy Trading Activities

Adoption of SFAS No. 133

Dominion adopted SFAS No. 133 on January 1, 2001 and recorded an after-tax charge to accumulated other comprehensive income (AOCI) of $183 million, net of taxes of $106 million.

Risk Management Policy

Dominion uses derivative instruments to manage the commodity and financial market risks of its business operations. Dominion manages the price risk associated with purchases and sales of electricity, natural gas and oil by using derivative instruments including futures, forwards, swaps and options. Dominion manages the foreign exchange risk associated with anticipated future purchases denominated in foreign currencies through currency forward contracts. Dominion also manages its interest rate risk exposure, in part, by entering into interest rate swap transactions.

As part of its strategy to market energy and to manage related risks, Dominion manages a portfolio of commodity-based derivative instruments held for trading purposes. These contracts are sensitive to changes in the prices of energy commodities, primarily natural gas and electricity. Dominion uses established policies and procedures to manage the risks associated with these price fluctuations and uses various derivative instruments, such as futures, swaps and options, to reduce risk by creating offsetting market positions. Dominion has operating procedures in place that are administered by experienced management to help ensure that proper internal controls are maintained regarding the use of derivative instruments. In addition, Dominion has established an independent function to monitor compliance with the risk management policies of all subsidiaries.

Dominion designates a substantial portion of derivative instruments held for purposes other than trading as fair value or cash flow hedges for accounting purposes. A significant portion of Dominion’s hedge strategies represents cash flow hedges of the variable price risk associated with the purchase and sale of electricity, natural gas, oil and other commodities. Dominion also uses cash flow hedge strategies to hedge the variability in foreign exchange rates and variable interest rates on long-term debt. In its cash flow hedges, Dominion uses the derivative instruments discussed in the preceding paragraphs. Dominion also engages in fair value hedges by using natural gas swaps, futures and options to mitigate the fixed price exposure inherent in its firm commodity commitments. In addition, Dominion has designated interest rate swaps as fair value hedges to manage its exposure to fixed interest rates on certain long-term debt. Certain non-trading derivative instruments are not designated as hedges for accounting purposes. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices and interest rates.

Accounting Policy

Under SFAS No. 133, derivatives are recognized on the Consolidated Balance Sheets at fair value, unless an exception is available under the standard. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value, as otherwise required by SFAS No. 133.

Commodity contracts representing unrealized gain positions are reported as derivative and energy trading assets; commodity contracts representing unrealized losses are reported as derivative and energy trading liabilities. In addition, purchased options and options sold are reported as derivative and energy trading assets and derivative and energy trading liabilities, respectively, at estimated market value until exercise or expiration.

For all derivatives designated as hedges, Dominion formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for using the hedging instrument. Dominion assesses whether the hedge relationship between the derivative and the hedged item is highly effective in offsetting changes in fair value or cash flows both at the inception of the hedge and on an ongoing basis. Any change in fair value of the derivative that is not effective in offsetting changes in the fair value of the hedged item is recognized currently in earnings. Dominion discontinues hedge accounting prospectively for derivatives that have ceased to be highly effective hedges.

For fair value hedge transactions in which Dominion is hedging changes in the fair value of an asset, liability or firm

Notes to Consolidated Financial Statements—(Continued)

commitment, changes in the fair value of the derivative will generally be offset in the Consolidated Statements of Income by changes in the hedged item’s fair value. For cash flow hedge transactions in which Dominion is hedging the variability of cash flows related to a variable-priced asset, liability, commitment or forecasted transaction, changes in the fair value of the derivative are reported in AOCI. Derivative gains and losses reported in AOCI are reclassified to earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portions of the change in fair value of derivatives and the change in fair value of derivatives not designated as hedges for accounting purposes are recognized in current period earnings. For foreign currency forward contracts designated as cash flow hedges, hedge effectiveness is measured based on changes in the fair value of the contract attributable to changes in the forward exchange rate. For options designated either as fair value or cash flow hedges, changes in time value are excluded from the measurement of hedge effectiveness and are therefore recorded in earnings.

Gains and losses on derivatives designated as hedges, when recognized, are included in operating revenue, expenses or interest and related charges in the Consolidated Statements of Income. Specific line item classification is determined based on the nature of the risk underlying individual hedge strategies. Changes in the fair value of derivatives not designated as hedges and the portion of hedging derivatives excluded from the measurement of effectiveness are included in other operation and maintenance expense in the Consolidated Statements of Income. Cash flows resulting from the settlement of derivatives used as hedging instruments are included in net cash flows from operating activities.

Derivatives and Hedge Accounting Results

In the Consolidated Statements of Income, Dominion recognized pre-tax gains (losses) related to hedge ineffectiveness and changes in time value of options excluded from the measurement of hedge effectiveness, as follows:

(millions)	2002			2001

Ineffectiveness:
Fair value hedges	$	2		$	(1	)
Cash flow hedges		(31	)		3

Total ineffectiveness	$	(29	)	$	2

Change in options’ time value:
Fair value hedges	$	(1	)
Cash flow hedges		(1	)	$	(47	)

Total change in options’ time value	$	(2	)	$	(47	)

The following table presents selected information related to cash flow hedges included in AOCI in the Consolidated Balance Sheet at December 31, 2002:

(millions)	Accumulated Other Comprehensive Income (Loss) After Tax			Portion Expected to be Reclassified to Earnings during the Next 12 Months			Maximum Term

Commodities	$	(356	)	$	(156	)	62 months
Interest Rate		(14	)		(4	)	282 months
Foreign Currency		14			4		59 months

Total	$	(356	)	$	(156	)

The actual amounts that will be reclassified to earnings in 2003 will vary from the expected amounts presented above as a result of changes in market prices, interest rates and foreign exchange rates. The effect of amounts being reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies.

Energy Trading Activities

Dominion’s non-derivative energy contracts initiated before October 25, 2002 and derivative instruments held for energy trading purposes are reported at fair value, with corresponding changes in value recognized immediately in earnings. See Note 4 for discussion of recent changes impacting the fair value accounting for energy trading contracts. Net gains and losses associated with Dominion’s commodity trading purchases and sales are presented net as nonregulated electric sales and nonregulated gas sales revenue. Cash flows resulting from the settlement of energy trading contracts are included in net cash flows from operating activities. The composition of operating revenue from commodity trading activities for the years 2002, 2001 and 2000 follows:

(millions)	Gains		Losses			Total

2002
Contract settlements	$	10,340	$	(10,310	)	$	30
Unrealized gains and losses		1,447		(1,402	)		45

Operating revenue	$	11,787	$	(11,712	)	$	75

2001
Contract settlements	$	5,208	$	(5,209	)	$	(1	)
Unrealized gains and losses		1,378		(1,238	)		140

Operating revenue	$	6,586	$	(6,447	)	$	139

2000
Contract settlements	$	2,773	$	(2,692	)	$	81
Unrealized gains and losses		1,236		(1,211	)		25

Operating revenue	$	4,009	$	(3,903	)	$	106

Enron Bankruptcy

Based on management’s evaluation of the estimated collectibility of amounts due from Enron Corp. and certain of

its subsidiaries (Enron) and the valuation of Enron-related commodity contracts, Dominion recorded a pre-tax charge to earnings of approximately $151 million in the fourth quarter of 2001. This charge was comprised of approximately $9 million for net credit exposure on past energy sales to Enron for which payment has not been received and approximately $142 million related to the impaired fair value of natural gas forward and swap contracts with Enron. Management continues to believe that this charge substantially eliminates any further Enron-related earnings exposure.

During 2002, Dominion terminated all outstanding and open positions with Enron. Dominion has submitted a claim in the Enron bankruptcy case for the value of such contracts, measured at the effective dates of contract termination. Various contingencies, including developments in the Enron bankruptcy proceedings, may affect Dominion’s ultimate exposure to Enron.

Concurrent with the December 2, 2001 Enron bankruptcy filing, Dominion’s Enron derivatives designated as cash flow hedges of anticipated purchases and sales of natural gas no longer qualified for hedge accounting and, accordingly, were de-designated from their hedging relationships for accounting purposes.

16 . Nuclear Operations

Dominion has a total of six licensed, operating nuclear reactors at its Surry and North Anna plants in Virginia and its Millstone plant in Connecticut. Surry and North Anna serve customers of Dominion’s regulated electric utility operations. Millstone is a non-regulated merchant plant with two operating units. A third Millstone unit ceased operations before Dominion acquired the plant. See Notes 5 and 17 regarding the acquisition of Millstone and other information regarding jointly owned utility plants.

Decommissioning represents the decontamination and removal of radioactive contaminants from a nuclear power plant, once operations have ceased, in accordance with standards established by the NRC. Through June 2007, amounts are being collected from Virginia jurisdictional ratepayers and placed in external trusts and invested to fund the expected costs of decommissioning the Surry and North Anna units. As part of its acquisition of Millstone, Dominion acquired the decommissioning trusts for the three units that were fully funded to the regulatory minimum as of the acquisition date. Currently, Dominion believes that the amounts available in the trusts and their expected earnings will be sufficient to cover expected decommissioning costs for the Millstone units, without any additional contributions to the trusts.

Accounting for Decommissioning

Utility Nuclear Plants— In accordance with the accounting policy recognized by regulatory authorities having jurisdiction over its electric utility operations, Dominion recognizes an expense for the future cost of decommissioning in amounts equal to amounts collected from ratepayers and earnings on trust investments dedicated to funding the decommissioning of Dominion’s utility nuclear plants. On the Consolidated Balance Sheets, the external trusts are reported at fair value with the accumulated provision for decommissioning included in accumulated depreciation. Net realized and unrealized earnings on the trust investments, as well as an offsetting expense to increase the accumulated provision for decommissioning, are recorded as a component of other income (loss) as permitted by regulatory authorities.

The balance of investments held in external trusts for Surry and North Anna decommissioning as well as the accumulated provision for decommissioning at December 31, 2002 and 2001, was $838 million and $858 million, respectively.

Dominion collected $36 million from ratepayers in each of the years ended 2002, 2001 and 2000 and expensed like amounts as a component of depreciation. Dominion recognized net realized gains and interest income of $11 million, $32 million and $20 million for 2002, 2001 and 2000, respectively. Dominion recognized net unrealized losses of $67 million, $61 million and $23 million, for 2002, 2001 and 2000, respectively. Dominion recognized offsetting increases or decreases to its provision for decommissioning in amounts equal to net realized and unrealized gains or losses for each period.

Merchant Nuclear Plant— The external trusts that hold investments dedicated to funding the decommissioning of Dominion’s merchant nuclear plant are classified as available for sale and reported in the Consolidated Balance Sheets at fair value. See Note 14. The balance of investments held in external trusts for Millstone decommissioning at December 31, 2002 and 2001 was $761 million and $839 million, respectively.

The accumulated provision for decommissioning, which is included in accumulated depreciation in the Consolidated Balance Sheets, was recorded upon the acquisition of Millstone at its estimated fair value using discounted cash flows of expected costs to perform the decommissioning activities. The balance of the accumulated provision for Millstone decommissioning was $700 million and $660 million at December 31, 2002 and 2001, respectively.

The accretion of the provision for decommissioning is expensed as a component of depreciation and was $40 million and $30 million for the years ended December 31, 2002 and 2001, respectively. Dominion realized net gains and interest income on trust investments of $21 million and $37 million in

Notes to Consolidated Financial Statements—(Continued)

2002 and 2001, respectively, and recorded such gains in other income. Dominion recorded unrealized losses on the decommissioning trusts of $99 million in 2002 in other comprehensive income. Unrealized losses on the decommissioning trust in 2001 were less than $1 million.

See Note 4 for a discussion of the adoption of SFAS No. 143 which will affect Dominion’s accounting for nuclear decommissioning costs.

Expected Costs for Decommissioning

The total estimated current cost to decommission Dominion’s seven nuclear units is $3.1 billion based on site-specific studies completed in 2002. Dominion expects to perform new cost studies in 2006. For all units except Millstone Unit 1, the current cost estimates assume decommissioning activities will begin shortly after cessation of operations, which will occur when operating licenses expire. Millstone Unit 1 is not in service and will be monitored until decommissioning activities begin for the remaining Millstone units. The current operating licenses expire in the years detailed in the following table. However, Dominion filed a request with the NRC in 2001 for a 20-year life extension for the Surry and North Anna units and expects to file a similar request for the Millstone units in 2004. Dominion expects to decommission the Surry and North Anna units during the period 2032 to 2045 and the Millstone units during the period 2050 to 2055.

	Surry				North Anna				Millstone

(millions)	Unit 1		Unit 2		Unit 1		Unit 2		Unit 1			Unit 2		Unit 3		Total

NRC license expiration year		2012		2013		2018		2020		⁽¹	⁾		2015		2025
Current cost estimate (2002 dollars)	$	375	$	368	$	391	$	363	$	552		$	522	$	554	$	3,125
Funds in external trusts at December 31, 2002		235		230		192		181		262			252		247		1,599
2002 contribu- tions to external trusts		11		11		7		7									36

⁽¹⁾

Unit 1 ceased operations in 1998 before Dominion’s acquisition of Millstone.

The NRC requires nuclear power plant owners to annually update minimum financial assurance amounts for the future decommissioning of the nuclear facilities. Dominion’s 2002 NRC minimum financial assurance amount, aggregated for the nuclear units, was $2.1 billion and has been satisfied by a combination of surety bonds and the funds being collected and deposited in the external trusts. Beginning in March 2003, Dominion expects to substitute a guarantee to replace the surety bonds currently being utilized.

Insurance

The Price-Anderson Act limits the public liability of a nuclear plant owner to $9.5 billion for a single nuclear incident. The Price-Anderson Act Amendment of 1988 allows for an inflationary provision adjustment every five years. Dominion has purchased $200 million of coverage from commercial insurance pools with the remainder provided through a mandatory industry risk-sharing program. In the event of a nuclear incident at any licensed nuclear reactor in the United States, Dominion could be assessed up to $88 million for each of its seven licensed reactors, not to exceed $10 million per year per reactor. There is no limit to the number of incidents for which this retrospective premium can be assessed.

The Price-Anderson Act was first enacted in 1957 and has been renewed three times—in 1967, 1975 and 1988. Price-Anderson expired August 1, 2002, but operating nuclear reactors continue to be covered by the law. Congress is currently holding hearings to reauthorize the legislation. The expiration of the Price-Anderson Act has no impact on existing nuclear license holders.

Dominion’s current level of property insurance coverage ($2.55 billion for North Anna, $2.55 billion for Surry and $2.75 billion for Millstone) exceeds the NRC’s minimum requirement for nuclear power plant licensees of $1.06 billion per reactor site and includes coverage for premature decommissioning and functional total loss. The NRC requires that the proceeds from this insurance be used first to return the reactor to and maintain it in a safe and stable condition and second to decontaminate the reactor and station site in accordance with a plan approved by the NRC. Dominion’s nuclear property insurance is provided by Nuclear Electric Insurance Limited (NEIL), a mutual insurance company, and is subject to retrospective premium assessments in any policy year in which losses exceed the funds available to the insurance company. The maximum assessment for the current policy period is $70 million. Based on the severity of the incident, the board of directors of Dominion’s nuclear insurer has the discretion to lower or eliminate the maximum retrospective premium assessment. Dominion has the financial responsibility for any losses that exceed the limits or for which insurance proceeds are not available because they must first be used for stabilization and decontamination.

Dominion also purchases insurance from NEIL to cover the cost of replacement power during the prolonged outage of a nuclear unit due to direct physical damage of the unit. Under this program, Dominion is subject to a retrospective premium assessment for any policy year in which losses exceed funds available to NEIL. The current policy period’s maximum assessment is $29 million.

Old Dominion Electric Cooperative, a part owner of the North Anna Power Station, and Massachusetts Municipal Wholesale Electric Company and Central Vermont Public Service Corporation, part owners of Millstone’s Unit 3, are responsible for their share of the nuclear decommissioning

obligations and insurance premiums on applicable units, including any retrospective premium assessments and any losses not covered by insurance.

17 . Property, Plant and Equipment

Major classes of property, plant and equipment and their respective balances are:

	At December 31,

(millions)	2002		2001

Utility
Generation	$	8,497	$	8,415
Transmission		3,283		3,165
Distribution		7,347		7,024
Storage		781		755
Plant under construction		972		585
Nuclear fuel		740		757
Gas gathering and processing		341		285
General		830		876

Total utility	$	22,791	$	21,862

Nonutility
Exploration and production properties:
Proved	$	6,265	$	4,707
Unproved		1,440		1,508
Merchant generation properties—nuclear		921		968
Nuclear fuel		146		107
Merchant generation properties—other		629		361
Other—including plant under construction		439		284

Total nonutility		9,840		7,935

Total property, plant and equipment	$	32,631	$	29,797

Costs of unproved properties capitalized under the full cost method of accounting that are excluded from amortization at December 31, 2002, and the years in which such excluded costs were incurred, follow:

(millions)	Total		2002		2001		Years Prior

Property acquisition costs	$	903	$	103	$	740	$	60
Exploration costs		138		59		42		37
Capitalized interest		82		63		17		2

Total	$	1,123	$	225	$	799	$	99

Amortization rates for capitalized costs under the full cost method of accounting for Dominion’s United States and Canadian cost centers were as follows:

	Year Ended December 31,

(Per mcf equivalent)	2002		2001		2000

United States cost center	$	1.13	$	1.13	$	1.13
Canadian cost center		0.85		0.78		0.92

Dominion’s proportionate share of jointly-owned utility plants at December 31, 2002 follows:

(millions, except percentages)	Bath County Pumped Storage Station		North Anna Power Station		Clover Power Station

Ownership interest		60.0%		88.4%		50.0%
Plant in service	$	1,028	$	1,861	$	534
Accumulated depreciation		342		1,176		93
Nuclear fuel				341
Accumulated amortization of nuclear fuel				309
Construction work in progress		4		82		12

The co-owners are obligated to pay their share of all future construction expenditures and operating costs of the jointly-owned facilities in the same proportions as their respective ownership interest. Dominion reports its share of operating costs in the appropriate expense category in the Consolidated Statements of Income.

18 . Goodwill and Intangible Assets

In 2001, FASB issued SFAS No. 142, which prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS No. 142 also requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives and will be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

Dominion adopted SFAS No. 142 on January 1, 2002 and completed its transitional and annual goodwill impairment tests during the second quarter of 2002, finding no instances of impairment. The discontinuance of goodwill amortization under SFAS No. 142 resulted in an increase in net income of $95 million in 2002.

Notes to Consolidated Financial Statements—(Continued)

Had the provisions of SFAS No. 142 requiring the discontinuance of goodwill amortization been applied for 2001 and 2000, Dominion’s net income and earnings per share would have been as follows:

Year Ended	Amount		Basic Earnings Per Share		Diluted Earnings Per Share

	(millions, except per share amounts)
2001
Reported net income	$	544	$	2.17	$	2.15
Add: Goodwill amortization		95		0.38		0.38

Adjusted net income	$	639	$	2.55	$	2.53

2000
As Reported:
Income before cumulative effect of a change in accounting principle	$	415	$	1.76	$	1.76
Net income	$	436	$	1.85	$	1.85
Add: Goodwill amortization		83		0.35		0.35

As Adjusted:
Income before cumulative effect of a change in accounting principle	$	498	$	2.11	$	2.11
Net income	$	519	$	2.20	$	2.20

In November 2002, a DCI subsidiary received an unfavorable arbitration ruling that affected its ability to recover disputed amounts for past and future performance under a contract with a major customer. Accordingly, Dominion performed a goodwill impairment test, using discounted cash flow analysis and recorded a goodwill impairment charge of $13 million in the fourth quarter of 2002 related to the DCI reporting unit.

The changes in the carrying amount of goodwill for the year ended December 31, 2002, are as follows:

(millions)	Dominion Energy		Dominion Delivery		Dominion E&P			Corporate and Other			Total

Balance at December 31, 2001	$	1,975	$	1,344	$	858		$	33		$	4,210
Acquisition of Cove Point		75										75
DCI impairment loss									(13	)		(13	)
Louis Dreyfus purchase accounting adjustment						24						24
Other		7				(3	)		1			5

Balance at December 31, 2002	$	2,057	$	1,344	$	879		$	21		$	4,301

All of Dominion’s intangible assets, other than goodwill, are subject to amortization. Amortization expense for intangible assets was $53 million, $44 million and $34 million for 2002, 2001 and 2000, respectively. There were no material acquisitions of intangible assets during 2002. The components of intangible assets at December 31, 2002 were as follows:

(millions)	Gross Carrying Amount		Accumulated Amortization

Software and software licenses	$	464	$	200
Other		68		19

Total	$	532	$	219

Amortization expense for intangible assets is estimated to be $56 million for 2003, $52 million for 2004, $46 million for 2005, $43 million for 2006 and $36 million for 2007.

19 . Regulatory Assets and Liabilities

Regulatory assets represent probable future revenue associated with certain costs that will be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process.

In 1999, Virginia enacted the Virginia Electric Utility Restructuring Act (the Virginia Restructuring Act) that established a detailed plan to restructure Virginia’s electric utility industry. Under the Virginia Restructuring Act, the generation portion of Dominion’s Virginia jurisdictional operations is no longer subject to cost-based regulation, effective January 1, 2002. The legislation’s deregulation of generation was an event that required the discontinuance of SFAS No. 71 for Dominion’s generation operations in 1999.

Dominion’s regulatory assets and liabilities included the following at December 31, 2002 and 2001:

	At December 31,

(millions)	2002		2001

Unrecovered gas costs	$	32	$	9
Regulatory assets, net:
Other postretirement benefit costs ⁽¹⁾		106		115
Income taxes recoverable through future rates ⁽²⁾		203		179
Deferred cost of fuel used in electric generation		133		119
Cost of decommissioning DOE uranium enrichment facilities ⁽³⁾		34		42
Customer bad debts ⁽⁴⁾		56		80
Other		48		39

Regulatory assets, net		580		574

Total regulatory assets	$	612	$	583

Regulatory liabilities
Amounts payable to customers		13		91
Estimated rate contingencies and refunds ⁽⁵⁾		21		43

Total regulatory liabilities	$	34	$	134

⁽¹⁾

Costs recognized in excess of amounts included in regulated rates charged by Dominion’s regulated gas operations before rates were updated to reflect the new method of accounting and the cost related to the accrued benefit obligation recognized as part of Dominion’s accounting for its acquisition of CNG.

⁽²⁾

Income taxes recoverable through future rates resulting from the recognition of additional deferred income taxes, not previously recorded because of past ratemaking practices.

⁽³⁾

Cost of decommissioning the Department of Energy’s uranium enrichment facilities, representing the unamortized portion of Dominion’s required contributions. Beginning in 1992, Dominion began making contributions over a 15-year period and collecting these costs in electric customers’ fuel rates.

⁽⁴⁾

In 2001 the Public Utilities Commission of Ohio authorized the deferral of costs associated with certain uncollectible customer accounts not contemplated by current rates. Dominion expects recovery of such costs, which will be included in Dominion’s next base rate case.

⁽⁵⁾

Estimated rate contingencies and refunds are associated with certain increases in prices by Dominion’s rate regulated utilities and other rate-making issues that are subject to final modification in regulatory proceedings.

The incurred costs underlying regulatory assets may represent past expenditures by Dominion’s rate regulated electric and gas operations or may represent the recognition of liabilities that ultimately will be settled at some future time. At December 31, 2002, approximately $118 million of Dominion’s regulatory assets represented past expenditures on which it does not earn a return. These expenditures consist primarily of unrecovered gas costs, customer bad debts and a portion of deferred fuel costs. Unrecovered gas and deferred fuel costs are recovered within two years; recovery of customer bad debts is expected to be addressed in the next base rate case.

20 . Short-Term Debt and Credit Agreements

Joint Credit Facilities

In May 2002, Dominion, Virginia Power and CNG entered into two joint credit facilities that allow aggregate borrowings of up to $2 billion. The facilities include a $1.25 billion 364-day revolving credit facility that terminates in May 2003 and a $750 million three-year revolving credit facility that terminates in May 2005. The 364-day facility includes an option to extend any borrowings for an additional period of one year to May 2004. These joint credit facilities are being used for working capital, as support for the combined commercial paper programs of Dominion, Virginia Power and CNG and other general corporate purposes. The three-year facility can also be used to support up to $200 million of letters of credit. Dominion expects to renew the 364-day revolving credit facility prior to its maturity in May 2003.

At December 31, 2002, total outstanding commercial paper supported by the joint credit facilities was $1.2 billion, with a weighted average interest rate of 1.71 percent. At December 31, 2001, total outstanding commercial paper supported by previous credit agreements was $1.9 billion, with a weighted average interest rate of 2.72 percent.

At December 31, 2002, total outstanding letters of credit supported by the three-year facility were $106 million. There were no outstanding letters of credit at December 31, 2001.

CNG Credit Facility

In August 2002, CNG entered into a $500 million 364-day revolving credit facility that terminates in August 2003. This credit facility is being used to support CNG’s issuance of commercial paper and letters of credit to provide collateral required by counterparties to derivative financial contracts used by CNG in its risk management strategies for its gas and oil production. At December 31, 2002, outstanding letters of credit under this facility totaled $500 million.

Cove Point Bridge Facility

In September 2002, Dominion financed its acquisition of Cove Point with commercial paper supported by a $250 million 364-day revolving credit facility. This bridge facility will expire in March 2003 and will not be renewed. See Note 5 for a discussion of the Cove Point acquisition.

Notes to Consolidated Financial Statements—(Continued)

21 . Long-Term Debt

Long-term debt consists of the following:

At December 31,	2002 Weighted Average Coupon ⁽⁸⁾		2002			2001

Dominion Resources, Inc.:			(millions)
Senior and medium-term notes
Variable rates, due 2002 to 2003	2.49	%	$	100		$	350
3.875% to 8.125%, due 2003 to 2032 ⁽¹⁾	6.63	%		4,920			3,250
Equity-linked senior notes, 5.75% to 8.05%, due 2006 to 2008	7.03	%		743			413
Consolidated Natural Gas Company:
Senior notes
5.375% to 7.375%, due 2003 to 2027	6.48	%		3,150			3,150
6.875%, due 2026 ⁽²⁾				150			150
Senior subordinated debt, 9.25% due 2004				88			94
Virginia Electric and Power Company:
First and refunding mortgage bonds, 6.0% to 8.625%, due 2002 to 2025 ⁽³⁾	7.56	%		1,666			2,121
Senior and medium-term notes
Variable rates, due 2002 to 2003	2.37	%		120			340
5.375% to 9.60%, due 2002 to 2038	5.95	%		1,785			1,195
Tax-exempt financings ⁽⁴⁾ :
Variable rates, due 2008 to 2027	1.60	%		197			489
3.15% to 5.875%, due 2007 to 2031 ⁽⁵⁾	4.99	%		402			110
Other Subsidiaries:
Medium-term notes, 5.72% to 6.1%, due 2005 to 2006 ⁽⁶⁾	5.94	%		199			117
Revolving lines of credit, variable rates, due 2002 to 2004 ⁽⁶⁾	3.16	%		163			241
Bank term note, variable rate, due 2002							675
Nonrecourse debt:
Variable rates, due 2004 to 2006	2.11	%		40			40
7.0% to 12.5%, due 2002 to 2020	8.08	%		342			353

				14,065			13,088
Fair value hedge valuation (see Note 15)				75			43
Amounts due within one year				(2,077	)		(1,309	)
Unamortized discount and premium, net ⁽⁷⁾				(95	)		(25	)

				11,968			11,797

Notes payable—affiliates (see Note 30):
6.0%, due 2005				126			175
Variable rates, due 2006				14			192

				140			367

Amounts due within one year				(48	)		(45	)

				92			322

Total long-term debt			$	12,060		$	12,119

⁽¹⁾

$250 million of the 7.82% remarketable notes due September 15, 2014 will be either mandatorily purchased and remarketed by the remarketing agent or mandatorily redeemed by Dominion on September 15, 2004.

⁽²⁾

At the exercised option of holders, CNG will be required to purchase its $150 million, 6.875% senior notes due October 15, 2026 at 100% of the principal amount plus accrued interest on October 15, 2006.

⁽³⁾

Substantially all of Virginia Power’s property is subject to the lien of the mortgage, securing its mortgage bonds. In 2002, Virginia Power redeemed its $200 million, 6.75% mortgage bonds due February 1, 2007. Virginia Power completed the redemption with part of the proceeds from the issuance of $650 million, 5.375% senior notes due February 1, 2007. The redemption included a direct exchange of senior notes for $117 million of mortgage bonds. Virginia Power used the remaining proceeds of senior notes to redeem the remaining $83 million of mortgage bonds and for general corporate purposes including the repayment of other debt.

⁽⁴⁾

Certain pollution control equipment at Virginia Power’s generating facilities has been pledged to support these financings.

⁽⁵⁾

In 2002, Virginia Power converted $292 million of its variable rate tax exempt financings to fixed rates, ranging from 4.95% to 5.875%. Other terms of the bonds remain the same.

⁽⁶⁾

Includes an aggregate principal amount of CAD$335 million of securities denominated in Canadian dollars and presented in US dollars, based on exchange rates as of year-end.

⁽⁷⁾

In 2002, Dominion redeemed $200 million of 7.40% remarketable senior notes and $250 million of variable rate remarketable senior notes, both due September 16, 2012. In a direct exchange, Dominion completed the redemption by issuing $520 million, 5.70% senior notes due September 17, 2012. The principal amount of the senior notes was determined by an exchange ratio that was based on the fair value of the remarketable senior notes. The $63 million difference between the principal amounts of senior notes issued and remarketable senior notes redeemed was recorded as a debt discount.

⁽⁸⁾

Represents weighted-average coupon rates for debt outstanding as of December 31, 2002.

The scheduled principal payments of long-term debt at December 31, 2002 were as follows (in millions):

2003	2004	2005	2006	2007	Thereafter	Total

$2,125	$1,290	$969	$1,675	$1,091	$7,055	$14,205

In December 2002, Dominion issued $600 million of senior notes, of which $500 million of proceeds was deposited into an escrow account solely for the purpose of being used to repay approximately one half of the aggregate principal amount of Dominion’s 2001 Series A 6.0 percent senior notes maturing in January 2003.

Dominion’s short-term credit facilities and long-term debt agreements contain customary covenants and default provisions. As of December 2002, there were no events of default under these covenants.

Equity—Linked Securities

In 2002 and 2000, Dominion issued equity-linked debt securities, consisting of stock purchase contracts and senior notes. The stock purchase contracts obligate the holders to purchase shares of Dominion common stock from Dominion by a settlement date, two years prior to the senior notes’ maturity date. The purchase price is $50 and the number of shares to be purchased will be determined under a formula based upon the average closing price of Dominion common stock near the settlement date. The senior notes, or treasury securities in some instances, are pledged as collateral to secure the purchase of common stock under the related stock purchase contracts. The holders may satisfy their obligations under the stock purchase contracts by allowing the senior notes to be remarketed with the proceeds being paid to Dominion as consideration for the purchase of stock. Alternatively, holders may choose to continue holding the senior notes and use other resources as consideration for the purchase of stock under the stock purchase contracts.

Dominion makes quarterly interest payments on the senior notes and quarterly payments on the stock purchase contracts at the rates described below. Dominion has recorded the present value of the stock purchase contract payments as a liability, offset by a charge to common stock in shareholders’ equity. Interest payments on the senior notes are recorded as interest expense and stock purchase contract payments are charged against the liability. Accretion of the stock purchase contract liability is recorded as interest expense. In calculating diluted earnings per share, Dominion applies the treasury stock method to the equity-linked debt securities. These securities did not have a significant effect on diluted earnings per share for 2002.

Under the terms of the stock purchase contracts, Dominion will issue between 6.7 million and 8.1 million shares of its common stock in November 2004 and between 4.1 million and 5.5 million shares of its common stock in May 2006. A total of 13.6 million shares of Dominion common stock has been reserved for issuance in connection with the stock purchase contracts.

Selected information about Dominion’s equity-linked debt securities is presented below:

Date of Issuance	Units Issued	Total Net Proceeds		Total Long-term Debt		Senior Notes Annual Interest Rate		Stock Purchase Contract Annual Rate		Total Equity Charge		Stock Purchase Settlement Date	Maturity of Senior Notes

(millions, except percentages)
2000	8.3	$	400.1	$	412.5	8.05	%	1.45	%	$	20.7	11/04	11/06

2002	6.6	$	320.1	$	330.0	5.75	%	3.00	%	$	36.3	5/06	5/08

22.

Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts

From 1997 through 2002, Dominion established five subsidiary capital trusts that sold trust preferred securities that represented preferred beneficial interests and 97 percent beneficial ownership in the assets held by the capital trusts. In exchange for the funds realized from the sale of the trust preferred securities and common securities that represent the remaining 3 percent beneficial ownership interest in the assets held by the capital trust, Dominion issued various junior subordinated debt instruments. The junior subordinated debt instruments constitute 100 percent of each capital trust’s assets. The trust must redeem the trust preferred securities when the junior subordinated notes are repaid at maturity or if redeemed prior to maturity. The following table provides

summary information about the capital trusts and junior subordinated debt instruments outstanding as of December 31, 2002:

Date Established	Capital Trusts	Units	Rate		Trust Preferred Securities Amount			Common Securities Amount

		(thousands)			(millions)
December 1997	Dominion Resources Capital Trust I ⁽¹⁾	250	7.83	%	$	250		$	8
January 2001	Dominion Resources Capital Trust II ⁽²⁾	12,000	8.4	%		300			9
January 2001	Dominion Resources Capital Trust III ⁽³⁾	250	8.4	%		250			8
October 2001	Dominion CNG Capital Trust I ⁽⁴⁾	8,000	7.8	%		200			6
August 2002	Virginia Power Capital Trust II ⁽⁵⁾	16,000	7.375	%		400			12

						1,400
	Unamortized discount					(3	)

	Total at December 31, 2002				$	1,397

Junior subordinated notes/debentures held as assets by each capital trust were as follows:

⁽¹⁾

$258 million—Dominion Resources, Inc. 7.83% Debentures due 12/1/2027.

⁽²⁾

$309 million—Dominion Resources, Inc. 8.4% Debentures due 1/30/2041.

⁽³⁾

$258 million—Dominion Resources, Inc. 8.4% Debentures due 1/15/2031.

⁽⁴⁾

$206 million—CNG 7.8% Debentures due 10/31/2041.

⁽⁵⁾

$412 million—Virginia Power 7.375% Debentures due 7/30/2042.

In 2002, Virginia Power redeemed $139 million of junior subordinated debt instruments held by Virginia Power Capital Trust I. The trust redeemed all outstanding trust preferred securities for $135 million and redeemed $4 million of its common securities held by Virginia Power.

Distribution payments on the trust preferred securities are guaranteed by the respective company that issued the debt instruments held by each trust, but only to the extent that the trusts have funds legally and immediately available to make distributions. The trust’s ability to pay amounts when they are due on the trust preferred securities is solely dependent upon the payment of amounts by Dominion, Virginia Power or CNG when they are due on the junior subordinated debt instruments. If the payment on the junior subordinated notes is deferred, the company that issued them may not make distributions related to its capital stock, including dividends, redemptions, repurchases, liquidation payments or guarantee payments. Also, during the deferral period, it may not make any payments or redeem or repurchase any debt securities that are equal in right of payment with, or subordinated to, the junior subordinated debt instruments.

23 . Preferred Stock

Dominion is authorized to issue up to 20 million shares of preferred stock. Dominion issued 665,000 shares of Series A mandatorily convertible preferred stock, liquidation preference

Notes to Consolidated Financial Statements—(Continued)

$1,000 per share, to Piedmont Share Trust (Piedmont Trust) in connection with the formation of DFV and the issuance of senior notes by DFV. Dominion is the beneficial owner of the Piedmont Trust which is consolidated in the preparation of Dominion’s Consolidated Financial Statements, thus eliminating these outstanding shares of preferred stock. See Note 30.

Virginia Power is authorized to issue up to 10 million shares of preferred stock, $100 liquidation preference. Upon involuntary liquidation, dissolution or winding-up of Virginia Power, each share is entitled to receive $100 per share plus accrued dividends. Dividends are cumulative.

Holders of the outstanding preferred stock of Virginia Power are not entitled to voting rights except under certain provisions of the amended and restated articles of incorporation and related provisions of Virginia law restricting corporate action, or upon default in dividends, or in special statutory proceedings and as required by Virginia law (such as mergers, consolidations, sales of assets, dissolution and changes in voting rights or priorities of preferred stock).

In 2002, Virginia Power purchased and redeemed, at par, all shares of its variable rate preferred stock October 1988 Series, June 1989 Series, September 1992A Series and September 1992B Series for $250 million, at the redemption price of $100 per share. The dividend rates for these series were variable and set every 49 days via an auction process. The combined weighted average rates for all series outstanding during 2002, 2001 and 2000, including fees for broker/dealer agreements, were 4.00 percent, 4.32 percent and 5.71 percent, respectively.

In 2002, Virginia Power issued 1,250 units consisting of 1,000 shares per unit of cumulative preferred stock for $125 million. The preferred stock has a dividend rate of 5.50 percent until the end of the initial dividend period on December 20, 2007. The dividend rate for subsequent periods will be determined according to periodic auctions. The preferred stock has a liquidation preference of $100 per share plus accumulated and unpaid dividends. Except during the initial dividend period, and any non-call period, the preferred stock will be redeemable, in whole or in part, on any dividend payment date at the option of Virginia Power. Virginia Power may also redeem the preferred stock, in whole but not in part, if certain changes are made to federal tax law which reduce the dividends received percentage.

Presented below are the series of Virginia Power preferred stock not subject to mandatory redemption that were outstanding as of December 31, 2002.

Dividend	Issued and Outstanding Shares	Entitled Per Share Upon Liquidation

	(thousands)
$5.00	107	$	112.50
4.04	13	$	102.27
4.20	15	$	102.50
4.12	32	$	103.73
4.80	73	$	101.00
7.05	500	$	105.00	⁽¹⁾
6.98	600	$	105.00	⁽²⁾
Flex MMP 12/02, Series A	1,250	$	100.00

Total	2,590

⁽¹⁾

Through 7/31/03; $103.53 commencing 8/1/03; amounts decline in steps thereafter to $100.00.

⁽²⁾

Through 8/31/03; $103.49 commencing 9/1/03; amounts decline in steps thereafter to $100.00.

24 . Shareholders’ Equity

Issuance of Common Stock

During 2002, Dominion issued 44 million shares of common stock and received proceeds of $2.0 billion. This included the issuance of approximately 38 million shares and receipt of proceeds of approximately $1.7 billion through two public equity offerings. Net proceeds were used for general corporate purposes, principally repayment of debt. The remainder of the shares issued and proceeds received in 2002 occurred through Dominion Direct ^® (a dividend reinvestment and open enrollment direct stock purchase plan), employee savings plans and the exercise of employee stock options.

Repurchases of Common Stock

Dominion is authorized by its Board of Directors to repurchase up to $650 million of Dominion common stock outstanding. As of December 31, 2002, Dominion had repurchased approximately 12 million shares for $537 million. During 2002, Dominion repurchased 1 million shares for approximately $66 million, primarily using proceeds received from the exercise of employee stock options.

Immediately before the CNG merger in January 2000, Dominion concluded a first step transaction in which 33 million shares of Dominion common stock were exchanged for approximately $1.4 billion. Dominion also repurchased approximately 3.2 million shares of stock in 2000 through a total return swap facility at a cost of approximately $145 million. These transactions were independent of the general repurchase authority described above.

Shares Reserved for Issuance

At December 31, 2002, a total of 59 million shares was reserved and available for issuance pursuant to Dominion Direct ^® , various employee and director stock award and

savings plans, stock purchase contracts associated with equity-linked debt securities and Dominion’s Series A Mandatorily Convertible Preferred Stock. See Notes 23 and 30 for a discussion of Dominion’s issuance of 665,000 shares of Series A Mandatorily Convertible Preferred Stock, liquidation preference $1,000 per share to Piedmont Share Trust.

Accumulated Other Comprehensive Income

Presented in the table below is a summary of accumulated other comprehensive income by component:

	At December 31,

(millions)	2002			2001

Net unrealized gains (losses) on derivatives	$	(356	)	$	315
Net unrealized losses on investment securities		(72	)		(4	)
Minimum pension liability adjustment		(14	)		(12	)
Foreign currency translation adjustments		(4	)		(10	)

Total accumulated other comprehensive income (loss)	$	(446	)	$	289

Stock-Based Awards

The following table provides a summary of changes in amounts of Dominion stock options outstanding as of and for the years ended December 31, 2002, 2001 and 2000. Generally, the exercise price of Dominion employee stock options equals the market price of Dominion common stock on the date of grant.

	Stock Options		Weighted- average Exercise Price		Weighted- average Fair Value

	(thousands)
Outstanding at January 1, 2000	7,147		$	41.37
Granted—2000	5,389		$	43.87	$	6.86
Exercised, cancelled and forfeited	(2,205	)	$	40.07

Outstanding at December 31, 2000	10,331		$	41.77

Exercisable at December 31, 2000	6,967		$	41.51

Granted—2001 ⁽¹⁾
Exercise price < market price on grant date	480		$	33.21	$	23.69
Exercise price = market price on grant date	11,471		$	61.20	$	11.24
Exercise price > market price on grant date	194		$	62.27	$	9.43
Exercised, cancelled and forfeited	(1,484	)	$	41.23

Outstanding at December 31, 2001	20,992		$	52.90

Exercisable at December 31, 2001	7,955		$	42.68

Granted—2002	3,122			62.28	$	10.91
Exercised, cancelled and forfeited	(3,057	)	$	44.54

Outstanding at December 31, 2002	21,057		$	55.49

Exercisable at December 31, 2002	8,586		$	47.95

⁽¹⁾

In connection with the acquisition of Louis Dreyfus, employee stock options of Louis Dreyfus were converted into employee stock options of Dominion. Based on the conversion formula, certain converted stock options had exercise prices that either exceeded or were less than the market price of Dominion common stock on the date of grant. The fair value of all converted stock options was included in the purchase price of Louis Dreyfus. See Note 5.

The fair value of the options was estimated on the dates of grant using the Black-Scholes option pricing model with the following weighed-average assumptions for 2002, 2001 and 2000, respectively: expected dividend yield of 4.17 percent, 4.22 percent and 5.22 percent; expected volatility of 22.67 percent, 22.19 percent and 21.54 percent; contractual life of 10 years (all periods); risk free interest rate of 4.38 percent, 5.15 percent and 5.18 percent; and expected lives of six years (all periods).

The following table provides certain information about stock options outstanding as of December 31, 2002:

Options Outstanding					Options Exercisable

Exercise Price	Shares Outstanding	Weighted- average Remaining Contractual Life	Weighted- average Exercise Price		Shares Exercisable	Weighted- average Exercise Price

	(thousands)	(years)			(thousands)
$ 0-$19.99	2	6.0	$	19.10	2	$	19.10
$20-$30.99	53	5.8	$	25.00	53	$	25.00
$31-$40.99	75	7.0	$	39.25	75	$	39.25
$41-$50.99	6,782	6.6	$	43.02	5,905	$	42.26
$51-$60.99	9,411	6.1	$	59.88	1,673	$	59.76
$61-$69	4,734	8.4	$	65.24	878	$	65.94

Total	21,057	6.8	$	55.49	8,586	$	47.95

During 2002, 2001 and 2000, respectively, Dominion granted approximately 14,000 shares, 341,000 shares and 171,000 shares of restricted stock with weighted-average fair values of $60.62, $63.49 and $41.88.

25 . Dividend Restrictions

The 1935 Act and related regulations issued by the SEC impose restrictions on the transfer and receipt of funds by a registered holding company from its subsidiaries, including a general prohibition against loans or advances being made by the subsidiaries to benefit the registered holding company. Under the 1935 Act, registered holding companies and their subsidiaries may pay dividends only from retained earnings, unless the SEC specifically authorizes payments from other capital accounts. Dominion received dividends from its subsidiaries of $945 million, $806 million and $1.3 billion in 2002, 2001 and 2000, respectively. At December 31, 2002, Dominion’s consolidated subsidiaries had approximately $8.4 billion in capital accounts other than retained earnings, representing capital stock, additional paid in capital and accumulated other comprehensive income. Dominion Resources, Inc. had approximately $8.7 billion in capital accounts other than retained earnings at December 31, 2002. Generally, such amounts are not available for the payment of dividends by affected subsidiaries, or by Dominion itself, without specific authorization by the SEC. In response to a

Notes to Consolidated Financial Statements—(Continued)

Dominion request, the SEC granted relief in 2000, authorizing payment of dividends by CNG from other capital accounts to Dominion in amounts up to $1.6 billion, representing CNG’s retained earnings prior to Dominion’s acquisition of CNG. Furthermore, Dominion has submitted a similar request to the SEC in 2002, seeking relief from this restriction in regard to its subsidiary, into which Louis Dreyfus was merged. The application requests relief up to approximately $303 million, representing Louis Dreyfus’ retained earnings prior to Dominion’s acquisition of Louis Dreyfus. Dominion’s ability to pay dividends on its common stock at declared rates was not impacted by the restrictions discussed above during 2002, 2001 and 2000.

The Virginia Commission may prohibit any public service company, including Virginia Power, from declaring or paying a dividend to an affiliate, if found not to be in the public interest. At December 31, 2002, the Virginia Commission had not restricted the payment of dividends by Virginia Power.

Certain agreements associated with Dominion’s credit facilities contain restrictions on the ratio of debt to total capitalization. These limitations did not restrict Dominion’s ability to pay dividends or receive dividends from its subsidiaries at December 31, 2002.

See Note 22 for a description of potential restrictions on dividend payments by Dominion and certain subsidiaries in connection with the deferral of distribution payments on trust preferred securities.

26 . Employee Benefit Plans

Dominion and its subsidiaries provide certain benefits to eligible active employees, retirees and qualifying dependents. Under the terms of its benefit plans, Dominion and its subsidiaries reserve the right to change, modify or terminate the plans. From time to time in the past, benefits have changed, and some of these changes have reduced benefits.

Dominion maintains qualified noncontributory defined benefit retirement plans covering virtually all employees. Retirement benefits are based primarily on years of service, age and compensation. Dominion’s funding policy is to generally contribute annually an amount that is in accordance with the provisions of the Employment Retirement Income Security Act of 1974. The pension program also provides benefits to certain retired executives under company-sponsored nonqualified employee benefit plans. Certain of these nonqualified plans are funded through contributions to a grantor trust.

Dominion provides retiree health care and life insurance benefits with annual premiums based on several factors such as age, retirement date and years of service.

In 2001, Dominion eliminated certain senior management positions. Dominion paid these individuals special termination benefits and accelerated the payment of benefits under Dominion’s nonqualified pension plans. Dominion recognized special termination benefits expense of $15 million, a loss of $7 million related to the settlement of the related non-qualified pension obligation and a curtailment loss of $2 million.

In 2000, Dominion offered an early retirement program (ERP). The ERP provided up to three additional years of age and three additional years of employee service for benefit formula purposes, subject to age and service maximums under Dominion and its subsidiaries’ postretirement medical and pension plans. Certain employees who satisfied certain minimum age and years of service requirements were eligible under the ERP. The effect of the ERP on Dominion’s pension and postretirement benefit expenses was $81 million and $33 million, respectively. These expenses were offset, in part, by curtailment gains of approximately $20 million and $6 million from pension plans and other postretirement benefit plans, respectively, attributable to reductions in expected future years of service as a result of ERP participation and involuntary employee terminations.

In addition, effective January 1, 2000, Dominion adopted a change in the method of calculating the market-related value of pension plan assets. The change was reported as a change in accounting principle. See Note 3.

The following tables summarize the changes in Dominion’s pension and other postretirement benefit plan obligations and plan assets and a statement of the plans’ funded status:

	Pension Benefits						Other Postretirement Benefits

Year ended December 31,	2002			2001			2002			2001

(millions)
Expected benefit obligation at beginning of year	$	2,593		$	2,304		$	996		$	799
Acquired businesses		1			66			3			21

Actual benefit obligation at beginning of year		2,594			2,370			999			820
Service cost		77			71			44			39
Interest cost		177			173			68			63
Benefits paid		(148	)		(153	)		(58	)		(51	)
Actuarial loss during the year		89			114			84			107
Change in benefit obligation					(5	)
Special termination benefits					15
Plan amendments		12			8			(18	)		18

Expected benefit obligation at end of year		2,801			2,593			1,119			996

Fair value of plan assets at beginning of year		3,352			3,557			446			417
Actual return on plan assets		(241	)		(91	)		(31	)		(11	)
Contributions		111			39			60			65
Benefits paid from plan assets		(148	)		(153	)		(32	)		(25	)

Fair value of plan assets at end of year		3,074			3,352			443			446

Funded status		273			759			(676	)		(550	)
Unrecognized net actuarial loss		1,374			698			308			164
Unrecognized prior service cost		14			3			4			11
Unrecognized net transition (asset) obligation		(1	)		(5	)		93			115

Prepaid (accrued) benefit cost	$	1,660		$	1,455		$	(271	)	$	(260	)
Amounts recognized in the consolidated balance sheets at December 31:
Prepaid pension cost	$	1,710		$	1,511
Accrued benefit liability		(84	)		(89	)	$	(271	)	$	(260	)
Intangible asset		10			12
Accumulated other comprehensive loss		24			21

Net amount recognized	$	1,660		$	1,455		$	(271	)	$	(260	)

Dominion has nonqualified pension and supplemental pension plans which do not have “plan assets” as defined by generally accepted accounting principles. The total projected benefit obligation for these plans was $97 million and $103 million at December 31, 2002 and 2001, respectively, and is included in the table above. The total accumulated benefit obligation for these plans was $88 million and $94 million at December 31, 2002 and 2001, respectively. The additional minimum liability recognized relating to these plans was $34 million and $33 million at December 31, 2002 and 2001, respectively.

The components of the provision for net periodic benefit cost were as follows:

	Year ended December 31,

(millions)	2002			2001			2000

Pension Benefits
Service cost	$	77		$	71		$	65
Interest cost		177			173			161
Expected return on plan assets		(349	)		(331	)		(298	)
Recognized loss		2			3			6
Amortization of prior service cost		1			2			3
Amortization of transition obligation		(4	)		(4	)		(4	)
Curtailment gains								(20	)
ERP benefit costs								81
Settlement loss					7
Special termination benefits					15
Curtailment loss					2

Net periodic benefit credit	$	(96	)	$	(62	)	$	(6	)

Other Postretirement Benefits
Service cost	$	44		$	40		$	30
Interest cost		68			63			52
Expected return on plan assets		(34	)		(32	)		(31	)
Amortization of prior service cost		1			(1	)
Amortization of transition obligation		11			10			13
Amortization of unrecognized net loss		5
Curtailment gains								(6	)
ERP benefit costs								33
Net amortization and deferral								(2	)

Net periodic benefit cost	$	95		$	80		$	89

Significant assumptions used in determining net periodic cost, the projected benefit obligation and postretirement benefit obligations were:

	Pension Benefits		Other Postretirement Benefits

	2002	2001	2002	2001

Discount rates	6.75%	7.25%	6.75%	7.25%
Expected return on plan assets ⁽¹⁾	9.50%	9.50%	7.82%	7.88%
Rate of increase for compensation	4.70%	4.60%	4.70%	4.60%
Medical cost trend rate			9.00%	9.00%
			Decreasing to 4.75% in 2007 and years thereafter

⁽¹⁾

Dominion has adopted 8.75 percent for pension benefits in 2003.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

Other Postretirement Benefits

(millions)	One percentage point increase		One percentage point decrease

Effect on total service and interest cost components for 2002	$	18	$	(14	)
Effect on postretirement benefit obligation at December 31, 2002	$	147	$	(119	)

Notes to Consolidated Financial Statements—(Continued)

In addition, Dominion sponsors defined contribution thrift-type savings plans. During 2002, 2001 and 2000, Dominion recognized $26 million, $27 million and $30 million, respectively, as contributions to these plans.

Certain regulatory authorities have held that amounts recovered in utility customers’ rates for other postretirement benefits, in excess of benefits actually paid during the year, must be deposited in trust funds dedicated for the sole purpose of paying such benefits. Accordingly, certain subsidiaries fund postretirement benefit costs through Voluntary Employees’ Beneficiary Associations. The remaining subsidiaries do not prefund postretirement benefit costs but instead pay claims as presented.

27 . Commitments and Contingencies

As the result of issues generated in the ordinary course of business, Dominion and its subsidiaries are involved in legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies, some of which involve substantial amounts of money. Management believes that the final disposition of these proceedings will not have a material adverse effect on its financial position, liquidity or results of operations.

Cash Requirements for Planned Capital Expenditures

Dominion has made substantial commitments in connection with its capital expenditures program. Cash requirements for those expenditures are estimated to total approximately $2.4 billion, $2.2 billion and $2.1 for 2003, 2004 and 2005 respectively. Purchases of nuclear fuel are included in Fuel Purchase Commitments below. Dominion expects that these expenditures will be met through a combination of sales of securities and short-term borrowings to the extent not funded by cash flows from operations.

Power Purchase Contracts

Dominion has entered into contracts for long-term purchases of capacity and energy from other utilities, qualifying facilities and independent power producers. As of December 31, 2002, Dominion had 42 non-utility purchase contracts with a combined dependable summer capacity of 3,758 megawatts. The table below reflects Dominion’s minimum commitments as of December 31, 2002 under these contracts.

	Commitment

(millions)	Capacity		Other

2003	$	643	$	44
2004		635		29
2005		629		22
2006		614		18
2007		589		11
Later years		5,259		113

Total		8,369		237

Present value of the total	$	4,836	$	140

Capacity and other purchases under these contracts totaled $691 million, $680 million and $740 million for 2002, 2001 and 2000, respectively.

In 2001, Dominion completed the purchase of three generating facilities and the termination of seven long-term power purchase contracts with non-utility generators. Dominion recorded an after-tax charge of $136 million in connection with the purchase and termination of long-term power purchase contracts. Cash payments related to the purchase of three generating facilities totaled $207 million. The allocation of the purchase price was assigned to the assets and liabilities acquired based upon estimated fair values as of the date of acquisition. Substantially all of the value was attributed to the power purchase contracts which were terminated and resulted in a charge included in operation and maintenance expense.

Fuel Purchase Commitments

Dominion enters into long-term purchase commitments for fuel used in electric generation and natural gas for purposes other than trading. Estimated payments under these commitments for the next five years are as follows: 2003—$599 million; 2004—$311 million; 2005—$253 million; 2006—$205 million; 2007—$89 million; and years beyond 2007—$215 million. These purchase commitments include those required for regulated operations. Dominion recovers the costs of those purchases through regulated rates. The natural gas purchase commitments of Dominion’s field services operations are also included, net of related sales commitments. In addition, Dominion has committed to purchase certain volumes of natural gas at market index prices determined in the period the natural gas is delivered. These transactions have been designated as normal purchases and sales under SFAS No. 133.

Natural Gas Pipeline and Storage Capacity Commitments

Dominion enters into long-term commitments for the purchase of natural gas pipeline and storage capacity for purposes other than trading. Estimated payments under these commitments for the next five years are as follows: 2003—$34 million; 2004—$23 million; 2005—$13 million. There were no significant commitments beyond 2005.

Production Handling and Firm Transportation Commitments

In connection with its gas and oil production operations, Dominion has entered into certain transportation and production handling agreements with minimum commitments expected to be paid in the following years: 2003—$23 million; 2004—$57 million; 2005—$56 million; 2006—$53 million; 2007—$44 million; and years after 2007—$68 million.

Lease Commitments

Dominion leases various facilities, vehicles, aircraft and equipment under both operating and capital leases. Future minimum lease payments under operating and capital leases that have initial or remaining lease terms in excess of one year as of December 31, 2002 are as follows: 2003—$94 million; 2004—$94 million; 2005—$82 million; 2006—$67 million; 2007—$62 million; and years beyond 2007—$79 million. Rental expense included in other operations and maintenance expense was $84 million, $75 million and $107 million for 2002, 2001, and 2000, respectively.

As of December 31, 2002, Dominion, through certain subsidiaries, has entered into agreements with special purpose entities (lessors) in order to finance and lease several new power generation projects, as well as its corporate headquarters and aircraft. The lessors have an aggregate financing commitment from equity and debt investors of $2.2 billion, of which $1.6 billion has been used for total project costs to date. Dominion, in its role as construction agent for the lessors, is responsible for completing construction by a specified date. In the event a project is terminated before completion, Dominion has the option to either purchase the project for 100 percent of project costs or terminate the project and make a payment to the lessor of approximately but no more than 89.9 percent of project costs. Upon completion of each individual project, Dominion has use of the project assets subject to an operating lease. Dominion’s lease payments to the lessors are sufficient to provide a return to the investors. At the end of each individual project’s lease term, Dominion may renew the lease at negotiated amounts based on project costs and current market conditions, subject to investors’ approval; purchase the project at its original construction cost; or sell the project, on behalf of the lessor, to an independent third party. If the project is sold and the proceeds from the sale are insufficient to repay the investors, Dominion may be required to make a payment to the lessor up to an amount ranging from 81 percent to 85 percent of the project cost depending on the individual project and applicable agreement. Dominion has guaranteed a portion of the obligations of its subsidiaries to the lessors during the construction and post-construction periods. Neither the guarantees nor the underlying transaction documents contain any type of credit rating or stock price trigger events. Total project costs at December 31, 2002 included approximately $288 million of costs advanced by Dominion that will be reimbursed by the lessor during the second quarter of 2003.

The projects are accounted for as operating leases for financial accounting purposes. Accordingly, neither the project assets nor related obligations are reported on Dominion’s Consolidated Balance Sheets.

The future minimum lease payments described above include annual minimum lease payments under these leases for assets currently in use total approximately $38 million. Projects being developed under leasing arrangements are scheduled for completion in 2003 and 2004. Annual lease payments for these projects are estimated to be $7 million for 2003 and $79 million by 2005. See Note 4.

Energy Trading

Subsidiaries of Dominion enter into purchases and sales of commodity-based contracts in the energy-related markets, including natural gas, electricity and oil. These agreements may cover current and future periods. The volume of these transactions varies from day to day, based on market conditions. See Note 15 for a discussion of Dominion’s energy trading activities and risk management policies.

Environmental Matters

Dominion is subject to costs resulting from a steadily increasing number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations.

Historically, Dominion recovered such costs arising from regulated electric operations through utility rates. However, to the extent environmental costs are incurred in connection with operations regulated by the Virginia State Corporation Commission during the period ending June 30, 2007, in excess of the level currently included in Virginia jurisdictional rates, Dominion’s results of operations will decrease. After that date, Dominion may seek recovery through rates of only those environmental costs related to transmission and distribution operations.

Superfund Sites— In 1987, the Environmental Protection Agency (EPA) identified Dominion and a number of other entities as Potentially Responsible Parties (PRPs) at two Superfund sites located in Kentucky and Pennsylvania. Current cost studies estimate total remediation costs for the sites to range from $98 million to $152 million. Dominion’s proportionate share of the total cost is expected to be in the range of $2 million to $3 million, based on allocation formulas and the volume of waste shipped to the sites. The majority of remediation activities at the Kentucky site are complete and remediation design is ongoing for the Pennsylvania site. Dominion has accrued a reserve of $2 million to meet its obligations at these two sites. Although each PRP can be held

Notes to Consolidated Financial Statements—(Continued)

jointly, severally and strictly liable for all costs, Dominion has determined that it is probable that the PRPs will fully pay their share of the costs based on a financial assessment of the PRPs involved at these sites. Dominion generally seeks to recover its costs associated with environmental remediation from third party insurers. At December 31, 2002, any pending or possible claims were not recognized as an asset or offset against such obligations.

Other EPA Matters — During 2000, Virginia Power received a Notice of Violation from the EPA, alleging that Virginia Power failed to obtain New Source Review permits under the Clean Air Act prior to undertaking specified construction projects at the Mt. Storm Power Station in West Virginia. The Attorney General of New York filed a suit against Virginia Power alleging similar violations of the Clean Air Act at the Mt. Storm Power Station. Virginia Power also received notices from the Attorneys General of Connecticut and New Jersey of their intentions to file suit for similar violations. In December 2002, the Attorney General of Connecticut filed a motion to intervene as a plaintiff in the action filed by the New York State Attorney General. This action has been stayed. Management believes that Virginia Power has obtained the necessary permits for its generating facilities. Virginia Power has reached an agreement in principle with the federal government and the state of New York to resolve this situation. The agreement in principle includes payment of a $5 million civil penalty, a commitment of $14 million for environmental projects in Virginia, West Virginia, Connecticut, New Jersey and New York and a 12-year, $1.2 billion capital investment program for environmental improvements at the Company’s coal-fired generating stations in Virginia and West Virginia. Virginia Power had already committed to a substantial portion of the $1.2 billion expenditures for sulfur dioxide and nitrogen oxide emissions controls. The negotiations over the terms of a binding settlement have expanded beyond the basic agreement in principle and are ongoing. As of December 31, 2002, Virginia Power has recorded, on a discounted basis, $18 million for the civil penalty and environmental projects.

In 2002, the EPA issued a Section 114 request for information about whether Morgantown Energy Associates’ (MEA) facility in Morgantown, West Virginia is in compliance with environmental requirements. EPA made a site visit and at that time received the requested information. In September 2002, MEA received a copy of EPA’s inspection report summarizing the facts surrounding the visit. MEA is prepared to resolve follow-up questions from EPA. MEA is a 50 percent-owned investment accounted for by Dominion under the equity method.

Other— Before being acquired by Dominion, Louis Dreyfus was one of numerous defendants in several lawsuits pending in the Texas 93rd Judicial District Court in Hildago County, Texas. The lawsuit alleges that gas wells and related pipeline facilities operated by Louis Dreyfus and facilities operated by other defendants caused an underground hydrocarbon plume in McAllen, Texas. The plaintiffs claim that they have suffered damages, including property damage and lost profits, as a result of the plume. Although the results of litigation are inherently unpredictable, Dominion does not expect the ultimate outcome of the case to have a material adverse impact on its results of operations, cash flows or financial position.

Spent Nuclear Fuel

Under provisions of the Nuclear Waste Policy Act of 1982, Dominion has entered into contracts with the DOE for the disposal of spent nuclear fuel. The DOE failed to begin accepting the spent nuclear fuel on January 31, 1998, the date provided by the Nuclear Waste Policy Act and by Dominion’s contract with the DOE. Dominion will continue to safely manage its spent fuel until accepted by the DOE.

Retrospective Premium Assessments

Under several of Dominion’s nuclear insurance policies, Dominion is subject to retrospective premium assessments in any policy year in which losses exceed the funds available to these insurance companies. For additional information, see Note 16.

Guarantees, Letters of Credit and Surety Bonds

As discussed in Note 4, FIN No. 45 requires disclosures related to the issuance of certain types of guarantees, beginning with financial statements for the year ended December 31, 2002. For purposes of consolidated financial statements, guarantees issued by a parent on behalf of its consolidated subsidiary, guarantees issued by a consolidated subsidiary on behalf of its parent or guarantees issued by a consolidated subsidiary on behalf of a sister consolidated subsidiary are not subject to the FIN No. 45’s disclosure requirements.

Nevertheless, Dominion is providing the following information about the guarantees that it and certain of its subsidiaries may issue in the ordinary course of business to provide financial or performance assurance to third parties on behalf of certain subsidiaries. These agreements include guarantees, stand-by letters of credit and surety bonds. The amounts subject to certain of these agreements vary depending on the covered contracts actually outstanding at any particular

point in time. Guarantees and stand-by letters of credit are used, when necessary, to support or enhance a subsidiary’s stand-alone creditworthiness. Accordingly, Dominion and certain subsidiaries have entered into guarantees and stand-by letters of credit so that third parties would be willing to enter into contracts with the subsidiaries and to extend sufficient credit to facilitate the subsidiaries’ accomplishment of intended commercial purposes. In such instances, guarantees may be used to limit exposures resulting from subsidiary business activities to pre-defined amounts. While the majority of these guarantees do not have a termination date, Dominion may choose at any time to limit the applicability of such guarantees to future transactions.

To the extent a liability subject to a guarantee has been incurred by a consolidated subsidiary, that liability is included in Dominion’s Consolidated Financial Statements. Dominion believes it unlikely that it would be required to perform or otherwise incur any losses associated with guarantees of its subsidiaries’ obligations. On behalf of consolidated subsidiaries, as of December 31, 2002, Dominion and its subsidiaries had issued $5.2 billion of guarantees; purchased $117 million of surety bonds; and authorized the issuance of standby letters of credit by financial institutions of $606 million.

Only in those limited instances where Dominion or certain subsidiaries enter into a guarantee on behalf of a party that is not consolidated in the preparation of Dominion’s Consolidated Financial Statements would performance under the agreement result in the recognition of additional liabilities in Dominion’s Consolidated Financial Statements. As of December 31, 2002, Dominion has guaranteed $70 million related to officers’ borrowings under executive stock loan programs, for which individual officers are personally liable for repayment. Substantially all of this guarantee is scheduled to expire in 2005.

Dominion has also guaranteed $32 million for obligations of certain equity method investments - Dominion Telecom, Inc., MEA and Elwood Energy.

Indemnifications

In addition, as part of commercial contract negotiations in the normal course of business, Dominion may sometimes agree to make payments to compensate or indemnify other parties for possible future unfavorable financial consequences resulting from specified events. The specified events may involve an adverse judgment in a lawsuit or the imposition of additional taxes due to a change in tax law or interpretation of the tax law. Dominion is unable to develop an estimate of the maximum potential amount of future payments under these contracts because events that would obligate Dominion have not yet occurred or, if any such event has occurred, Dominion has not been notified of its occurrence. However, at December 31, 2002, management believes future payments, if any, that could ultimately become payable under these contract provisions, would not have a material impact on its results of operations, cash flows or financial position.

Stranded Costs

Under the Virginia Restructuring Act, the generation portion of Dominion’s Virginia jurisdictional operations is no longer subject to cost-based regulation, effective January 1, 2002. Dominion’s base rates (excluding fuel costs and certain other allowable adjustments) will remain capped until July 2007, unless terminated sooner or otherwise modified consistent with the Virginia Restructuring Act. Under the Act, Dominion may request a termination of the capped rates at any time after January 1, 2004, and the Virginia State Corporation Commission may grant Dominion’s request to terminate the capped rates, if it finds that a competitive generation services market exists in Dominion’s service area. Dominion believes capped electric retail rates and, where applicable, wires charges provided under the Virginia Restructuring Act provide an opportunity to recover a portion of its potentially stranded costs, depending on market prices of electricity and other factors. Stranded costs are those costs incurred or commitments made by utilities under cost-based regulation that may not be reasonably expected to be recovered in a competitive market.

Even in the capped rate environment, Dominion remains exposed to numerous risks, including, among others, exposure to potentially stranded costs, future environmental compliance requirements, changes in tax laws, inflation and increased capital costs. At December 31, 2002, Dominion’s exposure to potentially stranded costs included: long-term power purchase contracts that could ultimately be determined to be above market (see Power Purchase Contracts above); generating plants that could possibly become uneconomic in a deregulated environment; and unfunded obligations for nuclear plant decommissioning and postretirement benefits not yet recognized in the financial statements. See Notes 16 and 26.

28 . Fair Value of Financial Instruments

Substantially all of Dominion’s financial instruments are recorded at fair value, with the exception of the instruments described below. Fair value amounts have been determined using available market information and valuation methodologies considered appropriate by management. Dominion reports the following financial instruments based on historical cost rather than fair value.

Notes to Consolidated Financial Statements—(Continued)

The financial instruments’ carrying amounts and fair values as of December 31, 2002 and 2001 were as follows:

	2002				2001

(millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Long-term debt ⁽¹⁾	$	14,185	$	14,990	$	13,473	$	13,725
Preferred securities of subsidiary trusts ⁽²⁾⁽³⁾		1,397		1,441		1,132		1,154

⁽¹⁾

Fair value is estimated using market prices, where available; otherwise, interest rates, currently available for issuance of debt with similar terms and remaining maturities, are used. The carrying amount of debt issues with short-term maturities and variable rates repriced at current market rates is a reasonable estimate of fair value.

⁽²⁾

Fair value is based on market quotations.

⁽³⁾

The 2002 carrying value of $1,397 million represents principal outstanding of $1,400 million, less an unamortized discount of $3 million, and the 2001 carrying value of $1,132 million represents principal outstanding of $1,135 million, less an unamortized discount of $3 million.

29 . Concentration of Credit Risk

Credit risk is the risk of financial loss to Dominion if counterparties fail to perform their contractual obligations. Dominion engages in transactions for the purchase and sale of products and services with major companies in the energy industry and with commercial and residential energy consumers. These transactions principally occur in the Northeast, Midwest and Mid-Atlantic regions of the United States. Management does not believe that this geographic concentration contributes significantly to Dominion’s overall exposure to credit risk. Credit risk associated with trade accounts receivable from energy consumers is limited due to the large number of customers.

Dominion maintains credit policies with respect to its counterparties that management believes minimize overall credit risk. Where appropriate, such policies include the evaluation of a prospective counterparty’s financial condition, collateral requirements and the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. Dominion also monitors the financial condition of existing counterparties on an ongoing basis. Dominion maintains a provision for credit losses based upon factors surrounding the credit risk of its customers, historical trends and other information. Management believes, based on Dominion’s credit policies and its December 31, 2002 provision for credit losses, that it is unlikely that a material adverse effect on its financial position, results of operations or cash flows would occur as a result of counterparty nonperformance.

Dominion calculates its gross credit exposure for each counterparty as the unrealized fair value of derivative and energy trading contracts plus any outstanding receivables (net of payables, where netting agreements exist), prior to the application of collateral. In the calculation of net credit exposure, Dominion’s gross exposure is reduced by collateral made available by counterparties, including letters of credit and cash received by Dominion and held as margin deposits. Presented below is a summary of Dominion’s gross and net credit exposure as of December 31, 2002. The amounts presented exclude accounts receivable for retail electric and gas sales and services, regulated transmission services and Dominion’s provision for credit losses.

	At December 31, 2002

(millions)	Credit Exposure before Credit Collateral		Credit Collateral		Net Credit Exposure

Investment grade ⁽¹⁾	$	486	$	31	$	455
Non-investment grade ⁽²⁾		100		24		76
No external ratings:
Internal rated—investment grade ⁽³⁾		206				206
Internal rated—non-investment grade ⁽⁴⁾		143				143

Total	$	935	$	55	$	880

⁽¹⁾

This category includes counterparties with minimum credit ratings of Baa3 assigned by Moody’s Investor Service (Moody’s) and BBB- assigned by Standard & Poor’s Rating Group, a division of the McGraw-Hill Companies, Inc. (Standard & Poor’s). The five largest counterparty exposures, combined, for this category represented approximately 13 percent of the total gross credit exposure.

⁽²⁾

This category includes counterparties with credit ratings that are below investment grade. The five largest counterparty exposures, combined, for this category represented approximately 6 percent of the total gross credit exposure.

⁽³⁾

This category includes counterparties that have not been rated by Moody’s or Standard & Poor’s, but are considered investment grade based on Dominion’s evaluation of the counterparty’s creditworthiness. The five largest counterparty exposures, combined, for this category represented approximately 18 percent of the total gross credit exposure.

⁽⁴⁾

This category includes counterparties that have not been rated by Moody’s or Standard & Poor’s, and are considered non-investment grade based on Dominion’s evaluation of the counterparty’s creditworthiness. The five largest counterparty exposures, combined, for this category represented approximately 3 percent of the total gross credit exposure.

30 . Dominion Fiber Ventures, LLC

Dominion has a 50 percent voting interest in DFV, a joint venture with a third-party investor trust (Investor Trust). DFV was established to fund the development of its principal investment, Dominion Telecom, Inc. (DTI), a telecommunications business. DTI is a facilities-based interchange and emerging local carrier that provides broadband solutions to wholesale customers throughout the eastern United States. Due to the veto rights and substantive equity at risk from the Investor Trust, Dominion’s investment in DFV is accounted for using the equity method. See Note 31.

In connection with its formation, DFV issued $665 million of 7.05 percent senior secured notes due March 2005 (DFV Senior Notes).

The DFV Senior Notes were secured in part by Dominion convertible preferred stock held in trust. Dominion was the beneficial owner of the trust and included it in the preparation of its Consolidated Financial Statements. Prior to Dominion’s repurchase of substantially all of the outstanding DFV Senior Notes in February 2003, as described below, the preferred stock would have been subject to being remarketed in an amount sufficient to retire the DFV Senior Notes at maturity or earlier if the credit ratings for Dominion Resources, Inc. senior unsecured debt were BBB– or Baa3 during a period when the closing price of Dominion’s common stock was below $45.97 for ten consecutive trading days. If the remarketing of the preferred stock occurred, the convertible preferred stock would have been considered in the calculation of diluted earnings per share of Dominion’s common stock or could have resulted in the issuance of additional shares of Dominion common stock, if converted.

At the end of 2002 and 2001, DTI and DFV had loaned Dominion a total of $140 million and $367 million, respectively, which are reported as notes payable—affiliates and securities due within one year on the Consolidated Balance Sheets. In 2002 and 2001, Dominion incurred $13 million and $23 million of interest expense on the loans, respectively. For management and other support services, Dominion billed DTI $35 million and $20 million in 2002 and 2001, respectively.

Subsequent Event

On January 23, 2003, Dominion and DFV made a tender and consent offering for the DFV Senior Notes. Under the terms of the offering, DFV sought the consent of the note holders to remove the stock price and credit downgrade trigger described above as well as certain other related modifications to the indenture. Dominion offered to purchase for cash all of the outstanding notes. The consent and tender offer was successful, resulting in the removal of the stock price and credit downgrade trigger and the purchase of $633 million of the outstanding notes by Dominion in February 2003. Dominion paid a total of $664 million for the notes acquired, using proceeds from the sale of $700 million of senior notes.

In connection with this transaction, Dominion and Investor Trust agreed to certain amendments to the DFV limited liability company agreement. Pursuant to one of these amendments, Dominion agreed that upon the earlier of the scheduled maturity date of the DFV Senior Notes or upon certain default events, Dominion will contribute the $644 million of DFV Senior Notes it holds to DFV in exchange for an additional equity interest in DFV.

As a result of this transaction, Dominion will consolidate the results of DFV in its financial statements beginning in February 2003. The DFV Senior Notes held by Dominion will be eliminated in consolidation. After the transaction, $21 million of the DFV Senior Notes remain outstanding in the hands of third parties. Dominion will recognize a pre-tax charge of approximately $60 million on the effective extinguishment of the acquired notes in the first quarter of 2003. The charge will primarily consist of the premium paid to acquire the notes, the consent fee paid to the note holders and the write-off of unamortized debt costs related to the original issuance of the DFV Senior Notes. Furthermore, since Dominion holds substantially all of the DFV Senior Notes, it is unlikely that the remarketing of the Dominion convertible preferred stock held in trust, discussed above, would ever occur.

31 . Equity Method Investments and Affiliated Transactions

At December 31, 2002 and 2001, Dominion’s equity method investments totaled $503 million and $523 million, respectively, and equity earnings on these investments totaled $11 million in 2002, $36 million in 2001 and $47 million in 2000. Dominion’s equity method investments are reported on the Consolidated Balance Sheets in other investments. In addition, Dominion has equity method investments that are held for sale, representing primarily its interest in certain Australian natural gas pipelines. As of December 31, 2002 and 2001, equity method investments that are held for sale totaled $83 million and $68 million, respectively, and are included in other current assets in the Consolidated Balance Sheets. Other than transactions involving its telecommunications joint venture described in Note 30, transactions between Dominion and its affiliates, as well as amounts due from those affiliates, were not significant.

32 . Operating Segments

Dominion manages its operations along three primary business lines:

Dominion Energy manages Dominion’s generation portfolio, consisting primarily of generating units and power purchase agreements. It also manages Dominion’s energy trading and marketing, hedging and arbitrage activities; and gas pipeline and certain gas production and storage operations.

Dominion Delivery manages Dominion’s electric and gas distribution systems, as well as customer service and electric transmission. Dominion Delivery also includes Dominion’s investment in DFV, see Note 30.

Notes to Consolidated Financial Statements—(Continued)

Dominion Exploration & Production manages Dominion’s onshore and offshore gas and oil exploration, development and production operations. Operations are located in several major producing basins in the lower 48 states, including the outer continental shelf and deep-water areas of the Gulf of Mexico, and Western Canada.

Effective January 1, 2003, Dominion’s electric transmission operations will be managed by the Dominion Energy operating segment.

In addition, Dominion also reports the operations of DCI and Dominion’s corporate and other operations as a segment. Amounts included in the Corporate and Other category include:

n corporate expenses of the Dominion and CNG holding companies (including interest not allocated to other segments);

n the operations of Corby (UK), prior to its sale on September 29, 2000 (see Note 6);

n 2002 and 2001 restructuring costs and 2000 restructuring and acquisition-related costs (see Note 8);

n 2001 costs associated with termination of long-term power purchase contracts (see Note 27);

n 2001 provision for credit exposure in connection with Enron bankruptcy (see Note 15);

n 2002, 2001 and 2000 impairment and re-valuation of certain DCI investments (see Note 9);

n 2000 cumulative effect of a change in accounting principle (see Note 3).

Dominion’s management evaluates performance based on a measure of profit and loss that represents each segment’s contribution to Dominion’s net income. Intersegment sales and transfers are based on underlying contractual arrangements and agreements and may result in intersegment profit or loss.

The following table presents segment information pertaining to Dominion’s operations:

(millions)	Dominion Energy		Dominion Delivery			Dominion E&P		Corporate and Other			Adjustments & Eliminations			Consolidated Total

2002
Total revenue from external customers	$	5,781	$	2,526		$	1,629	$	215		$	67		$	10,218
Intersegment revenue		159		26			90		568			(843	)

Total operating revenue		5,940		2,552			1,719		783			(776	)		10,218
Interest and related charges		258		202			88		653			(256	)		945
Depreciation, depletion and amortization		368		328			502		60						1,258
Equity in earnings of equity method investees		29		(32	)		5		9						11
Income tax expense (benefit)		462		236			165		(182	)					681
Net income		770		455			380		(243	)					1,362
Investment in equity method investees		216		74			53		160						503
Capital expenditures		836		455			1,492		45						2,828
Total assets (billions)	$	15.5	$	8.2		$	7.8	$	15.1		$	(8.7	)	$	37.9

2001
Total revenue from external customers	$	6,001	$	2,948		$	1,354	$	255					$	10,558
Intersegment revenue		143		15			106		626		$	(890	)

Total operating revenue		6,144		2,963			1,460		881			(890	)		10,558
Interest and related charges		292		225			64		621			(205	)		997
Depreciation, depletion and amortization		379		339			364		163						1,245
Equity in earnings of equity method investees		39		(3	)		5		(5	)					36
Income tax expense (benefit)		477		200			145		(452	)					370
Net income		723		366			320		(865	)					544
Investment in equity method investees		208		102			71		142						523
Capital expenditures		793		435			898		42						2,168
Total assets (billions)	$	13.7	$	8.0		$	7.4	$	10.8		$	(5.5	)	$	34.4

2000
Total revenue from external customers	$	4,731	$	2,798		$	1,279	$	438					$	9,246
Intersegment revenue		163		28			51		398		$	(640	)

Total operating revenue		4,894		2,826			1,330		836			(640	)		9,246
Interest and related charges		230		221			83		519			(29	)		1,024
Depreciation, depletion and amortization		340		318			352		166						1,176
Equity in earnings of equity method investees		23					12		12						47
Income tax expense (benefit)		262		187			97		(363	)					183
Net income		489		339			255		(647	)					436
Capital expenditures	$	330	$	457		$	751	$	27					$	1,565

As of December 31, 2002 and 2001, approximately 3 and 2 percent of Dominion’s total long-lived assets, respectively, were associated with international operations. For the years ended December 31, 2002 and 2001, approximately 1 and 2 percent of operating revenues were associated with international operations.

Notes to Consolidated Financial Statements—(Continued)

33 . Gas and Oil Producing Activities (unaudited)

Capitalized Costs

The aggregate amounts of costs capitalized for gas and oil producing activities, and related aggregate amounts of accumulated depreciation, depletion and amortization, at December 31, 2002 and 2001 follow:

(millions)	2002		2001

Capitalized costs of:
Proved properties	$	6,265	$	4,707
Unproved properties		1,440		1,508

		7,705		6,215

Accumulated depreciation of:
Proved properties		1,212		447
Unproved properties		151		120

		1,363		567

Net capitalized costs	$	6,342	$	5,648

Total Costs Incurred

The following costs were incurred in gas and oil producing activities during the years ended December 31, 2002, 2001 and 2000:

	2002						2001						2000

(millions)	Total		United States		Canada		Total		United States		Canada		Total		United States		Canada

Property acquisition costs:
Proved properties	$	243	$	243			$	1,586	$	1,586			$	1,475	$	1,459	$	16
Unproved properties		177		170	$	7		908		897	$	11		125		125

		420		413		7		2,494		2,483		11		1,600		1,584		16
Exploration costs		267		260		7		305		305				159		115		44
Development costs ⁽¹⁾		760		679		81		512		395		117		261		236		25

Total	$	1,447	$	1,352	$	95	$	3,311	$	3,183	$	128	$	2,020	$	1,935	$	85

⁽¹⁾

Development costs incurred for proved undeveloped reserves were $223 million and $133 million for 2002 and 2001, respectively.

Results of Operations

Dominion cautions that the following standardized disclosures required by the FASB do not represent the results of operations based on its historical financial statements. In addition to requiring different determinations of revenue and costs, the disclosures exclude the impact of interest expense and corporate overhead.

	2002						2001						2000

(millions)	Total		United States		Canada		Total		United States		Canada		Total		United States		Canada

Revenue (net of royalties) from:
Sales to nonaffiliated companies	$	1,396	$	1,257	$	139	$	1,144	$	920	$	224	$	861	$	691	$	170
Transfers to other operations		97		97				114		114				93		93

Total		1,493		1,354		139		1,258		1,034		224		954		784		170
Less:
Production (lifting) costs		272		220		52		220		162		58		158		133		25
Depreciation, depletion and amortization		502		452		50		358		307		51		345		294		51
Income tax expense		222		209		13		208		162		46		134		93		41

Results of operations	$	497	$	473	$	24	$	472	$	403	$	69	$	317	$	264	$	53

Company-Owned Reserves

Estimated net quantities of proved gas and oil (including condensate) reserves in the United States and Canada at December 31, 2002, 2001 and 2000, and changes in the reserves during those years, are shown in the two schedules which follow.

	2002						2001						2000

(billion cubic feet)	Total		United States		Canada		Total		United States		Canada		Total		United States		Canada

Proved developed and undeveloped reserves—Gas
At January 1	4,090		3,517		573		2,337		1,858		479		1,114		600		514
Changes in reserves:
Extensions, discoveries and other additions	874		769		105		503		394		109		274		232		42
Revisions of previous estimates	158		145		13		(24	)	(64	)	40		(89	)	(59	)	(30	)
Production	(399	)	(346	)	(53	)	(295	)	(238	)	(57	)	(269	)	(222	)	(47	)
Purchases of gas in place	381		379		2		1,578		1,576		2		1,322		1,322
Sales of gas in place	(6	)	(6	)			(9	)	(9	)			(15	)	(15	)

At December 31	5,098		4,458		640		4,090		3,517		573		2,337		1,858		479

Proved developed reserves—Gas
At January 1	3,466		3,026		440		1,954		1,593		361		1,005		600		405
At December 31	4,035		3,549		486		3,466		3,026		440		1,954		1,593		361


(thousands of barrels)

Proved developed and undeveloped reserves—Oil
At January 1	140,567		115,988		24,579		75,342		51,072		24,270		20,808		659		20,149
Changes in reserves:
Extensions, discoveries and other additions	24,326		24,273		53		40,676		37,401		3,275		14,213		12,813		1,400
Revisions of previous estimates	11,165		4,293		6,872		(1,617	)	(165	)	(1,452	)	(5,082	)	(2,443	)	(2,639	)
Production	(9,725	)	(8,653	)	(1,072	)	(7,663	)	(6,134	)	(1,529	)	(7,694	)	(6,436	)	(1,258	)
Purchases of oil in place	2,928		2,928				34,619		34,604		15		54,977		48,359		6,618
Sales of oil in place	(31	)	(31	)			(790	)	(790	)			(1,880	)	(1,880	)

At December 31	169,230		138,798		30,432		140,567		115,988		24,579		75,342		51,072		24,270

Proved developed reserves—Oil
At January 1	63,777		46,473		17,304		36,236		21,709		14,527		6,102		659		5,443
At December 31	65,823		47,759		18,064		63,777		46,473		17,304		36,236		21,709		14,527

Notes to Consolidated Financial Statements—(Continued)

Standardized Measure of Discounted Future Net Cash Flows and Changes Therein

The following tabulation has been prepared in accordance with the FASB’s rules for disclosure of a standardized measure of discounted future net cash flows relating to proved gas and oil reserve quantities owned by Dominion.

	2002						2001							2000

(millions)	Total		United States		Canada		Total		United States		Canada			Total		United States		Canada

Future cash inflows	$	28,337	$	25,344	$	2,993	$	12,350	$	11,161	$	1,189		$	23,602	$	19,117	$	4,485
Less:
Future development costs ⁽¹⁾		1,092		1,005		87		845		770		75			503		405		98
Future production costs		3,603		2,979		624		3,571		3,091		480			2,055		1,540		515
Future income tax expense (benefit)		7,582		6,904		678		1,917		2,026		(109	)		7,145		5,591		1,554

Future cash flows		16,060		14,456		1,604		6,017		5,274		743			13,899		11,581		2,318
Less annual discount (10% a year)		8,255		7,436		819		2,804		2,513		291			5,723		4,622		1,101
Standardized measure of discounted future net cash flows ⁽²⁾	$	7,805	$	7,020	$	785	$	3,213	$	2,761	$	452		$	8,176	$	6,959	$	1,217

⁽¹⁾

Estimated future development costs, excluding abandonment, for proven undeveloped reserves are estimated to be $236 million, $239 million and $203 million for 2003, 2004 and 2005, respectively.

⁽²⁾

Amounts exclude the effect of derivative instruments designated as hedges of future sales of production at year end.

In the foregoing determination of future cash inflows, sales prices for gas and oil were based on contractual arrangements or market prices at year-end. Future costs of developing and producing the proved gas and oil reserves reported at the end of each year shown were based on costs determined at each such year end, assuming the continuation of existing economic conditions. Future income taxes were computed by applying the appropriate year-end or future statutory tax rate to future pretax net cash flows, less the tax basis of the properties involved, and giving effect to tax deductions, permanent differences and tax credits.

It is not intended that the FASB’s standardized measure of discounted future net cash flows represent the fair market value of Dominion’s proved reserves. Dominion cautions that the disclosures shown are based on estimates of proved reserve quantities and future production schedules which are inherently imprecise and subject to revision, and the 10 percent discount rate is arbitrary. In addition, costs and prices as of the measurement date are used in the determinations, and no value may be assigned to probable or possible reserves.

The following tabulation is a summary of changes between the total standardized measure of discounted future net cash flows at the beginning and end of each year.

(millions)	2002			2001			2000

Standardized measure of discounted future net cash flows at January 1	$	3,213		$	8,176		$	549
Changes in the year resulting from:
Sales and transfers of gas and oil produced during the year, less production costs		(1,221	)		(1,038	)		(796	)
Prices and production and development costs related to future production		3,975			(9,793	)		9,544
Extensions, discoveries and other additions, less production and development costs		2,039			767			1,602
Previously estimated development costs incurred during the year		223			134			82
Revisions of previous quantity estimates		(152	)		62			(778	)
Accretion of discount		426			1,117			259
Income taxes		(2,639	)		2,949			(3,309	)
Acquisition of Louis Dreyfus and CNG					1,347			1,322
Other purchases and sales of proved reserves in place		799			102			994
Other (principally timing of production)		1,142			(610	)		(1,293	)

Standardized measure of discounted future net cash flows at December 31	$	7,805		$	3,213		$	8,176

34 . Quarterly Financial and Common Stock Data (unaudited)

A summary of the quarterly results of operations for the years ended December 31, 2002 and 2001 follows. Amounts reflect all adjustments, consisting of only normal recurring accruals, necessary in the opinion of management for a fair statement of the results for the interim periods. Results for interim periods may fluctuate as a result of weather conditions, changes in rates and other factors. Amounts for 2001 reflect certain reclassifications to conform to the 2002 presentation.

(millions, except per share amounts)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Full Year

2002
Operating revenue		$2,634		$2,332		$2,545		$2,707			$10,218
Income from operations		711		625		836		713			2,885
Net income		322		272		430		338			1,362

Earnings per share—basic		1.21		0.98		1.55		1.12			4.85

Earnings per share—diluted		1.20		0.97		1.54		1.12			4.82

Dividends paid per share		0.645		0.645		0.645		0.645		$	2.58
Common stock prices (high-low)		$65.97-$56.39		$67.06-$60.59		$66.15-$47.97		$55.74-$35.40

2001
Operating revenue		$3,198		$2,309		$2,544		$2,507		$	10,558
Income from operations		496		518		780		(9	)		1,785
Net income (loss)		162		155		344		(117	)		544

Earnings (loss) per share—basic		0.66		0.63		1.38		(0.45	)		2.17

Earnings (loss) per share—diluted		0.65		0.62		1.37		(0.45	)		2.15

Dividends paid per share		0.645		0.645		0.645		0.645			2.58
Common stock prices (high-low)	$	68-$55.31	$	69.99-$59.47	$	64.15-$55.13	$	62.97-$55.30

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Part III

Item 10.

Directors and Executive Officers of the Registrant

Information regarding the directors of Dominion contained under the heading Election of Directors, in the 2003 Proxy Statement, File No. 1-8489, which will be filed on or around March 21, 2003 (the 2003 Proxy Statement), is incorporated by reference. Information regarding Section 16(a) beneficial ownership reporting compliance is contained under the heading Section 16(a) Beneficial Ownership Reporting Compliance in the 2003 Proxy and is incorporated by reference. The information concerning the executive officers of Dominion required by this item is included in Part I of this Form 10-K under the caption Executive Officers of the Registrant.

Item 11.

Executive Compensation

The information regarding executive compensation contained under the heading Executive Compensation and the information regarding director compensation contained under the heading The Board—Compensation and Other Programs in the 2003 Proxy Statement is incorporated by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management

The information concerning stock ownership by directors, executive officers and five percent beneficial owners contained under the heading Share Ownership Table in the 2003 Proxy Statement is incorporated by reference.

The information regarding equity securities of Dominion that are authorized for issuance under its equity compensation plans contained under the heading Equity Compensation in the 2003 Proxy Statement is incorporated by reference.

Item 13.

Certain Relationships and Related Transactions

The information concerning certain transactions with executive officers under the heading Executive Compensation— Stock Purchase Programs and other transactions contained under the heading Certain Relationships and Related Transactions in the 2003 Proxy Statement is incorporated by reference.

Item 14.

Controls and Procedures

Senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of Dominion’s disclosure controls and procedures within 90 days of the date of this report. Based on this evaluation process, the Chief Executive Officer and Chief Financial Officer have concluded that Dominion’s disclosure controls and procedures are effective. Since that evaluation process was completed, there have been no significant changes in internal controls or in other factors that could significantly affect these controls.

Part IV

Item 15.

Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Certain documents are filed as part of this Form 10-K and are incorporated by reference and found on the pages noted.

1. Financial Statements

See Index on page 46.

2. Financial Statement Schedules

		Page
Independent Auditors’ Report		101
Schedule I—Condensed Financial Information of Registrant		102
Schedule II—Valuation and Qualifying Accounts		109

All other schedules are omitted because they are not applicable, or the required information is shown in the financial statements or the related notes.

3. Exhibits

2.1		Agreement and Plan of Merger, dated September 9, 2001, by and among Dominion Resources, Inc., Consolidated Natural Gas Company, and Louis Dreyfus Natural Gas Corp. (Exhibit 2.1, Form 8-K filed September 10, 2001, File No. 1-3196, incorporated by reference).

2.2		Amendment No. 1 to Agreement and Plan of Merger, dated September 17, 2001, by and among Dominion Resources, Inc., Consolidated Natural Gas Company, and Louis Dreyfus Natural Gas Corp. (Exhibit 2.2, Schedule 13D of Dominion Resources, Inc. with respect to Louis Dreyfus Natural Gas Corp., filed September 19, 2001, incorporated by reference).

3.1		Articles of Incorporation as in effect August 9, 1999, as amended effective March 12, 2001 (filed herewith).

3.2		Bylaws as in effect on October 20, 2000 (Exhibit 3, Form 10-Q for the quarter ended September 30, 2000, File No. 1-8489, incorporated by reference).

4.1		See Exhibit 3.1 above.

4.2		Indenture of Mortgage of Virginia Electric and Power Company, dated November 1, 1935, as supplemented and modified by fifty-eight Supplemental Indentures (Exhibit 4(ii), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference); Sixty-Seventh Supplemental Indenture (Exhibit 4(i), Form 8-K, dated April 2, 1991, File No. 1-2255, incorporated by reference); Seventieth Supplemental Indenture, (Exhibit 4(iii), Form 8-K, dated February 25, 1992, File No. 1-2255, incorporated by reference); Seventy-First Supplemental Indenture (Exhibit 4(i)) and Seventy-Second Supplemental Indenture, (Exhibit 4(ii), Form 8-K, dated July 7, 1992, File No. 1-2255, incorporated by reference); Seventy-Third Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated August 6, 1992, File No. 1-2255, incorporated by reference); Seventy-Fourth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated February 10, 1993, File No. 1-2255, incorporated by reference); Seventy-Fifth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated April 6, 1993, File No. 1-2255, incorporated by reference); Seventy-Sixth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated April 21, 1993, File No. 1-2255, incorporated by reference); Seventy-Seventh Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated June 8, 1993, File No. 1-2255, incorporated by reference); Seventy-Eighth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated August 10, 1993, File No. 1-2255, incorporated by reference); Seventy-Ninth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated August 10, 1993, File No. 1-2255, incorporated by reference); Eightieth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated October 12, 1993, File No. 1-2255, incorporated by reference); Eighty-First Supplemental Indenture, (Exhibit 4(iii), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference); Eighty-Second Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated January 18, 1994, File No. 1-2255, incorporated by reference); Eighty-Third Supplemental Indenture (Exhibit 4(i), Form 8-K, dated October 19, 1994, File No. 1-2255, incorporated by reference); Eighty-Fourth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated March 23, 1995, File No. 1-2255, incorporated by reference); and Eighty-Fifth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated February 20, 1997, File No. 1-2255, incorporated by reference).

4.3		Indenture, dated as of June 1, 1986, between Virginia Electric and Power Company and JP Morgan Chase Bank (formerly The Chase Manhattan Bank and Chemical Bank) (Exhibit 4(v), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference).

4.4		Indenture, dated April 1, 1988, between Virginia Electric and Power Company and JP Morgan Chase Bank (formerly The Chase Manhattan Bank and Chemical Bank), as supplemented and modified by a First Supplemental Indenture, dated August 1, 1989, (Exhibit 4(vi), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference); Second Supplemental Indenture, dated May 1, 1999 (Exhibit 4.2, Form S-3, File No. 333-7615, as filed on April 13, 1999, incorporated by reference).

4.5		Subordinated Note Indenture, dated as of August 1, 1995 between Virginia Electric and Power Company and JP Morgan Chase Bank (formerly The Chase Manhattan Bank and Chemical Bank), as Trustee (Exhibit 4(a), Form S-3 Registration Statement File No. 333-20561 as filed on January 28, 1997, incorporated by reference), Form of Second Supplemental Indenture (Exhibit 4.6, Form 8-K filed August 20, 2002, No. 1-2255, incorporated by reference).

4.6		Form of Senior Indenture, dated as of June 1, 1998, between Virginia Electric and Power Company and JP Morgan Chase Bank (formerly The Chase Manhattan Bank) as supplemented by the First Supplemental Indenture (Exhibit 4.2, Form 8-K, dated June 12, 1998, File No. 1-2255, incorporated by reference); Second Supplemental Indenture (Exhibit 4.2, Form 8-K, dated June 3, 1999, File No.1-2255, incorporated by reference); Third Supplemental Indenture (Exhibit 4.2, Form 8-K, dated October 27, 1999, File No. 1-2255, incorporated by reference); Form of Fourth Supplemental Indenture (Exhibit 4.2, Form 8-K, dated March 22, 2001, File No. 1-2255, incorporated by reference); and Form of Fifth Supplemental Indenture (Exhibit 4.3, Form 8-K, dated March 22, 2001, File No. 1-2255, incorporated by reference); Form of Sixth Supplemental Indenture (Exhibit 4.2, Form 8-K, dated January 24, 2002, incorporated by reference); Seventh Supplemental Indenture dated September 1, 2002 (Exhibit 4.4, Form 8-K filed September 11, 2002, File No. 1-2255, incorporated by reference).

4.7		Indenture, Junior Subordinated Debentures, dated December 1, 1997, between Dominion Resources, Inc. and JP Morgan Chase Bank (formerly The Chase Manhattan Bank) as supplemented by a First Supplemental Indenture, dated December 1, 1997 (Exhibit 4.1 and Exhibit 4.2 to Form S-4 Registration Statement, File No. 333-50653, as filed on April 21, 1998, incorporated by reference); Second and Third Supplemental Indentures, dated January 1, 2001, (Exhibits 4.6 and 4.13, Form 8-K, dated January 9, 2001, incorporated by reference).

4.8		Indenture, dated as of May 1, 1971, between Consolidated Natural Gas Company and JP Morgan Chase Bank (formerly The Chase Manhattan Bank and Manufacturers Hanover Trust Company) (Exhibit (5) to Certificate of Notification at Commission File No. 70-5012, incorporated by reference); Fifteenth Supplemental Indenture dated as of October 1, 1989 (Exhibit (5) to Certificate of Notification at Commission File No. 70-7651, incorporated by reference); Seventeenth Supplemental Indenture dated as of August 1, 1993 (Exhibit (4) to Certificate of Notification at Commission File No. 70-8167, incorporated by reference); Eighteenth Supplemental Indenture dated as of December 1, 1993 (Exhibit (4) to Certificate of Notification at Commission File No. 70-8167, incorporated by reference); Nineteenth Supplemental Indenture dated as of January 28, 2000 (Exhibit (4A)(iii), Form 10-K for the fiscal year ended December 31, 1999, File No. 1-3196, incorporated by reference); Twentieth Supplemental Indenture dated as of March 19, 2001 (Exhibit 4(viii), Form 10-K for the fiscal year ended December 31, 2000, File No. 1-8489, incorporated by reference).

4.9		Indenture, dated as of April 1, 1995, between Consolidated Natural Gas Company and The Bank of New York (as successor trustee to United States Trust Company of New York) (Exhibit (4) to Certificate of Notification at Commission File No. 70-8107); First Supplemental Indenture dated January 28, 2000 (Exhibit (4 A)(ii), Form 10-K for the fiscal year ended December 31, 1999, File No. 1-3196, incorporated by reference); Securities Resolution No. 1 effective as of April 12, 1995 (Exhibit 2 to Form 8-A filed April 21, 1995 under File No. 1-3196 and relating to the 7 ³ / 8 % Debentures Due April 1, 2005); Securities Resolution No. 2 effective as of October 16, 1996 (Exhibit 2 to Form 8-A filed October 18, 1996 under file No. 1-3196 and relating to the 6 ⁷ / 8 % Debentures Due October 15, 2006); Securities Resolution No. 3 effective as of December 10, 1996 (Exhibit 2 to Form 8-A filed December 12, 1996 under file No. 1-3196 and relating to the 6 ⁵ / 8 % Debentures Due December 1, 2008); Securities Resolution No. 4 effective as of December 9, 1997 (Exhibit 2 to Form 8-A filed December 12, 1997 under file No. 1-3196 and relating to the 6.80% Debentures Due December 15, 2027); Securities Resolution No. 5 effective as of October 20, 1998 (Exhibit 2 to Form 8-A filed October 22, 1998 under file No. 1-3196 and relating to the 6% Debentures Due October 15, 2010); Securities Resolution No. 6 effective as of September 21, 1999 (Exhibit 4A(iv), Form 10-K for the fiscal year ended December 31, 1999, File No. 1-3196, and relating to the 7 ¹ / 4 % Notes Due October 1, 2004).

4.10		Senior Indenture, dated June 1, 2000, between Dominion Resources, Inc. and JP Morgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4 (iii), Form S-3, Registration Statement, File No. 333-93187, incorporated by reference); First Supplemental Indenture, dated June 1, 2000 (Exhibit 4.2, Form 8-K, dated June 21, 2000, File No. 1-8489, incorporated by reference); Second Supplemental Indenture, dated July 1, 2000 (Exhibit 4.2, Form 8-K, dated July 11, 2000, File No. 1-8489, incorporated by reference); Third Supplemental Indenture, dated July 1, 2000 (Exhibit 4.3, Form 8-K dated July 11, 2000, incorporated by reference); Fourth Supplemental Indenture and Fifth Supplemental Indenture dated September 1, 2000 (Exhibit 4.2, Form 8-K, dated September 8, 2000, incorporated by reference); Sixth Supplemental Indenture, dated September 1, 2000 (Exhibit 4.3, Form 8-K, dated September 8, 2000, incorporated by reference); Seventh Supplemental Indenture, dated October 1, 2000 (Exhibit 4.2, Form 8-K, dated October 11, 2000, incorporated by reference); Eighth Supplemental Indenture, dated January 1, 2001 (Exhibit 4.2, Form 8-K, dated January 23, 2001, incorporated by reference); Ninth Supplemental Indenture, dated May 1, 2001 (Exhibit 4.4, Form 8-K, dated May 25, 2001, incorporated by reference); Form of Tenth Supplemental Indenture (Exhibit 4.2, Form 8-K filed March 18, 2002, File No. 1-8489, incorporated by reference); Form of Eleventh Supplemental Indenture (Exhibit 4.2, Form 8-K filed June 25, 2002, File No. 1-8489, incorporated by reference.); Form of Twelfth Supplemental Indenture (Exhibit 4.2, Form 8-K filed September 11, 2002, File No. 1-8489, incorporated by reference); Thirteenth Supplemental Indenture dated September 16, 2002 (Exhibit 4.1, Form 8-K filed September 17, 2002, File No. 1-8489, incorporated by reference); Forms of Fifteenth and Sixteenth Supplemental Indentures (Exhibits 4.2 and 4.3 to Form 8-K filed December 12, 2002, File No. 1-8489, incorporated by reference); Forms of Seventeenth and Eighteenth Supplemental Indentures (Exhibits 4.2. and 4.3 to Form 8-K filed February 11, 2003, File No. 1-8489, incorporate by reference); Forms of Twentieth and Twenty-first Supplemental Indentures (Exhibits 4.2 and 4.3 to Form 8-K filed March 4, 2003, File No. 1-8489, incorporated by reference).

4.11		Indenture, dated April 1, 2001, between Consolidated Natural Gas Company and Bank One Trust Company, National Association (Exhibit 4.1, Form S-3 File No. 333-52602, as filed on December 22, 2000, incorporated by reference); as supplemented by the Form of First Supplemental Indenture, dated April 1, 2001 (Exhibit 4.2, Form 8-K, File dated April 12, 2001, File No. 1-3196 incorporated by reference); Second Supplemental Indenture, dated October 25, 2001 (Exhibit 4.1, Form 8-K, dated October 23, 2001, File No. 1-3196, incorporated by reference); Third Supplemental Indenture, dated October 25, 2001 (Exhibit 4.3, Form 8-K, dated October 23, 2001, File No. 1-3196, incorporated by reference); Fourth Supplemental Indenture, dated May 1, 2002 (Exhibit 4.4, Form 8-K, dated May 22, 2002, Form 1-3196, incorporated by reference).

4.12		Form of Indenture for Junior Subordinated Debentures, dated October 1, 2001, between Consolidated Natural Gas Company and Bank One Trust Company, National Association (Exhibit 4.2, Form S-3 Registration No. 333-52602, as filed on December 22, 2000, incorporated by reference); as supplemented by the First Supplemental Indenture, dated October 23, 2001 (Exhibit 4.7, Form 8-K, dated October 16, 2001, File No. 1-3196, incorporated by reference).

4.13		Indenture, dated as of June 15, 1994, between Louis Dreyfus Natural Gas Corp., Dominion Oklahoma Texas Exploration and Production, Inc. and The Bank of New York (as successor trustee to Bank of Montreal Trust Company) (Exhibit 4.13, Form 10-K for the fiscal year ended December 31, 2001, File No. 1-8489, incorporated by reference); as supplemented by the First Supplemental Indenture, dated as of November 1, 2001(Exhibit 4.7, Form 10-Q for the quarter ended September 30, 2001, incorporated by reference).

4.14		Indenture, dated as of December 11, 1997, between Louis Dreyfus Natural Gas Corp., Dominion Oklahoma Texas Exploration & Production, Inc., and La Salle Bank National Association (formerly LaSalle National Bank) (Exhibit 4.14, Form 10-K for the fiscal year ended December 31, 2001, File No. 1-8489, incorporated by reference); as supplemented by the First Supplemental Indenture, dated as of November 1, 2001 (Exhibit 4.9, Form 10-Q for the quarter ended September 30, 2001, incorporated by reference).

4.15		Dominion Resources, Inc. agrees to furnish to the Commission upon request any other instrument with respect to long-term debt as to which the total amount of securities authorized does not exceed 10% of Dominion Resources, Inc.’s total consolidated assets.

10.1		Amended and Restated Interconnection and Operating Agreement, dated as of July 29, 1997 between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(v), Form 10-K for the fiscal year ended December 31, 1997, File No. 1-8489, incorporated by reference).

10.2		DRI Services Agreement, dated January 28, 2000, by and between Dominion Resources, Inc., Dominion Resources Services, Inc. and Consolidated Natural Gas Service Company, Inc. (Exhibit 10(viii), Form 10-K for the fiscal year ended December 31, 1999, File No. 1-8489, incorporated by reference).

10.3		Services Agreement between Dominion Resources Services, Inc. and Virginia Electric and Power Company dated January 1, 2000 (Exhibit 10.19, Form 10-K for the fiscal year ended December 31, 1999, File No. 1-2255, incorporated by reference).

10.4		PJM South Implementation Agreement between Virginia Electric and Power Company and PJM Interconnection, L.L.C., dated September 30, 2002, as amended December 6, 2002 (filed herewith).

10.5		$1,250,000,000 364-Day Credit Agreement among Dominion Resources, Inc., Virginia Electric and Power Company, Consolidated Natural Gas Company and JPMorgan Chase Bank, as Administrative Agent for the Lenders, dated as of May 30, 2002 (filed herewith).

10.6		$750,000,000 Three-Year Credit Agreement among Dominion Resources, Inc., Virginia Electric and Power Company, Consolidated Natural Gas Company and JPMorgan Chase Bank, as Administrative Agent for the Lenders, dated as of May 30, 2002 (filed herewith).

10.7*		Dominion Resources, Inc. Executive Supplemental Retirement Plan, effective January 1, 1981 as amended and restated September 1, 1996 (Exhibit 10(iv), Form 10-Q for the quarter ended June 30, 1997, File No. 1-8489, incorporated by reference), amendment dated June 20, 1997 and amendment effective February 20, 1998 (Exhibit 10(xxi), Form 10-K for the fiscal year ended December 31, 1997, File No. 1-8489, incorporated by reference); amendment dated November 26, 2001 (Exhibit 10.12, Form 10-K for the fiscal year ended December 31, 2001, File No. 1-8489, incorporated by reference).

10.8*		Dominion Resources, Inc.’s Cash Incentive Plan as adopted December 20, 1991 (Exhibit 10(xxii), Form 10-K for the fiscal year ended December 31, 1991, File No. 1-8489, incorporated by reference).

10.9*		Dominion Resources, Inc. Incentive Compensation Plan, effective April 22, 1997, as amended and restated effective July 20, 2001 (Exhibit 10.1, Form 10-Q for the quarter ended June 30, 2001, File No. 1-8489, incorporated by reference).

10.10*		Dominion Resources, Inc. Executive Stock Purchase and Loan Plan II, dated February 15, 2000 (filed herewith).

10.11*		Form of Employment Continuity Agreement for certain officers of Dominion including Messrs. Roach, Farrell, Chewning, Radtke, Sanderlin and O’Hanlon (Exhibit 10(i), Form 10-Q for the quarter ended June 30, 1999, File No. 1-8489, incorporated by reference) and as amended October 19, 2001 (Exhibit 10.15, Form 10-K for the fiscal year ended December 31, 2001, File No. 1-8489, incorporated by reference).

10.12*		Dominion Resources, Inc. Retirement Benefit Funding Plan, effective June 29, 1990 as amended and restated September 1, 1996 (Exhibit 10(iii), Form 10-Q for the quarter ended June 30, 1997, File No. 1-8489, incorporated by reference).

10.13*		Dominion Resources, Inc. Retirement Benefit Restoration Plan as adopted effective January 1, 1991 as amended and restated September 1, 1996 (Exhibit 10(ii), Form 10-Q for the quarter ended June 30, 1997, File No. 1-8489, incorporated by reference); amendment dated November 26, 2001 (Exhibit 10.17, Form 10-K for the fiscal year ended December 31, 2001, File No. 1-8489, incorporated by reference).

10.14*		Dominion Resources, Inc. Executives’ Deferred Compensation Plan, effective January 1, 1994 and as amended and restated January 1, 2003 (filed herewith).

10.15*		Dominion Resources, Inc. Stock Accumulation Plan for Outside Directors, as amended, effective December 17, 1999 (filed herewith).

10.16*		Dominion Resources, Inc. Directors Stock Compensation Plan, effective April 9, 1998 (Exhibit 99, Form S-8 Registration Statement, File No. 333-49725, incorporated by reference).

10.17*		Dominion Resources, Inc. Directors Deferred Cash Compensation Plan, as amended and in effect September 20, 2002 (Exhibit 10.4, Form 10-Q for the quarter ended September 30, 2002, incorporated by reference).

10.18*		Dominion Resources, Inc. Leadership Stock Option Plan, effective July 1, 2000, as amended and restated effective July 20, 2001 (Exhibit 10.2, Form 10-Q for the quarter ended June 30, 2001, File No. 1-8489, incorporated by reference).

10.19*		Dominion Resources, Inc. Executive Stock Purchase Tool Kit, effective September 1, 2001, as amended and restated December 20, 2002 (filed herewith).

10.20*		Dominion Resources, Inc. Security Option Plan, effective January 1, 2003 (filed herewith).

10.21*		Arrangement with Thos. E. Capps regarding additional credited years of service for retirement and retirement life insurance purposes (filed herewith).

10.22*		Employment Agreement dated September 30, 2002 between Dominion and Thos. E. Capps (Exhibit 10.1, Form 10-Q for the quarter ended September 30, 2002, incorporated by reference) including supplemental letter dated February 27, 2003 (filed herewith).

10.23*		Form of Reimbursement Agreement between certain executive officers and Dominion (Exhibit 10(xxvii), Form 10-K for the fiscal year ended December 31, 1999, File No. 1-2255, incorporated by reference).

10.24*		Letter agreement between Dominion and Thomas F. Farrell, II (filed herewith).

10.25*		Letter agreement between Dominion and Thomas N. Chewning (filed herewith).

10.26*		Offer of employment dated March 16, 2001 between Dominion and Duane C. Radtke (filed herewith).

10.27*		Memorandum regarding Terms of Retirement and related general release dated October 23, 2002 between Dominion and Edgar M. Roach, Jr. (Exhibit 10.2, Form 10-Q for the quarter ended September 30, 2002, File No. 1-8489, incorporated by reference).

10.28*		Memorandum regarding Terms of Retirement and related general release dated November 5, 2002 between Dominion and James P. O’Hanlon (Exhibit 10.3, Form 10-Q for the quarter ended September 30, 2002, File No. 1-8489, incorporated by reference).

11		Computation of Earnings Per Share of Common Stock Assuming Full Dilution (filed herewith).

12		Ratio of earnings to fixed charges (Exhibit 12, Form 8-K filed March 4, 2003, File No. 1-8489, incorporated by reference).

18.1		Letter re: Change in Accounting Principles (Exhibit 18, Form 10-Q for the quarter ended March 31, 2000, File No. 1-8489, incorporated by reference).

18.2		Letter re: Change in Accounting Principles (Exhibit 18, Form 10-Q for the quarter ended September 30, 2000, File No. 1-8489, incorporated by reference)

21		Subsidiaries of the Registrant (filed herewith)

23.1		Consent of Deloitte & Touche LLP (filed herewith).

23.2		Consent of Ralph E. Davis Associates, Inc. (filed herewith).

23.3		Consent of Ryder Scott Company, L.P. (filed herewith).

99.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

99.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Indicates management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

Dominion filed a report on Form 8-K on December 13, 2002, relating to the sale of $300,000,000 aggregate principal amount of Dominion’s 2002 Series D 5.125% Senior Notes Due 2009 and $300,000,000 aggregate principal amount of Dominion’s 2002 Series E 6.75% Senior Notes Due 2032.

Dominion filed a report on Form 8-K on January 23, 2003, relating to Dominion’s press release announcing unaudited results of operations for the fiscal year ended December 31, 2002.

Dominion filed a report on Form 8-K on February 11, 2003, relating to the sale of $300,000,000 aggregate principal amount of Dominion’s 2003 Series A 2.800% Senior Notes Due 2005 and $400,000,000 aggregate principal amount of Dominion’s 2003 Series B 4.125% Senior Notes Due 2008.

Dominion filed a report on Form 8-K on March 4, 2003, relating to the sale of $300,00,000 aggregate principal amount of Dominion’s 2003 series D 5.00% Senior Notes Due 2013 and $300,000,000 aggregate principal amount of Dominion’s 2003 Series E 6.30% Senior Notes Due 2033.

100

Independent Auditors’ Report

To the Shareholders’ and Board of Directors of

Dominion Resources, Inc.

Richmond, Virginia

We have audited the consolidated financial statements of Dominion Resources, Inc. and subsidiaries as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, and have issued our report thereon dated January 21, 2003 (February 19, 2003 as to the last two paragraphs of the Lease Commitments section of Note 27 and February 21, 2003 as to the date of the last three paragraphs of Note 30), which report expresses an unqualified opinion and includes an explanatory paragraph as to changes in accounting principle: for goodwill and other intangible assets in 2002, derivative instruments and hedging activities in 2001, and the method of accounting used to develop the market-related value of pension plan assets in 2000; such consolidated financial statements and report are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedules of the Company, listed in Item 15. These consolidated financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ D ELOITTE & T OUCHE LLP

Richmond, Virginia

January 21, 2003

(February 19, 2003 as to the last two paragraphs of the Lease

Commitments section of Note 27 and February 21, 2003 as to

the last three paragraphs of Note 30)

101

Dominion Resources, Inc. (Parent Company)

Schedule I—Condensed Financial Information of Registrant

Condensed Statements of Income

	Year Ended December 31,

(millions)	2002			2001			2000

Operating Revenue	$	—		$	—		$	3
Operating Expenses		33			22			31

Loss from operations		(33	)		(22	)		(28	)

Other income:
Affiliated interest income		85			87			37
Other		7			7			10

Total other income		92			94			47

Interest and related charges		421			405			350

Loss before income taxes		(362	)		(333	)		(331	)
Income tax benefit		121			117			129
Equity in undistributed earnings of subsidiaries		1,603			760			638

Net Income	$	1,362		$	544		$	436

The accompanying notes are an integral part of the Condensed Financial Statements.

102

Dominion Resources, Inc. (Parent Company)

Schedule I—Condensed Financial Information of Registrant

Condensed Balance Sheets

	At December 31,

(millions)	2002			2001

ASSETS
Current Assets
Cash and cash equivalents	$	74		$	181
Receivables and advances due from affiliates		2,201			840
Prepayments		68			41
Escrow account for debt refunding		500
Other		1			1

Total current assets		2,844			1,063

Investments
Investment in affiliates		13,966			12,821
Loans to affiliates		1,300			1,300
Other		26			24

Total investments		15,292			14,145

Property, Plant and Equipment, Net
Property, plant and equipment		6			6
Less: accumulated depreciation, depletion and amortization		(3	)		(3	)

Total property, plant and equipment, net		3			3

Deferred Charges and Other Assets		32			15

Total assets	$	18,171		$	15,226

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Securities due within one year	$	1,548		$	45
Short-term debt		354			648
Payables and short-term borrowings due to affiliates		43			78
Accrued interest and taxes		97			161
Other		4			51

Total current liabilities		2,048			983

Long-Term Debt
Long-term debt		4,219			4,028
Notes payable to affiliates		914			1,144

Total long-term debt		5,133			5,172

Deferred Credits and Other Liabilities
Deferred income taxes		54			19
Other		58			19

Total deferred credits and other liabilities		112			38

Total liabilities		7,293			6,193

Preferred Stock		665			665

Common Shareholders’ Equity
Common stock, no par ⁽¹⁾		9,051			7,129
Other paid-in capital		47			28
Accumulated other comprehensive income (loss)		(446	)		289
Retained earnings		1,561			922

Total common shareholders’ equity		10,213			8,368

Total liabilities and shareholders’ equity	$	18,171		$	15,226

⁽¹⁾

500 million shares authorized; 308 million shares and 265 million shares outstanding at December 31, 2002 and 2001, respectively.

The accompanying notes are an integral part of the Condensed Financial Statements.

103

Dominion Resources, Inc. (Parent Company)

Schedule I—Condensed Financial Information of Registrant

Condensed Statements of Cash Flows

	Year Ended December 31,

(millions)	2002			2001			2000

Net Cash Provided By Operating Activities	$	547		$	408		$	1,310

Investing Activities
Investment in affiliates		(95	)		(17	)		(71	)
Advances to affiliates, net of repayments		(2,435	)		327			(611	)
Loans to affiliates					(1,300	)
Acquisition of Consolidated Natural Gas Company								(2,869	)
Escrow deposit for debt refunding		(500	)
Other		(3	)		(4	)		17

Net cash used in investing activities		(3,033	)		(994	)		(3,534	)

Financing Activities
Issuance of common stock		2,020			245			532
Repurchase of common stock		(66	)					(1,641	)
Issuance of long-term debt		1,680			1,097			2,913
Repayment of long-term debt								(50	)
Issuance (repayment) of short-term debt, net		(294	)		(908	)		1,108
Issuance of notes payable to affiliates					1,276
Repayment of notes payable to affiliates		(227	)		(345	)
Common dividends paid		(723	)		(649	)		(615	)
Other		(11	)

Net cash provided by financing activities		2,379			716			2,247

Increase (decrease) in cash and cash equivalents		(107	)		130			23
Cash and cash equivalents at beginning of the year		181			51			28

Cash and cash equivalents at end of the year	$	74		$	181		$	51

Supplemental cash flow information:
Noncash transactions from investing and financing activities:
Common stock issuance —acquisition of Consolidated Natural Gas Company							$	3,527
Stock and stock option issuance —Louis Dreyfus acquisition				$	894
Conversion of short-term advances and other amounts receivable from subsidiaries to paid-in capital	$	959			86
Issuance of preferred stock to beneficially owned trust					665
Common stock received in exchange for reduction in amounts receivable from subsidiary		150
Exchange of debt securities		450

The accompanying notes are an integral part of the Condensed Financial Statements.

104

Dominion Resources, Inc. (Parent Company)

Schedule I—Condensed Financial Information of Registrant

Notes to Condensed Financial Statements

Note 1. Basis of Presentation

Pursuant to rules and regulations of the Securities and Exchange Commission (SEC), the unconsolidated condensed financial statements of Dominion Resources, Inc. (the Company) do not reflect all of the information and notes normally included with financial statements prepared in accordance with generally accepted accounting principles. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in the 2002 Form 10-K, Part II, Item 8.

Accounting for subsidiaries —The Company has accounted for the earnings of its subsidiaries under the equity method in the unconsolidated condensed financial statements.

Income Taxes —The unconsolidated income tax benefit computed for the Company in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes , reflects the tax assets and liabilities of the Company on a stand alone basis and the effect of filing a consolidated U.S. tax return with its subsidiaries.

Note 2. Long-Term Debt

	2002 Weighted-average Coupon ⁽¹⁾		At December 31,

(millions)			2002			2001

Senior and medium-term notes:
Variable rates, due 2002 to 2003	2.49	%	$	100		$	350
3.875% to 8.125%, due 2003 to 2032 ⁽²⁾	6.63	%		4,920			3,250
Equity-linked senior notes, 5.75% to 8.05%, due 2006 to 2008 ⁽³⁾	7.03	%		743			413
Nonrecourse debt:
Variable rates, due 2004	2.21	%		18			18

				5,781			4,031
Fair value hedge valuation ⁽⁴⁾				5
Amount due within one year				(1,500	)
Unamortized discount ⁽⁵⁾				(67	)		(3	)

				4,219			4,028

Notes payable—affiliates:
6.0%, due 2005				126			175
7.83% to 8.4%, due 2027 to 2041	8.22	%		822			822
Variable rates, due 2006	2.05	%		14			192

				962			1,189

Amount due within one year				(48	)		(45	)

				914			1,144

Total long-term debt			$	5,133		$	5,172

⁽¹⁾

Represents weighted-average coupon rates for debt outstanding as of December 31, 2002.

⁽²⁾

Includes $250 million of the 7.82 percent Series E Remarketable Notes due September 15, 2014, which will be either mandatorily purchased and remarketed by the remarketing agent or mandatorily redeemed by the Company on September 15, 2004.

⁽³⁾

See Note 3.

⁽⁴⁾

Represents changes in fair value of certain fixed rate long-term debt associated with fair value hedging relationships.

⁽⁵⁾

In 2002, the Company redeemed two series of its remarketable senior notes due September 16, 2012: $200 million, 7.40 percent Series D and $250 million, Variable Rate Series F (Remarketable Senior Notes). In a direct exchange, the Company completed the redemption by issuing $520 million, 5.70 percent Series C Senior Notes due September 17, 2012 (Senior Notes). The principal amount of the Senior Notes was determined by an exchange ratio that was based upon the fair value of the Remarketable Senior Notes. The $63 million difference between the principal amounts of Senior Notes issued and Remarketable Senior Notes redeemed was recorded as an increase in debt discount. In addition, through September 2004, the interest rate for the Senior Notes may increase if the credit ratings established by Moody’s or Standard & Poor’s for Dominion Resources, Inc. senior unsecured debt securities decline. The total increase is limited to 1 percent and would continue for any period in which the downgrade is in effect.

The scheduled principal payments of long-term debt at December 31, 2002 were as follows (in millions):

2003	2004	2005	2006	2007	Thereafter	Total

$1,549	$319	$727	$427	—	$3,722	$6,743

In December 2002, the Company issued $600 million of senior notes, of which $500 million of proceeds was deposited into an escrow account solely for the purpose of being used to repay approximately one half of the aggregate principal amount of the Company’s 2001 Series A 6.0 percent senior notes maturing in January 2003.

The Company’s long-term debt agreements contain customary covenants and default provisions. As of December 31, 2002, there were no events of default under those covenants.

Note 3. Equity-Linked Securities

In 2002 and 2000, the Company issued equity-linked debt securities, consisting of stock purchase contracts and senior notes. The stock purchase contracts obligate the holders to purchase shares of the Company’s common stock from the Company by a settlement date, two years prior to the senior notes’ maturity date. The purchase price is $50 and the number of shares to be purchased will be determined under a formula based on the average closing price of the Company’s common stock near the settlement date. The senior notes, or treasury securities in some instances, are pledged as collateral to secure the purchase of common stock under the related stock purchase contracts. The holders may satisfy their obligations under the stock purchase contracts by allowing the senior notes to be remarketed with the proceeds being paid to

105

Dominion Resources, Inc. (Parent Company)

Schedule I—Condensed Financial Information of Registrant

Notes to Condensed Financial Statements

the Company as consideration for the purchase of stock. Alternatively, holders may choose to continue holding the senior notes and use other resources as consideration for the purchase of stock under the stock purchase contracts.

The Company makes quarterly interest payments on the senior notes and quarterly payments on the stock purchase contracts at the rates described below. The Company has recorded the present value of the stock purchase contract payments as a liability, offset by a charge to common stock in shareholders’ equity. Interest payments on the senior notes are recorded as interest expense and stock purchase contract payments are charged against the liability. Accretion of the stock purchase contract liability is recorded as interest expense.

Under the terms of the stock purchase contracts, the Company will issue between 6.7 million and 8.1 million shares of its common stock in November 2004 and between 4.1 million and 5.5 million shares of its common stock in May 2006. A total of 13.6 million shares of the Company’s common stock has been reserved for issuance in connection with the stock purchase contracts.

Selected information about the Company’s equity-linked debt securities is presented below (amounts other than percentages are in millions):

Date of Issuance	Units Issued	Total Net Proceeds		Total Long-Term Debt		Senior Notes Annual Interest Rate		Stock Purchase Contract Annual Rate		Total Equity Charge		Stock Purchase Settlement Date	Maturity of Senior Notes

2000	8.3	$	400.1	$	412.5	8.05	%	1.45	%	$	20.7	11/04	11/06

2002	6.6	$	320.1	$	330.0	5.75	%	3.00	%	$	36.3	5/06	5/08

Note 4. Guarantees, Letters of Credit and Surety Bonds

In the ordinary course of business, the Company is party to various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. These agreements include guarantees, standby letters of credit and surety bonds. The amounts subject to certain of these agreements vary depending on the covered contracts actually outstanding at any particular point in time. Guarantees and stand-by letters of credit are used, when necessary, to support or enhance a subsidiary’s stand-alone creditworthiness. Accordingly, the Company entered into guarantees and stand-by letters of credit so that third parties would be willing to enter into contracts with the subsidiaries and to extend sufficient credit to facilitate the subsidiaries’ accomplishment of intended commercial purposes. In such instances, guarantees may be used to limit exposures resulting from subsidiary business activities to pre-defined amounts. While the majority of these guarantees do not have a termination date, the Company may choose at any time to limit the applicability of such guarantees to future transactions.

Guarantees

The Company believes it unlikely that it would be required to perform or otherwise incur any losses associated with guarantees of its subsidiaries’ obligations. As of December 31, 2002, outstanding guarantees include $4.0 billion issued by the Company and represented the following types of guarantees:

Guarantee of Subsidiary Debt —The Company has guaranteed the payment of interest and principal of $541 million of subsidiary debt, primarily for certain subsidiaries of Dominion Energy (DEI) and Dominion Capital, Inc. (DCI). In the event of default by the subsidiaries, the Company would be obligated to repay such amounts.

Guarantees Supporting Commodity Transactions of Subsidiaries —The Company has also guaranteed contract payments up to approximately $1.1 billion, primarily for certain subsidiaries of Virginia Electric and Power Company (Virginia Power), Consolidated Natural Gas (CNG) and DEI involved in energy marketing activities and $88 million related to other commodity commitments. These guarantees were provided to counterparties in order to facilitate physical and financial transactions in gas, pipeline capacity, transportation, oil, electricity and related commodities and services. If any one of these subsidiaries fails to perform or pay under the contracts and the counterparties seek performance or payment, the Company would be obligated to satisfy such obligation. The Company and its subsidiaries receive similar guarantees as collateral for credit extended to others.

Guarantees Supporting Other Agreements —The Company has also guaranteed the following transactions:

n $26 million related to the future nuclear decommissioning obligations of certain DEI subsidiaries for the Millstone Power Station (Millstone) and $264 million related to potential retrospective premiums that could be assessed, if there is a nuclear incident under the Company’s nuclear insurance programs for the Millstone Power Station. See Note 16 to the Consolidated Financial Statements included in the 2002 Form 10-K, Part II, Item 8 for more information on nuclear operations. Also, as part of satisfying certain Nuclear Regulatory Commission requirements concerned with ensuring adequate funding for

106

Dominion Resources, Inc. (Parent Company)

Schedule I—Condensed Financial Information of Registrant

Notes to Condensed Financial Statements—(continued)

Millstone’s operations, the Company has also agreed to provide up to $150 million to a DEI subsidiary, if requested by such subsidiary, to pay Millstone operating expenses.

n $91 million related to certain leases (fleet vehicles and computer hardware and software), primarily for Dominion Resources Services, Inc. (DRS) and CNG. For information on commitments for the Company’s leases, see Lease Commitments in Note 27 to the Consolidated Financial Statements included in the 2002 Form 10-K, Part II, Item 8.

n $1.6 billion related to the leasing obligations of certain subsidiaries of DEI for several new power generation projects, as well as those of DRS for corporate headquarters and aircraft. See Lease Commitments in Note 27 to the Consolidated Financial Statements included in the 2002 Form 10-K, Part II, Item 8.

n $35 million related to the obligations of a DEI subsidiary under a cross-currency swap agreement. If the subsidiary were to default on any amounts payable under the swap agreement, the Company would be obligated to pay such amounts.

n $22 million related to guarantees for letters of credit issued primarily on behalf of certain subsidiaries of DCI, CNG and DEI.

n Guarantees Supporting Related Parties—As of December 31, 2002, the Company has guaranteed $70 million related to officers’ borrowings under executive stock loan programs, for which individual officers are personally liable for repayment. Substantially all of this guarantee is scheduled to expire in 2005. The Company has also guaranteed $32 million for certain obligations of certain equity method investments—Dominion Telecom, Inc., Morgantown Energy Associates and Elwood Energy.

Standby Letters of Credit

At December 31, 2002, the Company had authorized the issuance of standby letters of credit by financial institutions in the amounts of $71 million for the benefit of certain counterparties that had extended credit to DEI. In the unlikely event that DEI does not pay amounts when due under the covered contracts, any covered counterparty may present its claim for payment to the financial institution, which would then request payment from DEI and the Company, as applicable. See Note 20 to the Consolidated Financial Statements included in the 2002 Form 10-K, Part II, Item 8. As of December 31, 2002, no amounts had been presented for payment under these letters of credit.

Surety Bonds

At December 31, 2002, the Company and its subsidiaries had purchased $63 million of surety bonds, $60 million of which was purchased for subsidiaries. CNG, Virginia Power and various other Company subsidiaries have purchased $40 million, $9 million and $11 million, respectively, of surety bonds primarily in relation to providing worker compensation benefits and obtaining licenses, permits and rights-of-way. Under the terms of the surety bonds, Virginia Power, DEI, or CNG and then the Company, are obligated to indemnify the respective surety bond company for any amounts paid on behalf of subsidiaries. The Company has also indemnified $3 million of surety bonds issued for Dominion Telecom, Inc. For additional related party information, see Note 31 to the Consolidated Financial Statements included in the 2002 Form 10-K, Part II, Item 8.

Indemnifications

In addition, as part of commercial contract negotiations in the normal course of business, the Company may sometimes agree to make payments to compensate or indemnify other parties for possible future unfavorable financial consequences resulting from specified events. The specified events may involve an adverse judgment in a lawsuit or the imposition of additional taxes due to a change in tax law or interpretation of the tax law. The Company is unable to develop an estimate of the maximum potential amount of future payments under these contracts because events that would obligate the Company have not yet occurred or, if any such event has occurred, the Company has not been notified of its occurrence. However, at December 31, 2002, management believes future payments, if any, that could ultimately become payable under these contract provisions, would not have a material impact on its results of operations, cash flows or financial position.

Note 5. Preferred Stock

The Company is authorized to issue up to 20 million shares of preferred stock. The Company issued 665,000 shares of Series A mandatorily convertible preferred stock, liquidation preference $1,000 per share, to Piedmont Share Trust (Piedmont Trust) in connection with the formation of Dominion Fiber Ventures LLC (DFV) and the issuance of senior notes by DFV. The Company is the beneficial owner of the Piedmont Trust. For more information about the Company’s investment in DFV, see Note 30 to the Consolidated Financial Statements included in the 2002 Form 10-K, Part II, Item 8.

107

Dominion Resources, Inc. (Parent Company)

Schedule I—Condensed Financial Information of Registrant

Notes to Condensed Financial Statements—(continued)

Note

6. Dividend Restrictions

The Company received dividends from its consolidated subsidiaries in the amounts of $945 million, $806 million and $1.3 billion for the years 2002, 2001 and 2000, respectively.

The 1935 Act and related regulations issued by the SEC impose restrictions on the transfer and receipt of funds by a registered holding company from its subsidiaries, including a general prohibition against loans or advances being made by the subsidiaries to benefit the registered holding company. Under the 1935 Act, registered holding companies and their subsidiaries may pay dividends only from retained earnings, unless the SEC specifically authorizes payments from other capital accounts. In response to the Company’s request, the SEC granted relief in 2000, authorizing payment of dividends by CNG from other capital accounts to the Company in amounts up to $1.6 billion, representing CNG’s retained earnings prior to the Company’s acquisition of CNG. Furthermore, the Company has submitted a similar request to the SEC in 2002, seeking relief from this restriction in regard to its subsidiary, into which Louis Dreyfus was merged. The application requests relief up to $303 million, representing Louis Dreyfus’ retained earnings prior to the Company’s acquisition of Louis Dreyfus. The Company’s ability to pay dividends on its common stock at declared rates was not impacted by the restriction discussed above during 2002, 2001 and 2000.

The Virginia State Corporation Commission may prohibit any public service company, including Virginia Power, from declaring or paying a dividend to an affiliate, if found not to be in the public interest. At December 31, 2002, the Virginia Commission had not restricted the payment of dividends by Virginia Power.

Certain agreements associated with the Company’s credit facilities contain restrictions on the ratio of debt to total capitalization. These limitations did not restrict the Company’s ability to pay dividends or receive dividends from its subsidiaries at December 31, 2002.

See Note 22 to the Consolidated Financial Statements included in the 2002 Form 10-K, Part II, Item 8., for a description of potential restrictions on dividend payments by the Company in connection with the deferral of payments on the affiliated notes that are held as assets by certain subsidiary capital trusts of the Company.

108

Schedule II—Valuation and Qualifying Accounts

Column A		Column B			Column C						Column D			Column E
					Additions
Description		Balance at Beginning of Period			Charged to Expense			Charged to Other Accounts			Deductions			Balance at End of Period
		(Millions)
Valuation and qualifying accounts which are deducted in the balance sheet from the assets to which they apply:
Allowance for doubtful accounts	2000	$	36	^(a)	$	71		$	(1	)	$	39	^(b)	$	67
	2001		67			54			—			45	^(b)		76
	2002		76			48			—			61	^(b)		63
Allowance for loan losses	2000		47			16			—			7	^(b)		56
	2001		56			178			—			158	^(b)		76
	2002		76			—			—			10	^(b)		66
Valuation allowance for commodity contracts	2000		22			(3	) ^(c)		—			—			19
	2001		19			(8	) ^(c)		—			—			11
	2002		11			(7	) ^(c)		—			—			4
Reserves:
Liability for pre-2001 workforce reductions	2000		12	^(a)		—			—			9	^(d)		3
	2001		3			—			—			3	^(d)		—
	2002		—			—			—			—			—
Liabilities for restructuring costs:
2000 Plan
DCI exit strategies—Allowance for loan losses	2000		—			19			—			14	^(b)		5
	2001		5			—			—			2	^(b)		3
	2002		3			—			—			—			3
Severance and related costs	2000		—			70			—			41	^(d)		29
	2001		29			(2	) ^(c)		—			24	^(d)		3
	2002		3			—			—			3	^(d)		—
Lease termination and restructuring	2000		—			14			—			6	^(d)		8
	2001		8			—			—			7	^(d)		1
	2002		1			—			—			1	^(d)		—
Other, net	2000		—			8			—			8	^(d)		—
	2001		—			—			—			—			—
	2002		—			—			—			—			—
2001 Plan
Severance and related costs	2001		—			42			—			—			42
	2002		42			(8	) ^(c)		—			24	^(d)		10
Lease termination and restructuring	2001		—			13			—			3	^(d)		10
	2002		10			—			—			1	^(d)		9

^(a)

Includes balance of acquired company at date of acquisition.

^(b)

Represents net amounts charged-off as uncollectible.

^(c)

Represents adjustments reflecting changes in estimates.

^(d)

Represents payments of liabilities.

109

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

D OMINION R ESOURCES , I NC .

By:		/s/ T HOS . E. C APPS
		(Thos. E. Capps, Chairman of the Board of Directors, President and Chief Executive Officer)

Date: March 20, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 20th day of March, 2003.

Signature		Title
/s/ T HOS . E. C APPS Thos. E. Capps		Chairman of the Board of Directors, President and Chief Executive Officer

/s/ W ILLIAM S. B ARRACK , J R . William S. Barrack, Jr.		Director

/s/ P ETER W. B ROWN Peter W. Brown		Director

/s/ R ONALD J. C ALISE Ronald J. Calise		Director

/s/ G EORGE A. D AVIDSON , J R . George A. Davidson, Jr.		Director, Retired Chairman of the Board of Directors

/s/ J OHN W. H ARRIS John W. Harris		Director

/s/ B ENJAMIN J. L AMBERT , III Benjamin J. Lambert, III		Director

/s/ R ICHARD L. L EATHERWOOD Richard L. Leatherwood		Director

/s/ M ARGARET A. M C K ENNA Margaret A. McKenna		Director

/s/ S TEVEN A. M INTER Steven A. Minter		Director

/s/ K. A. R ANDALL K. A. Randall		Director

/s/ F RANK S. R OYAL Frank S. Royal		Director

/s/ S. D ALLAS S IMMONS S. Dallas Simmons		Director

110

Signature		Title

/s/ R OBERT H. S PILMAN Robert H. Spilman		Director

/s/ D AVID A. W OLLARD David A. Wollard		Director

/s/ T HOMAS N. C HEWNING Thomas N. Chewning		Executive Vice President and Chief Financial Officer

/s/ S TEVEN A. R OGERS Steven A. Rogers		Vice President, Controller and Principal Accounting Officer

111

Certifications

I, Thos. E. Capps, certify that:

I have reviewed this annual report on Form 10-K of Dominion Resources, Inc.;

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

/s/ T HOS . E. C APPS

Thos. E. Capps

President and Chief Executive Officer

112

I, Thomas N. Chewning, certify that:

I have reviewed this annual report on Form 10-K of Dominion Resources, Inc.;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: March 20, 2003

/s/ T HOMAS N. C HEWNING

Thomas N. Chewning

Executive Vice President and Chief Financial Officer

113

Exhibit 3.1

Dominion Resources, Inc.

Articles of Incorporation

As amended and restated

Effective August 9, 1999

Article I.

Name

The name of the Corporation is Dominion Resources, Inc.

Article II.

Purpose

The purpose for which the Corporation is organized is to transact any and all lawful business, not required to be specifically stated in the Articles of Incorporation, for which corporations may be incorporated under the Virginia Stock Corporation Act.

Article III.

Stock

Division A — Common Stock

The Corporation shall have authority to issue 500,000,000 shares of Common Stock without par value.

Dividends may be paid upon the Common Stock out of any assets of the Corporation available for dividends remaining after full dividends on the outstanding Preferred Stock at the dividend rate or rates therefor, together with the full additional amount required by any participation right, with respect to all past dividend periods and the current dividend period shall have been paid or declared and set apart for payment and all mandatory sinking fund payments that shall have become due in respect of any series of the Preferred Stock shall have been made.

In the event of any liquidation, dissolution or winding up of the Corporation the Board of Directors may, after satisfaction of the rights of the holders of all shares of preferred Stock, or the deposit in trust of money adequate for such satisfaction, distribute in kind to the holders of the Common Stock all then remaining assets of the Corporation or may sell, transfer or otherwise dispose of all or any of such remaining assets of the Corporation and receive payment therefor wholly or partly in cash and/or in stock and/or in obligations and may sell all or any part of the consideration received therefor and distribute all or the balance thereof in kind to the holders of the Common Stock.

The holders of the Common Stock shall, to the exclusion of the holders of the Preferred Stock, have the sole and full power to vote for the election of

directors and for all other purposes without limitation except only as otherwise recited or provided in the provisions of these Articles of Incorporation applicable to the Preferred Stock.

Subject to the provisions of these Articles of Incorporation applicable to the Preferred Stock, the Corporation may from time to time purchase or otherwise acquire for a consideration or redeem (if permitted by the terms thereof) share of Common Stock or shares of any other class of stock hereafter created ranking junior to the Preferred Stock in respect of dividends or assets and any shares so purchased or acquired may be held or disposed of by the Corporation from time to time for its corporate purposes or may be retired as provided by law.

Division B — Preferred Stock

The Corporation shall have authority to issue 20,000,000 shares of Preferred Stock.

The Board of Directors is hereby empowered to cause any class of the Preferred Stock of the Corporation to be issued in series with such of the variations permitted by clauses (a)-(k) below, as shall be determined by the Board of Directors.

The shares of Preferred Stock of different classes or series may vary as to:

(a)

the designation of such class or series, the number of shares to constitute such class or series and the stated value thereof;

(b)

whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which (i) may be general or limited, and (ii) may permit more that one vote per share;

(c)

the rate or rates (which may be fixed or variable) at which dividends, if any, are payable on such class or series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of such class;

(d)

whether the shares of such class or series shall be subject to redemption by the Corporation, and, if so, the times, prices and other conditions of such redemption;

(e)

the amount or amounts payable upon shares of such class or series upon, and the rights of the holders of such class or series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation;

(f)

whether the shares of such class or series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof;

(g)

whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any class or any other series of such class or any other securities (including common stock) and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange;

(h)

the limitations and restrictions, if any, to be effective while any shares of such class or series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of, the Common Stock or shares of stock of any other class or any other series of such class;

(i)

the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such class or series or of any other series of such class or of any other class;

(j)

the ranking (be it pari passu, junior or senior) of each class or series as to the payment of dividends, the distribution of assets and all other matters; and

(k)

any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof, insofar they are not inconsistent with the provisions of these Articles of Incorporation, to the full extent permitted in accordance with the laws of the Commonwealth of Virginia.

In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid to or set aside for the holders of the

Preferred Stock the full preferential amounts to which they are respectively entitled under the provisions of these Articles of Incorporation applicable to the Preferred Stock, the holders of the Preferred Stock shall have no claim to any of the remaining assets of the Corporation.

The powers, preferences and relative, participating, optional and other special rights of each class or series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other classes and series at any time outstanding. All shares of Preferred Stock of each series shall be equal in all respects.

Division C — General Provisions

The number of authorized shares of capital stock of the Corporation, or the amount of capital represented thereby, may be increased or decreased in the manner and subject to the conditions and limitations prescribed by the laws of the Commonwealth of Virginia, as they now and may hereafter exist, and subject to the provisions hereinafter contained.

Any and all shares of Preferred Stock and Common Stock of the Corporation, at the time authorized but not issued and outstanding may be issued and disposed of by the Board of Directors of the Corporation in any lawful manner, consistently, in the case of shares of Preferred Stock, with the requirements set forth in the provisions of these Articles of Incorporation applicable to the Preferred Stock, at any time and from time to time, for such considerations as may be fixed by the Board of Directors of the Corporation.

The Board of Directors shall have authority from time to time to set apart out of any assets of the Corporation otherwise available for dividends a reserve or reserves as working capital or for any other proper purpose or purposes, and to reduce, abolish or add to any such reserve or reserves from time to time as said board may deem to be in the interests of the Corporation; and said board shall likewise have power to determine in its discretion what part of the assets of the Corporation available for dividends in excess of such reserve or reserves shall be declared as dividends and paid to the stockholders of the Corporation.

No stockholder shall have any pre-emptive right to acquire unissued shares of the Corporation or to acquire any securities convertible into or exchangeable for such shares or to acquire any options, warrants or rights to purchase such shares.

Each holder of record of outstanding shares of stock entitled to vote at any meeting of stockholders shall, as to all matters in respect of which such stock has voting power, be entitled to one vote for each share of such stock held by him, as shown by the stock books of the Corporation, and may cast such vote in person or by proxy. Except as herein expressly provided, or mandatorily provided by the laws of the Commonwealth of Virginia, a quorum at any meeting shall consist of a majority of the shares outstanding, and a plurality vote of such quorum shall govern.

The Board of Directors of the Corporation may, by resolution, determine that only a part of the consideration which it is to receive for any shares of stock which it shall issue shall be capital and that the balance of such consideration (not greater, however, that the excess of such consideration over the par value, if any, of such shares) shall be capital surplus of the Corporation.

Article IV.

Offices

The principal office of the Corporation in the Commonwealth of Virginia is to be located in the City of Richmond.

Article V.

Directors and Officers

The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than ten nor more than seventeen Directors, the exact number of Directors to be determined from time to time by resolution adopted by the affirmative vote of a majority of the Directors then in office or at least two-thirds of the shares entitled to vote at a meeting of Stockholders. Each Director shall hold office until the next annual meeting and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. No decrease in the number of directors shall shorten the term of any incumbent Director.

Notwithstanding, the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such Directorships shall be governed by the terms of these Articles of Incorporation applicable thereto, and such

Directors so elected shall not be divided into classes pursuant to this Article V unless expressly provided by such terms.

If the office of any Director shall become vacant, the Directors at the time in office, whether or not a quorum, may, by majority vote of the Directors then in office, choose a successor who shall hold office until the next annual meeting of stockholders. Vacancies resulting from the increase in the number of Directors shall be filled in the same manner.

Directors of the Corporation may be removed by stockholders of the Corporation only for cause and with the affirmative vote of at least two-thirds of the outstanding shares entitled to vote.

Advance notice of stockholder nominations for the election of Directors shall be given in the manner provided in the Bylaws of the Corporation.

Notwithstanding any other provision of the Articles of Incorporation or the Bylaws, the affirmative vote of at least two-thirds of the outstanding shares entitled to vote shall be required to amend, alter, change or repeal, or to adopt any provision inconsistent with the purpose and intent of, this Article V or Articles IV and IX of the Bylaws.

Article VI.

Limit on Liability and Indemnification

To the full extent that the Virginia Stock Corporation Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors or officers, a Director or officer of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages.

To the full extent permitted and in the manner prescribed by the Virginia Stock Corporation Act and any other applicable law, the Corporation shall indemnify a Director or officer of the Corporation who is or was a party to any proceeding by reason of the fact that he is or was such a Director or officer or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. The Board of Directors is hereby empowered, by majority vote of a quorum or disinterested Directors, to contract in advance to indemnify any Director or officer.

The Board of Directors is hereby empowered, by majority vote of a quorum of disinterested Directors, to cause the Corporation to indemnify or contract in advance to indemnify any person not specified in Section 2 of this Article who was or is a party to any proceeding, by reason of the fact that he is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, to the same extent as if such person were specified as one to whom indemnification is granted in Section 2.

The Corporation my purchase and maintain insurance to indemnify it against the whole or any portion of the liability assumed by it in accordance with this Article an may also procure insurance, in such amounts as the Board of Directors may determine, on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by any such person in any such capacity or arising from his status as such, whether or not the Corporation would have power to indemnify him against such liability under the provisions of this Article.

In the event there has been a change in the composition of a majority of the Board of Directors after the date of the alleged act or omission with respect to which indemnification is claimed, any determination as to indemnification and advancement of expenses with respect to any claim for indemnification made pursuant to Section 2 of this Article VI shall be made by special legal counsel agreed upon by the Board of Directors and the proposed indemnitee. If the Board of Directors and the proposed indemnitee are unable to agree upon such special legal counsel, the Board of Directors and the proposed indemnitee each shall select a nominee, and the nominees shall select such special legal counsel.

The provisions of this Article VI shall be applicable to all actions, claims, suits or proceedings commenced after the adoption hereof, whether arising from any action taken or failure to act before or after such adoption. no amendment, modification or repeal of this Article shall diminish the rights provided hereby or diminish the right to indemnification with respect to any claim, issue or matter in any then pending or subsequent proceeding that is based in any material respect

on any alleged action or failure to act prior to such amendment, modification or repeal.

Reference herein to Directors, officers, employees or agents shall include former Directors, officers, employees and agents and their respective heirs, executors and administrators.

ARTICLES OF AMENDMENT

ESTABLISHING

SERIES A PREFERRED STOCK

OF DOMINION RESOURCES, INC.

Article I

The name of the corporation is Dominion Resources, Inc. (the “Corporation”).

Article II

The Amended and Restated Articles of Incorporation, as amended (the “Articles”), of the Corporation hereby are amended to create a series of the Corporation’s Preferred Stock pursuant to Article III - Division B of the Articles which shall be designated the Series A Preferred Stock and determine the variations permitted by the Articles with respect thereto. In accordance with the provisions of the Articles, such Series A Preferred Stock shall have, in addition to the general terms and characteristics of all the authorized shares of Preferred Stock of the Corporation, the distinctive terms and characteristics set forth in Article IV of these Articles of Amendment.

Article III

The amendment determining the terms of the Series A Preferred Stock was duly adopted by the Board of Directors of the Corporation on February 16, 2001. Under the Articles no shareholder action on the amendment was required.

Article IV

The text of the amendment determining the terms of the Series A Preferred Stock appears in the following Sections 1-7 and in Appendix A hereto. It is to be inserted in between Article III—Division B and Article III—Division C of the Articles and entitled as shown below.

Division B — Series A Preferred Stock

Section 1. Definitions . The capitalized terms used herein shall have the meanings set forth in Appendix A attached hereto or in Articles I and II above.

Section 1A. Number . The Series A Preferred Stock comprises 665,000 shares.

Section 2. Dividends . The holders of the Series A Preferred Stock shall not be entitled to receive any dividends (nor shall dividends commence to accrue) prior to, or with respect to any period ending prior to, the Rate Reset Date. The holders of the Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of the assets of the Corporation legally available therefor, cumulative cash dividends from the Rate

Reset Date at the Reset Dividend Rate, and no more, payable on the dates as set forth in this Section 2. Dividends shall accrue on the Series A Preferred Stock from the Rate Reset Date. Dividends shall be payable quarterly in arrears on each January 1, April 1, July 1, and October 1 commencing on the first such date following the Rate Reset Date and on the Mandatory Conversion Date (each such date being hereinafter referred to as a “Dividend Payment Date”); provided, that if any such Dividend Payment Date is not a Business Day, then any payment with respect to such Dividend Payment Date shall be payable on the next succeeding Business Day. A dividend period shall commence on a Dividend Payment Date or the Rate Reset Date, as the case may be, and continue to the day next preceding the next succeeding Dividend Payment Date. Accumulated unpaid dividends shall not accrue interest. Dividends (or cash amounts equal to accrued and unpaid dividends) payable on the Series A Preferred Stock for any period less than or more than a full quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in any period less than one month. Dividends on the Series A Preferred Stock shall accrue whether or not the Corporation has earnings, whether or not there are assets legally available for the payment of such dividends and whether or not such dividends are declared. Dividends in arrears for any past dividend periods or portions thereof may be declared and paid at any time without reference to any regular Dividend Payment Date to holders of record on such date as shall be fixed by the Board of Directors, subject to applicable law.

Section 3. Liquidation Preference . The amount payable upon the shares of Series A Preferred Stock in the event of voluntary or involuntary dissolution, liquidation or winding up of the Corporation shall be $1,000 per share plus an amount equivalent to the unpaid and accumulated dividends thereon, if any, to the date of such voluntary or involuntary dissolution, liquidation or winding up.

Section 4. Redemption . The Corporation shall have the right to redeem all, but not less than all, of the outstanding Series A Preferred Stock (x) at any time following a Redemption Event and prior to a Trigger Date and (y) at any time prior to a Note Trigger Event, in each case in cash at the redemption price of $1,000 per share (the “Redemption Price”). Except as set forth in the preceding sentence, the Corporation shall not have the right to redeem any or all of the Series A Preferred Stock at any other time.

Section 5. Conversion .

(1) Unless previously converted at the option of the holder in accordance with the provisions hereof, on the earlier to occur of (i) the third anniversary of the Rate Reset Date and (ii) the third anniversary of the Scheduled Maturity Date, or if such date is not a Business Day, the next succeeding day that is a Business Day (the “Mandatory Conversion Date”), each outstanding share of Series A Preferred Stock shall, without additional notice to holders thereof, convert automatically (the “Mandatory Conversion”) into a number of fully paid and non-assessable shares of Common Stock at the Mandatory Conversion Rate (as defined herein) in effect on the Mandatory Conversion Date. The “Mandatory Conversion Rate” is equal to the following number of shares of Common Stock per share of Series A Preferred Stock: (a) if the Mandatory Conversion Date Market Price is greater than or equal to the Threshold Appreciation Price, the quotient of (i) $1,000 divided by (ii) the Threshold Appreciation Price, (b) if the Mandatory Conversion Date Market Price is less than the Threshold Appreciation Price but is

greater than the Reset Price, the quotient of $1,000 divided by the Mandatory Conversion Date Market Price and (c) if the Mandatory Conversion Date Market Price is less than or equal to the Reset Price, the quotient of $1,000 divided by the Reset Price, subject to adjustment as provided in this Section 5. “Mandatory Conversion Date Market Price” shall mean the Average Trading Price per share of Common Stock for the 20 consecutive Trading Days immediately prior to, but not including, the Mandatory Conversion Date; provided, however, that if an event occurs during such 20 consecutive Trading Days that would require an adjustment to the Mandatory Conversion Rate pursuant to Subsections 5(3) or 5(5), the Board of Directors may make such adjustments to the Average Trading Price for shares of Common Stock for such 20 Trading Day period as it reasonably deems appropriate to effectuate the intent of the adjustments in Subsections 5(3) and 5(5), in which case any such determination by the Board of Directors shall be set forth in a resolution of the Board of Directors and shall be conclusive absent manifest error.

Dividends on the Series A Preferred Stock shall cease to accrue on the day immediately preceding, and the Series A Preferred Stock shall cease to be outstanding on, the Mandatory Conversion Date. The Corporation shall make arrangements as it deems appropriate for the issuance of certificates representing Common Stock and for the payment of cash in respect of such accrued and unpaid dividends, if any, or cash in lieu of fractional shares, if any, in exchange for and contingent upon surrender of certificates representing the Series A Preferred Stock, and the Corporation may defer the payment of dividends on such Common Stock and the voting thereof until, and make such payment and voting contingent upon, the surrender of such certificates representing the Series A Preferred Stock, provided that the Corporation shall give the holders of the Series A Preferred Stock such notice of any such actions as the Corporation deems appropriate and upon such surrender such holders shall be entitled to receive such dividends declared and paid on such Common Stock subsequent to the Mandatory Conversion Date. Amounts payable in cash in respect of the Series A Preferred Stock or in respect of such Common Stock shall not bear interest.

(2) Shares of Series A Preferred Stock shall be convertible, at the option of the holders thereof (“Optional Conversion”), at any time on or after the Rate Reset Date and before the Mandatory Conversion Date, into Common Stock at a rate equal to the number of shares of Common Stock per share of Series A Preferred Stock (the “Optional Conversion Rate”) that is equal to the quotient of (i) $1,000 divided by (ii) the Threshold Appreciation Price, subject to adjustment as set forth in this Section 5. Prior to the Rate Reset Date, the Optional Conversion Rate shall be a number of shares of Common Stock equal to the quotient of (i) $1,000 divided by (ii) the Average Trading Price of the Common Stock for the 10 consecutive Trading Days immediately preceding the Closing Date, subject to adjustment as set forth in this Section 5. Optional Conversion of shares of Series A Preferred Stock may be effected by delivering certificates evidencing such shares of Series A Preferred Stock, together with written notice of conversion and, if required by the Corporation, a proper assignment of such certificates to the Corporation or in blank (and, if applicable as provided in the following paragraph, cash payment of an amount equal to the dividends attributable to the current dividend period payable on such shares), to the office of the transfer agent for the shares of Series A Preferred Stock or to any other office or agency maintained by the Corporation for that purpose and otherwise in accordance with Optional Conversion procedures established by the Corporation. Each Optional Conversion shall be deemed to have been effected immediately before the close of business on

the date on which the foregoing requirements shall have been satisfied. The Optional Conversion shall be at the Optional Conversion Rate in effect at such time and on such date.

Holders of shares of Series A Preferred Stock at the close of business on a record date for any payment of declared dividends shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date or other date fixed for payment of dividends notwithstanding the Optional Conversion of such shares following such record date and on or prior to such Dividend Payment Date or other date fixed for payment of dividends. However, shares of Series A Preferred Stock surrendered for Optional Conversion after the close of business on a record date for any payment of declared dividends and before the opening of business on the next succeeding Dividend Payment Date or other date fixed for payment of dividends must be accompanied by payment in cash of an amount equal to the dividends attributable to the current dividend period payable on such shares on such next succeeding Dividend Payment Date or other date fixed for payment of dividends. Except as provided in this Subsection 5(2), upon any Optional Conversion, the Corporation shall make no payment of or allowance for unpaid dividends, whether or not in arrears, on such converted shares of Series A Preferred Stock as to which Optional Conversion has been effected or for previously declared dividends or distributions on the shares of Common Stock issued upon such Optional Conversion.

(3) The Optional Conversion Rate shall be adjusted from time to time and the Mandatory Conversion Rate shall be adjusted from time to time after the Rate Reset Date in respect of events occurring after the Rate Reset Date, as follows:

(a) In case the Corporation shall (i) pay a dividend on its Common Stock in other Common Stock, (ii) subdivide or split its outstanding Common Stock into a greater number of shares, (iii) combine its outstanding Common Stock into a smaller number of Common Stock, or (iv) issue by reclassification of its Common Stock any other Common Stock (including in connection with a merger in which the Corporation is a surviving corporation), then, in any such event, (1) the Mandatory Conversion Rate in effect immediately prior to such event shall be adjusted such that the Reset Price shall be adjusted by multiplying it by a fraction (which fraction and all other fractions referred to herein may be improper fractions), the numerator of which is one and the denominator of which is the number of shares of Common Stock that a holder of one share of Common Stock prior to any event described above would hold after such event (assuming the issuance of fractional shares) (the “Recapitalization Adjustment Ratio”), and (2) the Optional Conversion Rate in effect immediately prior to such event shall be adjusted by multiplying it by a fraction, the numerator of which is one and the denominator of which is the Recapitalization Adjustment Ratio. Such adjustment shall become effective immediately after the effective date of any such event (or the earlier record date in the case of any such dividend) whenever any of the events listed above shall occur.

(b) In case the Corporation shall issue rights or warrants to all holders of its Common Stock entitling them (for a period, except in the case of Rights, expiring within 45 days after the record date for determination of the shareholders entitled to receive such rights or warrants) to subscribe for or purchase Common Stock at a price per share of Common Stock less than the current market price per share of Common Stock (as defined in Subsection 5(4)) on such record date, then in each such case the Mandatory Conversion Rate on the date of such issuance shall be

adjusted such that the Reset Price shall be adjusted by multiplying it by a fraction the numerator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (y) the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at the Average Trading Price for a share of Common Stock on the record date for such issuance, and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (y) the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights or warrants (the “Anti-Dilution Adjustment Ratio”); and the Optional Conversion Rate in effect on the record date described below shall be adjusted by multiplying it by a fraction, the numerator of which is one and the denominator of which is the Anti-Dilution Adjustment Ratio. For purposes of this Subsection 5(3)(b), the issuance of rights or warrants to subscribe for or purchase securities exercisable for, convertible into, or exchangeable for, shares of Common Stock shall be deemed to be the issuance of rights or warrants to purchase the shares of Common Stock into which such securities are exercisable, convertible or exchangeable at an aggregate offering price equal to the aggregate offering price of such securities plus the minimum aggregate amount (if any) payable upon the exercise, conversion or exchange of such securities. Such adjustment shall become effective at the opening of business on the Business Day next following the record date for such rights or warrants. To the extent that any shares of Common Stock, or securities exercisable for, convertible into, or exchangeable for, shares of Common Stock so offered for subscription or purchase are not so subscribed or purchased by the expiration of such rights or warrants, the Mandatory Conversion Rate and the Optional Conversion Rate shall each be readjusted to the rates or amounts, respectively, which would then be in effect, had the adjustment made upon the issuance of such rights or warrants been made upon the basis of the issuance of rights or warrants in respect of only the number of shares of Common Stock and securities exercisable for, convertible into, or exchangeable for, shares of Common Stock actually issued upon exercise of such rights or warrants.

(c) If the Corporation shall pay a dividend or make a distribution to all holders of its Common Stock consisting of evidences of its indebtedness or other assets (including capital shares of the Corporation other than Common Stock but excluding any Ordinary Cash Dividends (as defined below)), or shall issue to all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (other than those referred to in Subsection 5(3)(b)), then in each such case the Mandatory Conversion Rate in effect immediately prior to such event shall be adjusted such that the Reset Price shall be adjusted by multiplying it by a fraction, the numerator of which shall be the Average Trading Price for a share of Common Stock on such record date, minus the fair market value as of such record date of the portion of evidences of indebtedness or other assets so distributed, or of such subscription rights or warrants, applicable to one share of Common Stock (provided that such numerator shall never be less than $1.00) and the denominator of which shall be the Average Trading Price for a share of Common Stock on such record date (the “Distribution Adjustment Ratio”); and the Optional Conversion Rate in effect immediately prior to such event shall be adjusted by multiplying it by a fraction, the numerator of which is one and the denominator of which is the Distribution Adjustment Ratio. Such adjustment shall become effective on the opening of business on the Business Day next following the record date for such dividend or distribution or the determination of shareholders entitled to receive such dividend or distribution or rights or warrants, as the case may be. “Ordinary Cash Dividends” shall mean (i) any regular cash dividend on the Common Stock that

does not exceed the per share amount of the immediately preceding regular cash dividend on the Common Stock (as adjusted to appropriately reflect any of the events referred to in Subsection 5(3)(a)) by 10% and (ii) any other cash dividend or distribution which, when combined on a per share basis with the per share amount of all other cash dividends and distributions paid on the Common Stock during the 365-day period ending on the date of declaration of such dividend or distribution (as adjusted to appropriately reflect any of the events referred to in Subsection 5(3)(a) and excluding cash dividends or distributions that resulted in an adjustment to the Mandatory Conversion Rate or the Optional Conversion Rate), does not exceed 15% of the current market price per share of Common Stock (determined pursuant to Subsection 5(4)) on the Trading Day immediately preceding the date of declaration of such dividend or distribution.

(4) For the purpose of any computation under Subsection 5(3), the “current market price per share of Common Stock” on any date in question shall mean the Average Trading Price for shares of Common Stock for the 15 consecutive Trading Days ending on the earlier of the day in question and, if applicable, the day before the “ex” date with respect to the issuance or distribution requiring such computation; provided, however, that if another event occurs that would require an adjustment pursuant to Subsection 5(3), the Board of Directors may make such adjustments to the Average Trading Price for shares of Common Stock during such 15 Trading Day period as it reasonably deems appropriate to effectuate the intent of the adjustments in Subsection 5(3), in which case any such determination by the Board of Directors shall be set forth in a resolution of the Board of Directors and shall be conclusive absent manifest error. For purposes of this Subsection, the term “ex” date, when used with respect to any issuance or distribution, means the first date on which the shares of Common Stock trade regular way on the relevant exchange or in the relevant market from which the Average Trading Price was obtained without the right to receive such issuance or distribution. For the purpose of any computation under Subsection 5(3), the “fair market value” of any assets, evidences of indebtedness, subscription rights or warrants on any date in question: (i) in the event any such item is a publicly traded security (“Publicly Traded Security”), shall be determined for such date pursuant to the provisions of this Subsection 5(4) for determination of the “current market price per share of Common Stock,” except that (x) each reference therein to “Common Stock” shall be deemed to mean such Publicly Traded Security, and (y) if such Publicly Traded Security does not trade on a “when issued” basis for the 15 consecutive Trading Days preceding the “ex” date, such determination shall be made for the period of 15 consecutive Trading Days commencing on the “ex” date; and (ii) in the event any such item is not a Publicly Traded Security, shall be reasonably determined in good faith for such date by the Board of Directors, as evidenced by a resolution of the Board of Directors, whose determination shall be conclusive absent manifest error.

(5) In any case of any reclassification of Common Stock (other than a reclassification of the Common Stock referred to in Subsection 5(3)(a)); any consolidation or merger of the Corporation with or into another company or other entity (other than a merger resulting in a reclassification of the Common Stock referred to in Subsection 5(3)(a)); or any sale or conveyance to another entity (other than a Subsidiary ) of all or substantially all of the assets of the Corporation (any such event referred to herein as a “Transaction,” then the Optional Conversion Rate and Mandatory Conversion Rate shall be adjusted so that after consummation of such a Transaction the holders of shares of Series A Preferred Stock will receive, in lieu of the number of shares of Common Stock which such holder would have received upon conversion but

for such Transaction, the kind and amount of securities, cash and other property receivable upon consummation of such Transaction by a holder of such number of shares of Common Stock, subject to further adjustment as provided in this Section 5, including without limitation, an adjustment to the Optional Conversion Rate on the Rate Reset Date if such Transaction occurs prior to the Rate Reset Date. On and after the consummation of any such Transaction, the Mandatory Conversion Date Market Price, which shall be used for purposes of the determination as to which of clauses (a), (b) or (c) of the definition of Mandatory Conversion Rate applies, shall mean the sum of (i) the product of the Average Trading Price of any Publicly Traded Security received upon consummation of such Transaction for the 20 consecutive Trading Days immediately prior to, but not including, the Mandatory Conversion Date multiplied by the fraction of such security received in such Transaction per share of Common Stock (assuming the issuance of fractional shares) plus (ii) the fair market value of the cash and other property received upon consummation of such Transaction per share of Common Stock as of the day preceding the Mandatory Conversion Date as determined in accordance with Subsection 5(4). In determining the kind and amount of securities, cash or other property receivable upon consummation of such Transaction by a holder of shares of Common Stock, it shall be assumed that such holder is not a person or entity with which the Corporation consolidated or into which the Corporation was merged or which merged into the Corporation, as the case may be, or an affiliate of any such person or entity and that such holder of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash, or other property receivable upon consummation of such transaction (provided that, if the kind or amount of securities, cash, or other property receivable upon consummation of such Transaction is not the same for each non-electing share, then the kind and amount of securities, cash, or other property receivable upon consummation of such transaction for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). In the event of such a reclassification, consolidation, merger, sale or conveyance, effective provisions shall be made in the Articles of Incorporation or similar document of the resulting or surviving company or entity so that the conversion rate applicable to any securities or property into which the shares of the Series A Preferred Stock shall then be convertible shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections 5(3)(a), 5(3)(b) and 5(3)(c), inclusive, and the other provisions of this Section 5 with respect to the Common Stock shall apply on terms as nearly equivalent as practicable to any such other securities and property deliverable upon conversion of shares of Series A Preferred Stock.

(6) Whenever any adjustments are required in the shares of Common Stock into which each share of Series A Preferred Stock is convertible, the Corporation shall forthwith (a) compute the adjusted Mandatory Conversion Rate and Optional Conversion Rate in accordance herewith and prepare a certificate signed by an officer of the Corporation setting forth the adjusted Mandatory Conversion Rate and the Optional Conversion Rate, describing in reasonable detail the method of calculation used and the facts requiring such adjustment and upon which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment and file with the transfer agent of the Series A Preferred Stock such certificate and (b) cause a copy of such certificate to be mailed to each holder of record of the Series A Preferred Stock as of or promptly after the effective date of such adjustment and, with respect to adjustments applicable after the Rate Reset Date, make a prompt public announcement of such adjustment. Whenever any such adjustment is required by reason of the occurrence of a

specific event or circumstances described in this Section 5, if by reason of such event or circumstance, and adjustment is made to any options contracts or futures contracts relating to shares of Common Stock traded on the national securities exchange (if any) on which such options contracts or futures are principally traded, then the Corporation shall, to the extent practicable and not in conflict with any of the express provisions hereof, cause adjustments to the Mandatory Conversion Rate and Optional Conversion Rate to be made on a basis comparable to the adjustment made to such options contracts or futures contracts.

(7) The Corporation shall at all times reserve and keep available, free from preemptive rights out of its authorized but unissued shares of Common Stock for the purpose of issuance upon conversion of the Series A Preferred Stock a number of shares of Common Stock equal to 21,000,000 shares, subject to adjustment from time to time in accordance with adjustments to the Optional Conversion Rate as set forth in this Section 5.

(8) The Corporation will pay any and all documentary stamp or similar issue or transfer taxes that may be payable in respect of the issuance or delivery of shares of Common Stock on conversion of shares of the Series A Preferred Stock pursuant to this Section 5. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involving the issue and delivery of shares of Common Stock in the name other than that in which the shares of Series A Preferred Stock so converted were registered and no such issue and delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax, or has established to the satisfaction of the Corporation, that such tax has been paid.

(9) For the purpose of this Section 5, the term “Common Stock” shall include any shares of the Corporation of any class or series which has no preference or priority in the payment of dividends or in the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and which is not subject to redemption by the Corporation. However, Common Stock issuable upon conversion of the Series A Preferred Stock shall include only shares of the class designated as Common Stock as of the original date of issuance of the Series A Preferred Stock, or shares of the Corporation of any classes or series resulting from any reclassification or reclassifications thereof (including reclassifications referred to in clause (iv) of Subsection 5(3)(a)) and which have no preference or priority in the payment of dividends or in the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and which are not subject to redemption by the Corporation, provided that, if at any time, there shall be more than one such resulting class or series, the shares of such class and series then so issuable shall be in the same proportion, if possible, or if not possible, in substantially the same proportion which the total number of shares of such class and series resulting from all such reclassifications bears to the total number of shares of all classes and series resulting from all such reclassifications.

(10) Each share of Series A Preferred Stock shall be converted in full only. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series A Preferred Stock. If any such conversion would otherwise require the issuance of a fractional share, an amount equal to such fraction multiplied by the current market price per share of Common Stock (determined as provided in Subsection 5(4)) of the Common Stock on the date of conversion shall be paid to the holder in cash by the Corporation. If on such date

there is no current market price per share of Common Stock, the fair market value of a share of Common Stock (determined as provided in Subsection 5(4)) on such date, shall be used. If more than one share of Series A Preferred Stock shall be surrendered for conversion at one time or for the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered.

(11) No adjustment in the Mandatory Conversion Rate and the Optional Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this Subsection 5(11)) would require an increase or decrease of at least 1% in the number of shares of Common Stock into which each share of the Series A Preferred Stock is then convertible; provided, however, that any adjustments which by reason of this Subsection 5(11) are not required to be made shall be carried forward and taken into account in any subsequent adjustment and provided further that any adjustment shall be required and made in accordance with the provisions of Subsection 5(3) not later than such time as may be required in order to preserve the tax free nature of a distribution to the holders of shares of Common Stock. If any action or transaction would require adjustment to the Mandatory Conversion Rate or the Optional Conversion Rate pursuant to this Section 5, only one adjustment shall be made and such adjustment shall be the amount of the adjustment that has the highest absolute value. All calculations under this Section 5 shall be made to the nearest one-hundredth of a share of Common Stock.

(12) The Board of Directors may make such upward adjustments in the Mandatory Conversion Rate and the Optional Conversion Rate, in addition to those required by this Section 5, as shall be determined by the Board of Directors, as evidenced by a resolution of the Board of Directors, to be advisable in order that any stock dividends, subdivisions of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock (or any transaction that could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended) made by the Corporation to its shareholders after the Rate Reset Date shall not be taxable. The determination of the Board of Directors as to whether an adjustment should be made pursuant to the provisions of this Subsection 5(12), and if so, as to what adjustment should be made and when, shall be conclusive, final and binding on the Corporation and all shareholders of the Corporation.

(13) In any case in which this Section 5 shall require that an adjustment as a result of any event become effective at the opening of business on the Business Day next following a record date and the date fixed for conversion occurs after such record date, but before the occurrence of such event, the Corporation may, in its sole discretion, elect to defer (A) issuing to the holder of any converted Series A Preferred Stock the additional shares of Common Stock issuable upon such conversion over the shares of Common Stock issuable before giving effect to such adjustments and (B) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to Subsection 5(10), in each case until after the occurrence of such event.

(14) Notwithstanding the foregoing provisions of this Section 5, no adjustment of the Optional Conversion Rate or the Mandatory Conversion Rate shall be required to be made upon

the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of optional amounts in shares of Common Stock under any such plan or upon the issuance of shares of Common Stock (or securities, rights, warrants, options or similar rights, which are convertible or exercisable for shares of Common Stock) pursuant to any compensatory plan of the Corporation or its Subsidiaries.

(15) Notwithstanding any other provision of this Section 5, the issuance or distribution of Rights shall not be deemed to constitute an issuance or a distribution or dividend of rights, warrants, or other securities to which any of the adjustment provisions described above applies until the occurrence of the earliest Rights Event.

(16) For purposes of this Section 5, shares of Common Stock owned by, or held for the account of, the Corporation, a Subsidiary or another entity of which a majority of the common stock or common equity interests are owned, directly or indirectly, by the Corporation shall be deemed to be not outstanding.

(17) Subsequent to the Rate Reset Date, at any time while any shares of Series A Preferred Stock are outstanding, (i) the Corporation shall declare a dividend (or any other distribution) on its Common Stock, excluding any cash dividends, (ii) the Corporation shall authorize the issuance to all holders of its Common Stock of rights or warrants to subscribe for or purchase shares of Common Stock or of securities exercisable for, convertible into, or exchangeable for, shares of Common Stock or (iii) the Corporation shall authorize any reclassification of its Common Stock (other than a subdivision or combination thereof) or any consolidation or merger to which the Corporation is a party and for which approval of any shareholders of the Corporation is required (except for a merger of the Corporation into one of its Subsidiaries solely for the purpose of changing the corporate name or corporate domicile of the Corporation to another state of the United States and in connection with which there is no substantive change in the rights or privileges of any securities of the Corporation other than changes resulting from differences in the corporate statutes of the then existing and the new state of domicile), or the sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, then the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series A Preferred Stock, and shall cause to be mailed to the holders of Series A Preferred Stock at their last addresses as they shall appear on the stock register, at least 10 days before the date hereinafter specified (or the earlier of the dates hereinafter specified, in the event that more than one date is specified), a notice stating (A) the date on which a record is to be taken for the purpose of such dividend or distribution of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend or distribution of rights or warrants are to be determined, or (B) the date on which any such reclassification, consolidation, merger, sale or transfer is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property (including cash), if any, deliverable upon such reclassification, consolidation, merger, sale or transfer. The failure to give or receive the notice required hereby or any defect therein shall not affect the legality or validity of such dividend or distribution of rights or warrants or other action.

Section 6. Voting Rights . The holders of Series A Preferred Stock have no voting rights except as required by the Virginia Stock Corporation Act as in effect from time to time.

Section 7. Ranking . The Corporation shall not allow (i) the payment of dividends or distributions on securities ranking junior (the “Junior Securities”) to the Series A Preferred Stock (other than dividends or distributions payable in shares of, or warrants, rights or options exercisable for or convertible into, Junior Securities) and (ii) the redemption, repurchase or acquisition of any Junior Securities by the Corporation or any of its Subsidiaries (excluding any acquisitions made with Junior Securities and any acquisitions of Junior Securities pursuant to contractual obligations binding against the Corporation or any of its Subsidiaries as long as such obligations were entered into at a time at which the Corporation could purchase Junior Securities), in each case unless full cumulative dividends with respect to the outstanding Series A Preferred Stock, and full cumulative dividends and amounts required to be paid or set aside for purchases, redemptions, or sinking fund obligations with respect to any securities ranking on a parity with the Series A Preferred Stock (the “Parity Securities”) and any securities ranking senior to the Series A Preferred Stock (the “Senior Securities”) have been paid, declared or set aside. The Corporation also shall not allow (x) the payment of dividends or distributions on Parity Securities (other than dividends or distributions payable in shares of, or warrants, right or options exercisable for or convertible into, Junior Securities or Parity Securities) and (y) the redemption, repurchase or acquisition of any Parity Securities by the Corporation or any of its Subsidiaries (excluding any acquisitions made with Parity Securities or Junior Securities and any acquisitions of Parity Securities pursuant to contractual obligations binding against the Corporation or any of its Subsidiaries as long as such obligations were entered into at a time at which the Corporation could purchase Parity Securities), in each case unless either (A) full cumulative dividends with respect to the outstanding Series A Preferred Stock, and full cumulative dividends and amounts required to be paid or set aside for purchases, redemptions, or sinking fund obligations with respect to any Parity Securities and any Senior Securities have been paid, declared or set aside or (B) any such dividends, distributions, redemptions, repurchases or acquisitions are declared and paid or made pro rata among the Series A Preferred Stock and such Parity Securities.

Dated: March 12, 2001

DOMINION RESOURCES, INC
By: /s/		P ATRICIA A. W ILKERSON
Name:		Patricia A. Wilkerson
Title:		Vice President & Corporate Secretary

Appendix A

The following terms shall have the meanings set forth below when used in these Articles of Amendment Establishing Series A Preferred Stock of Dominion Resources, Inc. For the avoidance of doubt, it is intended that any terms defined herein which are also used in the participation Agreement, the Company LLC Agreement, the Indenture, the Note Purchase Agreement or the Remarketing Agreement (all as defined below) other than these Articles of Amendment shall have the same meanings herein as therein.

“Acceleration Trigger” means the occurrence of an Event of Default and the Notes becoming due and payable prior to the Scheduled Maturity Date as a result thereof.

“Additional Capital Contributions” means Capital Contributions other than the Initial Capital Contributions made by Class A Members and Class B Members to Company.

“Additional Notes” means Senior Secured Notes due 2005 issuable by the Company pursuant to the Indenture from time to time after the Closing Date.

“Additional Shares” means shares of Common Stock or, if authorized by the Board of Directors, Series A Preferred Stock, in each case to be issued by Dominion pursuant to the Remarketing Agreement following a Partial Remarketing.

“Adjusted Treasury Rate” means (i) the average yield for the immediately preceding week of United States Treasury securities at constant maturity for a period equal to the maturity of the Comparable Treasury Issue set forth in H.15(519) under the caption “Treasury Constant Maturities” as such yield is displayed on the Telerate Page 7051 for such week. If such rate does not appear on the Telerate 7051, the yield, under the heading which represents the average for the immediately preceding week appearing in the most recently published statistical release designated “H.15(519)” or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Remaining Life, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Adjusted Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month); or (ii) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issues (expressed as a percentage of the principal amount) equal to the Comparable Treasury Price for such date.

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries’ controls, or is controlled by, or is under common control with, such Person. The term “control” (including the correlative term “controlled”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting stock, by contract or

otherwise. Affiliate, (i) when used with respect to Dominion, shall include DTSI and DTSI shall be deemed to be an Affiliate of Dominion and (ii) when used with respect to Dominion or any of its Subsidiaries, shall not include the Company or any of its Subsidiaries.

“Anti-Dilution Adjustment Ratio” shall have the meaning specified in Subsection 5(3) hereof.

“Appraisal Notice” means a notice given by one Member to the other Member under the Company LLC Agreement to cause the Appraised Value of the Class A Membership Interest to be determined.

“Appraised Value”

(i) means with respect to the Class A Membership Interest as at the Purchase Date with respect to any Purchase Option Exercise Notice (other than a Purchase Option Exercise Notice relating to an Extension Period Purchase Option), the amount that would be distributed to the Class A Member pursuant the Company LLC Agreement if the Company Property were sold for its Appraised Value on such date and the Company were liquidated on such date;

(ii) with respect to the Class A Membership Interest as at the Retirement Date with respect to any Retirement Option Notice (other than a Retirement Option Notice relating to an Extension Period Retirement Option), the amount that would be distributed to the Class A Member pursuant to the Company LLC Agreement if the Company Property were sold for its Appraised Value on such date and the Company were liquidated on such date;

(iii) with respect to the Class A Membership Interest as at the date of any Appraisal Notice in connection with an Extension Period Purchase Option or Extension Period Retirement Option, the amount that would be distributed to the Class A Member pursuant the Company LLC Agreement if the Company Property were sold for its Appraised Value on such date and the Company were liquidated on such date;

(iv) with respect to any Company Property and/or DTI Property to be Disposed (including for purposes of clauses (i) – (iii) above) as of any date or with respect to the Mark-to-Market Value of any Company Property as of any Mark-to-Market Measurement Date, the price for which such Company Property and/or DTI Property could be sold in an arm’s length transaction to a third party which is not an Affiliate of Dominion or DTI as of such date or Mark-to-Market Measurement Date, as the case may be; or

(v) with respect to Company Permitted Assets (other than Financial Investments) that are the subject of an Additional Capital Contribution to the Company, the price for which such Company Permitted Assets could be sold in an arm’s length transaction to a third party which is not an Affiliate of Dominion or DTI as of the proposed date of such Additional Capital Contribution.

For purposes of determining an Appraised Value, it shall be assumed that, in such an arm’s length transaction, (i) the seller would not be under any compulsion to sell, (ii) the purchaser would not be under any compulsion to purchase and (iii) if Appraised Value is determined in accordance with the procedure set forth below, it shall be determined in accordance with the methodology instructed by the Class A Member and the Class B Member. An Appraised Value shall be determined by agreement or appraisal under the Company LLC Agreement.

“Articles of Amendment” means these Article of Amendment Establishing Series A Preferred Stock of Dominion Resources, Inc.

“Asset Remedy” has the meaning assigned to such term in the definition of Asset Remedy Notice.

“Asset Remedy Notice” means a notice delivered by the Class A member under the Company LLC Agreement concerning its election to cause the sale of one or more assets of the Company, DTI or any DTI Operating Subsidiary (the “Asset Remedy”).

“Average Trading Price” for a security for any given period means an amount equal to (i) the sum of the Closing Price for such security on each Trading Day in such period divided by (ii) the total number of Trading Days in such period.

“Board of Directors” means the Board of Directors of the Corporation or any duly authorized committee or senior executive officer thereof.

“Business Day” means any day of the year except Saturday, Sunday and any day on which commercial banking institutions are authorized or obligated by law, regulation or executive order to close in New York, New York, Wilmington, Delaware or Richmond, Virginia.

“Business Entity” means a corporation (or, when used as an adjective, corporate), limited liability company, partnership (whether general or limited), business trust, joint stock company, unincorporated association, joint venture or other applicable business entity and any asset or group of assets that is or can be operated as or as part of a business unit, whether or not having distinct legal existence.

“Capital Account” means with respect to any Member, the capital account in the Company maintained for such Member under the Company LLC Agreement.

“Capital Contributions” means, with respect to any Member, the amount of Cash and the Initial Gross Asset Value of any Company Permitted Assets (other than Cash) contributed (or deemed to be contributed) to the Company by such Member (or its predecessors in interest) with respect to the Membership Interest held by such Member.

“Cash” means cash, amounts credited to deposit accounts and other immediately available funds that are denominated in Dollars.

“Class A Member” means any Person that holds all or any part of the Class A Membership Interest or the collective reference to all such Persons, as the context may require.

“Class A Membership Interest” means the limited liability company interest in the Company designated as the Class A Membership Interest.

“Class A Membership Interest Component” means, as of any Class A Return Payment Date, $60,000,000 (a) increased by the sum of (i) any Capital Contributions of the Class A Member following a Note Trigger Event for the purpose of funding a Mandatory Redemption of all the Notes and (ii) the amount of accrued but unpaid Class A Return for each preceding Class A Return Payment Period and (b) reduced by the sum of any Distributions to the Class A Member pursuant to the Company LLC Agreement.

“Class A Membership Interest Portion” means the portion of the Overfund Amount invested in Dominion Debt Securities and/or Financial Investments providing payments at least equal to the Class A Return.

“Class A Return” means, for any Class A Return Payment Period, any Investor Administrative Expenses plus the product of (a) the Return Rate and (b) the Class A Membership Interest Component and (c) the quotient of (i) the number of days actually elapsed (calculated on the basis of a 360-day year consisting of twelve 30-day months) since the later of the Closing Date or the last Class A Return Payment Date and (ii) 360.

“Class A Return Payment Date” means (i) each Interest Payment Date until the Class A Membership Interest has been cancelled (or deemed cancelled), (ii) any Retirement Date, (iii) any Purchase Date, (iv) the date upon which the Class A Membership Interest is retired or (v) the date of liquidation of the Company under the Company LLC Agreement.

“Class A Return Payment Period” means the period from and including the Closing Date to, but excluding, the first Class A Return Payment Date and thereafter each period from and including a Class A Return Payment Date to, but excluding, the immediately succeeding Class A Return Payment Date.

“Class B Member” means any Person that holds all or any part of the Class B Membership Interest or the collective reference to all such Persons, as the context may require.

“Class B Membership Interest” means the limited liability company interest in the Company designated as the Class B Membership Interest under the Company LLC Agreement.

“Closing Date” means the date on which the Senior Secured Notes due 2005 are initially issued by the Company pursuant to the Indenture.

“Closing Price” for a security means the closing price for such security on the Trading Day in question (or if such day is not a Trading Day then as of the Trading Day next preceding such day) as reported by Bloomberg L.P., or if not so reported by Bloomberg L.P., as reported by another recognized source selected by the Board of Directors.

“Code” means the United States Internal Revenue Code of 1986, as amended from time to time.

“Common Stock” shall have the meaning specified in Subsection 5(9) hereof.

“Company” means Dominion Fiber Ventures, LLC, a special purpose limited liability company organized under the law of the State of Delaware.

“Company LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of Dominion Fiber Ventures, LLC, dated as of the Closing Date, and includes all annexes, schedules and exhibits attached thereto, as amended, supplemented, amended and restated or otherwise modified from time to time.

“Company Permitted Assets” means (a) Dominion Loans; (b) Financial Investments; (c) the shares of DTI; (d) the sole beneficial ownership interest in the Overfund Trust; (e) Qualified Communications Assets that are Limited Liability Equity Interests which, unless otherwise consented to by the Class A Member, are entities that are not pass-through entities for tax purposes; provided that such assets will only be “Company Permitted Assets” if acquired by the Company for the purpose of transferring (by contribution, sale or otherwise) such assets to DTI; and (f) any other assets that are contributed to or otherwise acquired by the Company with the consent of all of the Members.

“Company Property” means all real and personal property owned by the Company and any improvements thereto, including both tangible and intangible property.

“Comparable Treasury Issue” means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the period from the Optional Redemption Date to the Scheduled Maturity Date and that would be utilized at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to such period (the “Remaining Life”).

“Comparable Treasury Price” means (a) the average of five Reference Treasury Dealer Quotations for such date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (b) if the Independent Investment Banker obtains fewer than five such Reference Treasury Dealer Quotations, the average of all the quotations.

“Conditions Precedent” means the conditions precedent to the obligations of the Remarketing Agents under the Remarketing Agreement.

“Consolidated” refers, with respect to any Person, to the consolidation of accounts of such Person and its Subsidiaries in accordance with GAAP.

“Contingent Share Trust Remedy Condition” means any time at which both (i) the Notes shall have been paid in full and (ii) the Share Trust Amount is greater than zero.

“Disposition” means, with respect to any property, any sale, assignment, gift, exchange, lease, conversion, transfer, pledge or other disposition or divestiture of such property, including any transfer by way of a capital contribution and the creation of any, or material increase in any existing, royalty, overriding royalty, reversionary interest, production payment or similar burden. “Dispose,” “Disposing” and “Disposed” shall have correlative meanings.

“Distribution” means, as applicable, any distribution or dividend or return of capital or any other distribution, payment, remittance or delivery of property or Cash in respect of, or the

redemption, retirement, purchase or other acquisition, directly or indirectly, of, any Membership Interest or shares of DTI now or hereafter outstanding on the Closing date or thereafter or the setting aside of any funds for any of the foregoing purposes pursuant to the Company LLC Agreement. “Distribute,” “Distributed” and “Distributive” shall have correlative meanings.

“Distribution Adjustment Ratio” shall have the meaning specified in Subsection 5(3) hereof.

“Dividend Payment Date” shall have the meaning specified in Subsection 2(1) hereof.

“Dollars” and the sign “$” each mean the lawful currency of the United States.

“Dominion” means the Corporation and any successor permitted by the Participation Agreement.

“Dominion Debt Obligation Repayment Event” means the occurrence of any of the following: (a) any event described in Subsection (l) of the definition of Events of Default contained in the Articles of Amendment,] (b) Dominion fails to make payment of principal of or interest on any Dominion Debt Obligations when due and such default continues beyond any applicable grace period, or (c) an Acceleration Trigger or a Stock Price/Credit Downgrade Trigger occurs.

“Dominion Debt Obligations” means the Dominion Debt Securities, the Dominion Loans and any other loans to Dominion made by the Overfund Trust, the Company, DTI or any DTI Operating Subsidiary or made from amounts deposited in the Indenture Collection Account, each of which, by their terms, becomes due and payable upon the occurrence of a Dominion Debt Obligation Repayment Event.

“Dominion Debt Securities” means senior unsecured debt obligations of Dominion issued to the Overfund Trust, ranking pari passu with all other senior unsecured debt obligations of Dominion.

“Dominion Loans” means loans made from time to time by the Company, DTI or any of DTI’s Subsidiaries to, and at all times the obligor under which is, Dominion.

“Dominion Note” means any promissory note evidencing a Dominion Loan.

“DTI” means Dominion Telecom, Inc., a corporation organized under the law of the Commonwealth of Virginia.

“DTI Credit Facility” means the Credit Agreement dated as of the Closing Date, between DTI and Dominion, as amended, supplemented, amended and restated or otherwise modified from time to time.

“DTI Operating Subsidiary” means the direct or indirect Subsidiaries of DTI.

“DTI Property” means all real and personal property owned by DTI or any DTI Operating Subsidiary and any improvements thereto, including both tangible and intangible property.

“DTSI” means DT Services, Inc., a corporation organized under the law of the Commonwealth of Virginia.

“Effectiveness Period” means, with respect to any Registration Statement, the period that begins on the date of effectiveness of such Registration Statement and extends to the earlier of (i) the date on which all Shares registered thereunder have been remarketed under such Registration Statement and (ii) the date on which all of the Notes cease to be outstanding or, if a Contingent Share Trust Remedy Condition exists, the date on which the Class A Membership Interest has been or is deemed canceled following receipt by the Class A Member of the amount necessary to retire or purchase its Class A Membership Interest under the Company LLC Agreement or upon final liquidating distributions having been made under the Company LLC Agreement.

“Eligible Remarketing Agent” means any nationally or internationally recognized investment-banking firm specified by Dominion under the Remarketing Agreement.

“Equity Interests” means, with respect to any Person (a) shares of capital stock of (or other ownership or profit interests, including partnership, member or trust interests, in) such Person, (b) warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or such other equity ownership or equity profit interests in) such Person or (c) securities convertible into or exchangeable for shares of capital stock of (or such other equity ownership or equity profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other equity interests), in each case whether voting or nonvoting and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

“Events of Default” If one or more of the following events (herein referred to as “Events of Default”) (whatever the reason for such Events of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing:

(a) failure by the Company to make (or cause to be made on its behalf) on any Note Payment Date a payment of the Note Interest Amount for such Note Payment Date and such failure continues for five Business Days;

(b) failure by the Company to make (or cause to be made on its behalf) principal payments on the Notes when due, whether on the Scheduled Maturity Date or any date set for redemption;

(c) failure by the Company, Dominion, DTSI, DTI, the Overfund Trust or the Share Trust duly to observe or to perform any other covenant of the Company, Dominion, DTSI, DTI, the Overfund Trust or the Share Trust, as applicable, under the Indenture or any other Transaction Document (other than any covenant or agreement in or with

respect to the Note Purchase Agreement) to which such entity is a party, which failure (i) materially adversely affects the rights of the Noteholders and (ii) continues unremedied for a period of 30 days after the earlier of (A) Dominion or any of its Affiliates having actual knowledge of such default and (B) the giving of written notice of such failure to the Company and Dominion by the Indenture Trustee or by any Noteholder;

(d) any representation or warranty made by any of the Company, Dominion, DTSI, DTI, the Overfund Trust or the Share Trust, as applicable, in the Indenture or in any other Transaction Document (other than any representation or warranty made in or with respect to the Note Purchase Agreement) or in any other document delivered to the Indenture Trustee pursuant to any Transaction Document (other than the Note Purchase Agreement) shall prove to have been incorrect in any material respect when made (or deemed made) and such misrepresentation continues to remain materially false for 30 days after the earlier of (x) Dominion or any of its Affiliates having actual knowledge of such default and (y) the giving of written notice of such failure to the Company and Dominion by the Indenture Trustee or by any Noteholder;

(e) the Indenture or any other Transaction Document to which any of the Company, Dominion, DTSI, DTI, the Overfund Trust or the Share Trust is a party ceases to be the legally valid and enforceable obligation of any of the Company, Dominion, DTSI, DTI, the Overfund Trust or the Share Trust, as the case may be, which cessation (x) materially adversely affects the rights of the Noteholders and (y) continues for 30 days after the earlier of (A) Dominion or any of its Affiliates having actual knowledge thereof and (B) the giving of written notice of such cessation to the Company and Dominion by the Indenture Trustee or by any Noteholder;

(f) the pledge of the Security for the Notes ceases to be in full force and effect or is repudiated by the Company or the Overfund Trust; provided that, in the case of such a cessation which is not a repudiation and does not materially adversely affect the rights of the Noteholders, such cessation shall not become an Event of Default unless it continues unremedied for 30 days after the earlier of (x) Dominion or any of its Affiliates having actual knowledge of such default and (y) the giving of written notice of such failure to the Company and Dominion by the Indenture Trustee or by any Noteholder;

(g) the rendering of any final money judgment, enforceable in any competent court, against any of the Company, the Overfund Trust or the Share Trust, and such judgment shall not be discharged or dismissed or execution thereon stayed within 60 days after entry;

(h) the occurrence of any default in the payment when due of interest on or principal of any Dominion Debt Obligation and such default continues unremedied for the applicable grace period (not to exceed five Business Days) after the earlier of (x) Dominion or any of its Affiliates having actual knowledge of such default and (y) the giving of written notice of such default to the Company and Dominion by the Indenture Trustee or by any Noteholder;

(i) the occurrence of any “event of default” pursuant to the terms of any indebtedness representing money borrowed in a principal amount in excess of $10,000,000 of DTI;

(j) any of the Company, Dominion, DTSI, DTI, the Overfund Trust or the Share Trust becomes an investment company required to be registered under the Investment Company Act, provided that, if any such person becomes a transient investment company exempt from registration pursuant to Rule 3a-2 of the Investment Company Act, it shall not be an Event of Default;

(k) the commencement of any voluntary or involuntary proceeding under any bankruptcy or insolvency law seeking liquidation, reorganization or other relief with respect to any of the Company, Dominion, DTSI, DTI, the Overfund Trust or the Share Trust, and, in the case of any such involuntary proceeding with respect to Dominion, such proceeding has not been terminated within 60 days after commencement; and

(l) the failure by Dominion to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $50,000,000, when and as the same shall become due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) which failure continues after any applicable grace period.

“Extension Period” means the period commencing on the Extension Period Commencement Date and ending on the Extension Period Termination Date.

“Extension Period Commencement Date” means the later to occur of (a) the Scheduled Maturity Date and (b) repayment in full of the Notes.

“Extension Period Purchase Option” means in the event that (A) no Purchase Offer or Retirement Offer has been accepted, (B) the Extension Period Commencement Date has occurred but no Extension Period Termination Date has occurred and (C) no Liquidation Notice has been delivered and no Liquidating Event under the Company LLC Agreement has occurred, then either Member may elect, by delivering an Appraisal Notice to the other Member, to cause the Appraised Value of the Class A Membership Interest to be determined, and, if such Appraised Value is at or above an amount specified in the Company LLC Agreement then the Class B Member shall have the right to require the Class A Member to sell to the Class B Member, or its designee, the Class A Member’s entire Class A Membership Interest for a purchase price (the “Extension Period Purchase Price”) specified in the Company LLC Agreement.

“Extension Period Purchase Price” has the meaning assigned to such term in the definition of Extension Period Purchase Option.

“Extension Period Retirement Amount” has the meaning assigned to such term in the definition of Extension Period Retirement Option.

“Extension Period Retirement Option” means in the event that (A) no Purchase Offer or Retirement Offer has been accepted, (B) the Extension Period Commencement Date has

occurred but no Extension Period Termination Date has occurred, (C) no Notes are outstanding (or arrangements have been made for the payment of the Notes in full prior to the Retirement Date in accordance with the defeasance provisions of the Indenture) and (D) no Liquidation Notice had been delivered and no Liquidating Event under of the Company LLC Agreement has occurred, then either Member may elect, by delivering an Appraisal Notice, to cause the Appraised Value of the Class A Membership Interest to be determined, and, if such Appraised Value is at or above an amount specified in the Company LLC Agreement, then the Class B Member shall have the right to require the Company to retire the Class A Member’s entire Class A Membership Interest for an amount (the “Extension Period Retirement Amount”) specified in the Company LLC Agreement.

“Extension Period Termination Date” means during an Extension Period the earliest to occur of (a) the Purchase Date (and then if, but only if, the applicable purchase is consummated); (b) the Retirement Date (and then if, but only if, the applicable retirement is consummated); and (c) the date of a Liquidating Event.

“Failed Registration” means a failure by Dominion to (i) file a Registration Statement no later than 21 days following a Note Trigger Event or, if a Shelf Registration Statement is then not legally permitted, provide no later than 21 days following a Note Trigger Event to the Remarketing Agents written assurance, reasonably acceptable to the Remarketing Agents, that the Registration Statement will be declared, or will otherwise become, effective promptly after a Pricing of the Shares, or otherwise have an effective Registration Statement available; (ii) diligently pursue the registration of the Shares (and the underlying Common Stock, to the extent applicable) when so required by the Remarketing Agreement, (iii) use its best efforts to cause the Registration Statement to be declared effective no later than 90 days following a Note Trigger Event; or (iv) timely satisfy the applicable Conditions Precedent.

“Failed Remarketing” means a failure to sell the Shares required to be remarketed under the Remarketing Agreement because of a Legal Impossibility.

“Final Sale Date” means the date on which the Share Trust shall have sold the Shares generating aggregate net proceeds at least equal to the Share Trust Amount.

“Financial Investments” means (a) Cash; (b) direct general obligations or guaranteed obligations of the United States or agencies thereof; (c) certificates of deposit; (d) repurchase obligations; (e) commercial paper; (f) money market funds; (g) Dominion Debt Obligations unless a Dominion Debt Obligation Repayment Event has occurred.

“Fiscal Quarter” means (i) the period commencing on the Closing Date and ending on March 31, 2001 and (ii) any subsequent three-month period commencing on each of January 1, April 1, July 1 and October 1 and ending on the next March 31, June 30, September 30 and December 31, respectively, in each case until changed in accordance with the Company LLC Agreement.

“GAAP” means consistently applied United States generally accepted accounting principles as in effect from time to time.

“Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes.

“Indebtedness” means, as to any Person, without duplication: (a) all obligations of such Person for borrowed money or evidenced by bonds, debentures, notes or similar instruments; (b) all obligations of such Person for the deferred purchase price of property or services (except trade accounts not overdue and payable arising in the ordinary course of business, customer deposits, provisions for rate refunds, deferred fuel expenses and obligations in respect of pensions and other post-retirement benefits); (c) all capital lease obligations of such Person; (d) all Indebtedness of others secured by a Lien on any properties, assets or revenues of such Person (other than stock, partnership interests or other equity interests of a borrower or any of its Subsidiaries in other entities) to the extent of the lesser of the value of the property subject to such Lien or the amount of such Indebtedness; (e) all guaranty obligations; and (f) all non-contingent obligations of such Person under any letters of credit or bankers’ acceptances.

“Indenture” means the Indenture, dated as of the Closing Date, among the company, the Indenture Trustee and the Securities Intermediary.

“Indenture Accounts” means the Indenture Distribution Account and the Indenture Collection Account.

“Indenture Collection Account” means an account established by the Securities Intermediary under the Indenture, denominated the Indenture Distribution Account, and maintained in the name of the Indenture Trustee on behalf of the holders of the Notes.

“Indenture Distribution Account” means an account established by the Securities Intermediary under the Indenture, denominated the Indenture Distribution Account, and maintained in the name of the Indenture Trustee on behalf of the holders of the Notes.

“Indenture Trustee” means Bank One, National Association, in its capacity as trustee under the Indenture or any successor thereto under the Indenture.

“Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Indenture Trustee, in the case of an Optional Redemption, or by the Class A Member, in all other cases.

“Initial Gross Asset Value” means the initial Gross Asset Value of any Company Property (other than Cash) on the Closing Date or on the date such Company Property is contributed or otherwise acquired, determined in accordance with the applicable terms of the Company LLC Agreement.

“Initial Notes” means the Senior Secured Notes due 2005 issued by the Company pursuant to the Indenture on the Closing Date.

“Initial Remarketing Agent” means Credit Suisse First Boston Corporation in its capacity as a Remarketing Agent.

“Initial Repricing Date” means, (a) with respect to a public offering of the Shares, the later of (i) the date on which the Registration Statement is declared effective or, if a Shelf Registration Statement is then not legally permitted, the first date on which Dominion provides the Remarketing Agents written assurance, reasonably acceptable to the Remarketing Agents, that the Registration Statement will be declared, or will otherwise become, effective promptly after a Pricing of the Shares in accordance with applicable securities laws and (ii) the tenth Trading Day following the Remarketing Notification Date, and (b) if a Failed Registration has occurred, the earliest date upon which Milbank, Tweed, Hadley & McCloy LLP or other national or international securities counsel selected by the Remarketing Agents and approved by Dominion advises, in writing, that a private placement of the Shares may be commenced in compliance with applicable securities laws.

“Initial Shares” means Dominion’s issuance of 665,000 shares of Series A Preferred Stock with an aggregate liquidation preference of $665,000,000 to the Share Trust.

“Interest Payment Date” means each March 15 and September 15, commencing September 15, 2001.

“Interest Period” means, for each Dominion Loan, (a) initially, the period commencing on the date of such Loan and ending on the date 30 days thereafter, and (b) thereafter, the period commencing on the date of the immediately preceding Interest Period and ending on the date 30 days thereafter; provided, however, that, in the case of any Dominion Loan made during the 30 days prior to the Scheduled Maturity Date, the Interest Period for such Dominion Loan shall end on the Scheduled Maturity Date. Interest shall accrue on Dominion Loans from and including the first day of an Interest Period to but excluding the last day of such Interest Period.

“Investor” means Blue Ridge Telecom Trust, a special purpose statutory business trust organized under the law of the State of Delaware.

“Investor Administrative Expenses” means any fees and expenses due and payable as of any Distribution Date to the Investor Trustee.

“Investor Trust Agreement” means the Amended and Restated Trust Agreement dated as of the Closing among the depositor named therein, the Investor Trustee and Investor.

“Investor Trustee” means Wilmington Trust Company, a Delaware banking corporation, in its capacity as trustee of Investor, or any successor thereto under the Investor Trust Agreement.

“Junior Securities” shall have the meaning specified in Section 7 hereof.

“Legal Impossibility” means with respect to the remarketing of the Initial Shares and Additional Shares, it is legally impossible to remarket the Initial Shares and Additional Shares pursuant to the applicable Transactional Documents.

“Limited Liability Equity Interests” means Equity Interests that do not provide for recourse against the holder thereof for the liabilities of the issuer thereof.

“Liquidation Notice” means a written notice to the Class B Member with respect to a Note Trigger Event that constitutes a Liquidating Event.

“Liquidation Purchase Option” means in the event that (A) no Purchase Offer or Retirement Offer has been accepted nor the Liquidation Retirement Option has heretofore been exercised and (C)(w) a Liquidation Notice has been delivered and has not been rescinded or become effective, (x) a Liquidating Event involving the unavailability of an Extension Period has occurred, (y) an Asset Notice has been delivered by the Class A Member and such Asset Remedy Notice has not been rescinded or become effective or (z) an Asset Remedy Notice delivered by the Class A Member shall not have become effective and DTI or any DTI Operating Subsidiary disposes of DTI Property other than in the ordinary course of business and without the consent of the Class B Member at a time when a majority of the directors of DTI have been selected by the Class A Member, then the Class B Member shall have the right to require the Company to the Class A Member to sell to the Class B Member, or its designee, the Class A Member’s entire Class A Membership Interest for an amount (the “Liquidation Purchase Price”) specified in the Company LLC Agreement.

“Liquidation Purchase Price” has the meaning assigned to such term in the definition of Liquidation Purchase Option.

“Liquidation Retirement Amount” has the meaning assigned to such term in the definition of Liquidation Retirement Option.

“Liquidation Retirement Option” means in the event that (A) no Purchase Offer or Retirement Offer has been accepted and neither the Liquidation Retirement Option nor the Liquidation Purchase Option has theretofore been exercised, (B) no Notes are outstanding (or irrevocable arrangements have been made for the payment of the Notes in full prior to the Retirement Date in accordance with the defeasance provisions of the Indenture) and (C)(w) a Liquidation Notice has been delivered and has not been rescinded or become effective, (x) a Liquidating Event involving the unavailability of an Extension Period has occurred, (y) an Asset Remedy Notice has been delivered by the Class A Member and such Asset Remedy Notice has not been rescinded or become effective or (z) an Asset Remedy Notice delivered by the Class A Member shall not have become effective and DTI or any DTI Operating Subsidiary disposes of DTI Property other than in the ordinary course of business and without the consent of the Class B Member at a time when a majority of the directors of DTI have been selected by the Class A Member, then the Class B Member shall have the right to require the Company to retire the Class A Member’s entire Class A Membership Interest for an amount (the “Liquidation Retirement Amount”) specified in the Company LLC Agreement.

“Liquidating Events” means the events which require dissolution, winding up and liquidation of the Company under the Company LLC Agreement.

“Mandatory Conversion” shall have the meaning specified in Subsection 5(1) hereof.

“Mandatory Conversion Date” shall have the meaning specified in Subsection 5(1) hereof.

“Mandatory Conversion Date Market Price” shall have the meaning specified in Subsection 5(1) hereof.

“Mandatory Conversion Rate” shall have the meaning specified in Subsection 5(1) hereof.

“Mandatory Redemption” means when the Notes have become due and payable pursuant to the Indenture or the Notes Outstanding shall be redeemed.

“Mark-to-Market Measurement Date” means with respect to the retirement of the Class A Membership Interest in accordance with Section 11.1 of the Company LLC Agreement, the last day of the Fiscal Quarter preceding the Fiscal Quarter during which the earlier of (A) the Retirement Option Notice was delivered under the Company LLC Agreement or the Retirement Offer Notice was accepted under the Company LLC Agreement.

“Mark-to-Market Value” mean with respect to any asset, the following:

(a) the Mark-to-Market Value of any Dominion Loan shall be the outstanding principal balance of such Dominion Loan plus accrued but unpaid interest;

(b) the Mark-to-Market Value of any Financial Investment shall be its face value less unamortized discounts and plus unamortized premium, if any;

(c) the Mark-to-Market Value of the Company shall be (i) prior to a Mark-to-Market Measurement Date, the sum of the Initial Gross Asset Values of the assets contributed by the Members to the Company or otherwise acquired by the Company and (ii) on or after a Mark-to-Market Measurement Date, the sum of the Appraised Values (as of the Mark-to-Market Measurement Date) of each asset owned by the Company, net of all applicable liabilities not taken into account in the calculation of Appraised Values; and

(d) the Mark-to-Market Value of DTI shall be (A) prior to a Mark-to-Market Measurement Date, the sum of the Initial Gross Asset Values of the assets contributed to DTI by the Company or otherwise acquired by DTI, and (B) on or after a Mark-to-Market Measurement Date, the sum of the Appraised Values (as of the Mark-to-Market Measurement Date) of each asset owned by DTI, net of all applicable liabilities not taken into account in the calculation of Appraised Values.

“Maturity Trigger” means the failure to deposit with the Indenture Trustee, at least 120 days prior to the Scheduled Maturity Date, an amount of Qualified Equity Proceeds, which, in the aggregate with all funds and any investments then held in the Indenture Accounts and available to the Indenture Trustee for repayment of the Notes, is sufficient to repay all accrued and unpaid interest on and all outstanding principal of the Notes on the Scheduled Maturity Date and any other determinable amounts that are, or are scheduled to become, due and payable under the Indenture on or prior to the Scheduled Maturity Date.

“Members” means the Class A Member and the Class B Member, collectively. “Member” means any one of the Members.

“Membership Interests” means the Class A Membership Interest and the Class B Membership Interest, collectively. “Membership Interest” means any one of the Membership Interests.

“Moody’s means Moody’s Investors Service, Inc. or any successor by merger, consolidation or otherwise to its business.

“Note Interest Amount” means, for any Interest Payment Date, the product of (a) the Note Rate, (b) the aggregate outstanding principal amount of Notes and (c) the quotient of (i) the number of days actually elapsed since the later of the Closing Date or the last Interest Payment Date and (ii) 360.

“Note Payment Date” means: (a) each Interest Payment Date, (b) any date on which the maturity of the Notes is accelerated pursuant to the Indenture, (c) any date of optional redemption pursuant to Indenture, (d) any date of mandatory redemption pursuant to the Indenture and (e) the Scheduled Maturity Date, provided that, if any Note Payment Date does not fall on a Business Day, any payment due on such Note Payment Date shall be payable on the preceding Business Day, and any payment made on such Business Day shall be deemed to have been made on the corresponding Note Payment Date.

“Note Purchase Agreement” means the Note Purchase Agreement, dated March 7, 2001 among the Corporation, the Company and Credit Suisse First Boston Corporation, as representative of the initial purchasers named therein.

“Note Trigger Event” means the occurrence of (a) the Acceleration Trigger, (b) the Maturity Trigger or (c) the Stock Price/Credit Downgrade Trigger.

“Noteholder” means a holder of a Note.

“Notes” means the Initial Notes and the Additional Notes.

“Optional Conversion” shall have the meaning specified in Subsection 5(2) hereof.

“Optional Conversion Rate” shall have the meaning specified in Subsection 5(2) hereof.

“Optional Redemption” means so long as no Note Trigger Event has occurred, the Notes may be redeemed in whole or in part at the option of the Company at any time to the extent of funds available therefor if:

“Ordinary Cash Dividends” shall have the meaning specified in Subsection 5(3) hereof.

“Overfund Amount” means $194,000,000 of the proceeds of the issuance and sale of the Notes and the Class A Membership Interest.

“Overfund Trust” means Monument Overfund Trust, a statutory business trust organized under the law of the State of Delaware.

“Parity Securities” shall have the meaning specified in Section 7 hereof.

“Partial Remarketing” means a remarketing of all of the Shares then available as to which, although a Failed Remarketing has not occurred, net proceeds at least equal to the Share Trust Amount are not generated and paid to the Indenture Trustee or, if a Contingent Share Trust Remedy Condition shall exist, to the Company.

“Participation Agreement” means the Participation Agreement to be entered into among the Corporation, the Company, Blue Ridge Telecom Trust, DT Services, Inc., Piedmont Share Trust, Monument Overfund Trust, Wilmington Trust Company and Bank One, National Association.

“Person” means any individual, trust, estate, association, Business Entity or other entity or a government or any political subdivision or agency thereof.

“Pre-Extension Period Retirement Option” means in the event that (A) no Purchase Offer or Retirement Offer has been accepted and neither the Liquidation Purchase Option nor the Liquidation Retirement Option has theretofore been exercised, (B) the Notes have been paid in full prior to the Scheduled Maturity Date, (C) the Extension Period Commencement Date has not occurred and (D) no Liquidation Notice has been delivered, then the Class B Member shall have the right to require the Company to sell to the Class B Member, or its designee, the Class A Member’s entire Class A Membership Interest for a purchase price(the “Pre-Extension Period Purchase Price”) specified in the Company LLC Agreement.

“Pre-Extension Period Purchase Price” has the meaning assigned to such term in the definition of Pre-Extension Period Purchase Option.

“Pre-Extension Period Retirement Amount” has the meaning assigned to such term in the definition of Pre-Extension Period Retirement Option.

“Pre-Extension Period Retirement Option” means in the event that (A) no Purchase Offer or Retirement Offer has been accepted and neither the Liquidation Purchase Option nor the Liquidation Retirement Option has theretofore been exercised, (B) the Notes have been paid in full prior to the Scheduled Maturity Date, (C) the Extension Period Commencement Date has not occurred and (D) no Liquidation Notice has been delivered, then the Class B Member shall have the right to require the Company to retire the Class A Member’s entire Class A Membership Interest for an amount (the “Pre-Extension Period Retirement Amount”) specified in the Company LLC Agreement.

“Pricing” means, with respect to any security, the determination of the price at which the underwriter(s) (in a firm commitment underwriting arrangement) or the purchaser(s) are willing to purchase, and the holder of such security (or issuer thereof, if such security is being newly issued) is willing to sell, such security.

“Primary Treasury Dealer” means any primary U.S. Government securities dealers in New York City.

“Principal Market” means the principal exchange on which the security in question is traded or the principal market on which such security is quoted, as determined by the Board of Directors of Dominion from time to time.

“Prospectus” means any preliminary or final prospectus or prospectus supplement or other offering document to be used by the Remarketing Agents in connection with a public offering of the Shares.

“Publicly Traded Security” shall have the meaning specified in Subsection 5(4) hereof.

“Purchase Date” means any date specified in any Purchase Offer Notice and any Purchase Option Exercise Notice on which the closing of the purchase and sale of the Class A Membership Interest shall occur.

“Purchase Offer” means an offer by the Class B Member to purchase or to cause the purchase the Class A Member’s entire Class A Membership Interest, at certain times permitted by the Company LLC Agreement.

“Purchase Offer Notice” means a written notice to the [Company], Class A Member and the Indenture Trustee with respect to a Purchase Offer.[p. 48 of OM]

“Purchase Option” means a Liquidation Purchase Option, an Extension Period Purchase Option or a Pre-Extension Period Purchase Option.

“Purchase Option Exercise Notice” means the written notice of irrevocable election the Class B Member makes to the Company, the Class A Member and the Indenture Trustee with respect to a Purchase Option.

“Qualified Communications Assets” means assets primarily used in the installation, sale, repurchase or swap of dark fiber optic cable and in the construction, ownership and operation of fiber optic telecommunications networks that are employed in providing voice, video or data products, including local and long distance voice telephone service and data network services, or services ancillary to providing voice, video or data services (including, but not limited to, Internet access, web site design and hosting services) to customers in the United States and Canada or Equity Interests in Business Entities owning any such assets as their primary business.

“Qualified Equity Proceeds” means amounts equivalent to the proceeds of any of the following: (i) sales of mandatorily convertible preferred or common equity securities of Dominion, (ii) equity issuances by DTI or any of its Subsidiaries, (iii) a sale by the Company of the shares of DTI, (iv) a sale of the Class B Membership Interest by the holder thereof, (v) operating cash flows from, or sales proceeds of, the Company’s or DTI’s or any of its Subsidiaries’ respective assets, excluding (x) operating cash flows from, or sales proceeds of, the Company’s or DTI’s or its Subsidiaries’ assets (A) contributed (or sold for less than fair consideration and reasonably equivalent value) to the Company or DTI by Dominion or any of its Affiliates subsequent to the Closing Date or (B) purchased with cash contributed by Dominion or any of its Affiliates to the Company or DTI subsequent to the Closing Date, and (y) cash contributed by Dominion or any of its Affiliates subsequent to the Closing Date or (vi) sales or other Dispositions of assets of Dominion or its Subsidiaries for cash up to the amount of equity that has been issued by Dominion in one or more consolidations, acquisitions, mergers or other similar transactions, in each case consummated after the Closing Date; provided that, in the case of clauses (ii) and (v), the amount referred to in such clauses shall constitute

Qualified Equity Proceeds only to the extent such amounts exceed the amount outstanding under the DTI Credit Facility at the time of such determination.

“Rate Reset Date” means the earlier to occur of (A) the consummation of the remarketing of the Initial Shares which is expected to be on or about the third Trading Day following the Successful Repricing Date, and (B) the date of a Failed Remarketing.

“Recapitalization Adjustment Ratio” shall have the meaning specified in Subsection 5(3) hereof.

“Redemption Event” means the occurrence of any of the following: (i) any consolidation or merger of the Corporation with or into another corporation or entity, unless in connection with such consolidation or merger the outstanding shares of Common Stock immediately preceding the consummation of such consolidation or merger are converted into, exchanged for or otherwise represent a majority of the outstanding shares of common stock of the surviving or resulting corporation or entity immediately succeeding the consummation of such consolidation or merger or (ii) the Corporation sells or conveys to another entity (other than a Subsidiary ) all or substantially all of the assets of the Corporation.

“Redemption Price” shall have the meaning specified in Section 4 hereof.

“Reference Treasury Dealer” means Credit Suisse First Boston Corporation and up to three other Primary Treasury Dealers and their respective successors; provided, however, that, if any of the foregoing shall cease to be a Primary Treasury Dealer, there shall be substituted therefor another Primary Treasury Dealer selected by the Indenture Trustee.

“Reference Treasury Dealer Quotations” means the average, as determined by the Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issues for the Notes (expressed in each case as a percentage of its principal amount), quoted in writing to the Independent Investment Banker by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such Optional Reference Date.

“Registration Statement” means any registration statement of Dominion for the registration of the Shares then available for sale (and the underlying Common Stock, to the extent applicable) with the SEC, and all amendments and supplements to any such Registration Statement, including post-effective amendments, and in each case including the Prospectus contained therein (if any), all exhibits thereto and all information incorporated by reference therein, and if no Prospectus is required to be delivered at the time of such registration, any term sheet or other document prescribed by the SEC to describe the securities to be sold thereunder.

“Related Document” means Articles of Amendment, the Participation Agreement, the Remarketing Agreement, the Note Purchase Agreement, the Company LLC Agreement, or any other related document.

“Remaining Life” has the meaning assigned to such term in the definition of Comparable Treasury Issue.

“Remarketed Price” means the price at which the Remarketing Agents, using commercially reasonable efforts, can sell the fewest number of Shares then available that will generate net proceeds that are at least equal to the Share Trust Amount or if the Remarketing Agents cannot generate net proceeds that are at least equal to the Share Trust Amount through the sale of all of the Shares then available, then the highest price at which the Remarketing Agents, using commercially reasonable efforts, can sell all of the Shares then available.

“Remarketing Agent” means the Initial Remarketing Agent and/or any Eligible Remarketing Agent that, in each case, is appointed and agrees to act as a remarketing agent under the Remarketing Agreement.

“Remarketing Agreement” means the Dominion Preferred Stock Remarketing and Registration Rights Agreement dated as of the Closing Date among Dominion, the Company, the Share Trust, the Indenture Trustee and the Initial Remarketing Agent.

“Remarketing Notification Date” means the date on which the Remarketing Agents receive notice from the Share Trustee, the Company or the Indenture Trustee of their obligation to commence the remarketing of the Initial Shares.

“Repricing Date” means the Initial Repricing Date and each Trading Day thereafter until the Reset Date.

“Reset Common Yield” means the quotient of (i) the product of (x) 4 and (y) the amount of the ordinary quarterly cash dividend on one share of Common Stock most recently declared prior to the Trigger Date (as appropriately adjusted for the events referred to in Subsection 5(3)(a) hereof), unless subsequent to such declaration and prior to the Trigger Date, the Corporation has publicly announced a change to, or elimination of, its ordinary quarterly cash dividend, in which case clause (y) above shall be the amount of such proposed ordinary quarterly cash dividend (or $0.00 if such dividend has been or is to be eliminated), divided by (ii) the Reset Price (provided, however, that if as of the Trigger Date there is more than one class of Common Stock, then the Reset Common Yield shall be calculated with respect to each then outstanding class of Common Stock, and the Reset Common Yield (as used herein) shall be the amount calculated with respect to the class of Common Stock resulting in the greatest Reset Common Yield).

“Reset Dividend Rate” means an amount per annum per share equal to the product of (i) the sum of (x) the Reset Common Yield (expressed as a percentage), plus (y) 7% and (ii) $1,000 (rounded to the nearest cent).

“Reset Price” means the higher of (i) the Closing Price of a share of Common Stock on the Trigger Date or (ii) the quotient (rounded up to the nearest cent) of the Share Trust Amount divided by the number, as of the Trigger Date, of the authorized but unissued shares of Common Stock that have not been reserved as of the Trigger Date by the Board of Directors for other purposes, subject to adjustment as provided in Subsection 5(3)(a) hereof.

“Retirement Date” means a statement specifying the date on which the retirement distribution shall be made to the Class A Member.

“Retirement Offer” means an offer by the Class B Member to purchase or to cause the purchase the Class A Member’s entire Class A Membership Interest, at certain times permitted by the Company LLC Agreement.

“Retirement Offer Notice” means a written notice to the Company, the Class A Member and the Indenture Trustee with respect to a Retirement Offer.[p. 49 of LLC]

“Retirement Option” means a Liquidation Retirement Option, an Extension Period Retirement Option or a Pre-Extension Period Retirement Option.

“Retirement Option Notice” means the written notice of Irrevocable Election the Class B Member makes to the Company, the Class A Member and the Indenture Trustee with respect to a Retirement Option.

“Return Rate” means (a) with respect to the portion, if any, of the Class A Membership Interest Component contributed by the Class A Member following a Note Trigger Event for the purpose of funding Mandatory Redemption of all of the Notes, 7.05% per annum and (b) with respect to any other portion of the Class A Membership Interest Component, 14.0% per annum.

“Rights” means rights or warrants distributed by the Corporation under a shareholder rights plan or agreement to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Corporation’s capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events (“Rights Events”), (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock.

“Rights Events” shall have the meaning ascribed to such term in the definition of Rights.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor by merger, consolidation or otherwise to its business.

“Scheduled Maturity Date” means March 15, 2005.

“Securities Intermediary” means Bank One, National Association, in its capacity as securities intermediary under the Indenture or any successor thereto under the Indenture.

“Senior Securities” shall have the meaning specified in Section 7 hereof.

“Series A Preferred Stock” means the Series A Preferred Stock of the Corporation, the terms of which are determined under the Articles of Amendment.

“Share Trust” means Piedmont Share Trust, a special purpose statutory business trust organized under the law of the State of Delaware.

“Share Trust Agreement” means the Amended and Restated Trust Agreement of Piedmont Share Trust dated as of the Closing Date among the Share Trustee, the Company, Dominion and the Share Trust.

“Share Trust Amount” means, as of any date of determination, an amount equal to (a) the aggregate amount then necessary to discharge the Indenture minus (b) any funds or the proceeds of the sale of any investments then held in the Indenture Accounts and available to the Indenture Trustee for the payment of the Notes (but in an amount not in excess of the amount described in clause (a)) plus (c) the aggregate amount from the Disposition of assets of the Company or its Subsidiaries that are used to repay the Notes or, to the extent included in the amount referenced in clause (b) above, are then available to the Indenture Trustee for the payment of the Notes plus (d) the portion of the Class A Membership Interest Portion or proceeds of the investment thereof that has been used to repay the Notes or, to the extent included in the amount referenced in clause (b) above, is then available to the Indenture Trustee for the payment of the Notes.

“Share Trustee” means Wilmington Trust Company, a Delaware banking corporation, in its capacity as trustee under the Share Trust Agreement.

“Shares” means the Initial Shares and the Additional Shares, or the portion thereof that is then required to be issued or available for remarketing, as the context requires.

“Shelf Registration Statement” means one or more “shelf” Registration Statements of Dominion which registers the continuous offer and sale by the Share Trust and, to the extent required, Dominion of the Shares (and the underlying Common Stock, to the extent applicable) on an appropriate form under Rule 415 under the Securities Act or any similar or successor rule that may be adopted by the SEC, and all amendments and supplements to such registration statement(s), including post-effective amendments, in each case including the Prospectus contained therein (if any), all exhibits thereto and all information incorporated by reference therein.

“Stock Price/Credit Downgrade Trigger” means (a) a downgrading of Dominion senior unsecured and unenhanced debt to “Baa3” or below by Moody’s or “BBB-” or below by S&P and (b) for ten consecutive Trading Days, Dominion’s or any successor’s common stock closing price shall be below $45.97, after adjustment of such price to appropriately reflect splits, stock dividends and other events resulting in the adjustments made to the Optional Conversion Rate as set forth in Section 5 hereof.

“Subsidiary” means, as to any Person, any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the right or power to direct, in the case of any entity of which such Person or any of its Subsidiaries is a general partner, or both the beneficial ownership of and the right or power to direct, in any other case, such limited liability company, partnership or joint venture, or (c) the beneficial interest in such trust or estate, in each case is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries; provided, however, that no such corporation, partnership, joint venture or other entity shall (i) constitute a Subsidiary of Dominion, unless such entity is a Consolidated Subsidiary of Dominion, or (ii) constitute a Subsidiary of any other

Person unless such entity would appear as a consolidated Subsidiary of such Person on a consolidated balance sheet of such Person prepared in accordance with GAAP.

“Successful Repricing Date” means the Repricing Date on which the Pricing by the Remarketing Agents of the Shares at the Remarketed Price occurs.

“Threshold Appreciation Price” means the product of (i) the Reset Price as of the time in question and (ii) 1.10.

“Trading Day” means a day on which the Principal Market with respect to a security is regularly scheduled to be open for trading. For purposes of this definition, a day on which any such exchange is scheduled to close (as opposed to unexpectedly closing) prior to its regular closing time shall not constitute a Trading Day.

“Transaction” shall have the meaning specified in Subsection 5(5) hereof.

“Trigger Date” means the earlier to occur of (A) the Successful Repricing Date and (B) a Failed Remarketing; provided that if any such day is not a Trading Day, then the Trigger Date will be the next succeeding Trading Date.

Exhibit 10.4

PJM SOUTH IMPLEMENTATION AGREEMENT

THIS PJM SOUTH IMPLEMENTATION AGREEMENT (“Implementation Agreement”), is entered into as of September 30, 2002, between Virginia Electric and Power Company (“Virginia Power”), a corporation organized under the laws of the Commonwealth of Virginia and PJM Interconnection, L.L.C. (“PJM”), a limited liability company organized under the laws of Delaware (each a “Party” and collectively, “Parties”).

WHEREAS, Virginia Power owns electric transmission facilities which form an integrated transmission system used to provide electric service to its customers and to provide open access transmission service pursuant to FERC requirements;

WHEREAS, PJM is the first fully functioning Independent System Operator in the United States and operates the world’s largest competitive wholesale electricity market in all or parts of seven states and the District of Columbia;

WHEREAS, on July 31, 2002, FERC issued its Notice of Proposed Rulemaking (NOPR) Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design (Docket No. RM01-12-000) (“SMD Proceeding”) proposing to require all public utilities to have their transmission facilities controlled by an Independent Transmission Provider (“ITP”) and to have service provided in accordance with a standard market design as set out in the Standard Market Design tariff (“SMD Tariff”);

WHEREAS, Virginia Power is obligated to join a regional transmission entity under Virginia state law and is encouraged, and may be required in the future, to join a regional transmission organization under FERC policy;

WHEREAS, subject to the terms and conditions of this Implementation Agreement and the Memorandum of Understanding between the Parties dated June 24, 2002, Virginia Power has determined to become a member of PJM, transfer functional control of its Transmission Facilities to PJM for inclusion in a new PJM South Region, integrate its Control Area into the PJM Interchange Energy Market and certain other PJM markets, and otherwise facilitate the establishment and operation of PJM as the Regional Transmission Organization and, to the extent the final rulemaking shall require, the Independent Transmission Provider, with respect to its Transmission Facilities;

WHEREAS, in order to accept functional control of the Transmission Facilities of Virginia Power and commensurately expand the PJM markets, PJM will be required to make substantial additions and modifications to its systems and facilities and thereby incur Expansion Costs, as defined herein, the Parties enter into this Implementation Agreement to provide for the allocation of Expansion Costs to Virginia Power and payment thereof to PJM; and

WHEREAS, the costs of establishing a new PJM South Region are expected to be substantially reduced if the expansion is done as part of a single project that includes PJM West Expansion and Illinois Power Expansion, both as defined herein.

NOW THEREFORE , in consideration of the covenants and agreements set forth herein, and intending to be legally bound thereby, and for other good and valuable consideration the receipt of which is hereby acknowledged, the Parties agree as follows:

ARTICLE 1

GLOSSARY AND RULES OF CONSTRUCTION

Unless the context otherwise specifies or requires, capitalized terms used in this Implementation Agreement shall have the meanings assigned or referred to in this Article 1 (such definitions to be equally applicable to both the singular and the plural forms of the terms defined). Unless otherwise specified, all references to articles or sections are to articles or sections of this Implementation Agreement. Exhibits and schedules referred to in this Implementation Agreement are incorporated herein and made a part hereof. All Parties having been involved in the drafting of this Implementation Agreement, no rule that a contract shall be construed against the drafter shall be applied to the construction or interpretation of this Implementation Agreement.

1.1 “Capitalized Expansion Costs” has the meaning stated in section 4.1.2.1.

1.2 “Common Costs” has the meaning stated in section 4.1.1.

1.3 “Completion Date” has the meaning stated in section 4.1.1.

1.4 “Control Area” has the meaning stated in section 1.7 of the Operating Agreement.

1.5 “Demobilization Costs” means all costs and expenses incurred by PJM of suspending or terminating work under this Implementation Agreement, including, as applicable, travel expenses, penalties, fees and other costs associated with terminating, suspending, or making change orders to contracts with consultants, landlords, vendors, independent contractors and employees, and all allocable compensation, general and administrative overhead, and carrying costs (including actual or implicit costs of funds).

1.6 “Directly Assigned Expansion Costs” has the meaning stated in section 4.1.3.1.

1.7 “Effective Date” of this Implementation Agreement is the date set out in section 2.1.

1.8 “Expansion Costs” has the meaning stated in section 4.1.1.

1.9 “Expansion Percentages” has the meaning stated in section 4.1.1.

1.10 “Expensed Expansion Costs” has the meaning stated in section 4.1.4.1.

1.11 “FERC” means the Federal Energy Regulatory Commission or any successor federal agency, commission or department exercising jurisdiction over the PJM Tariff, the South Transmission Owner Agreement, the Operating Agreement, or the South Reliability Assurance Agreement.

1.12 “First Period” has the meaning stated in section 4.4.1.

1.13 “Illinois Power Expansion” means the proposed expansion of the PJM West Region to include Illinois Power Company.

1.14 “Implementation Agreement” means this PJM South Implementation Agreement, as it may be amended from time to time.

1.15 “Independent System Operator” or “ISO” means an Independent System Operator as defined by FERC in its Order No. 888.

1.16 “Independent Transmission Provider” or “ITP” has the meaning set out in Paragraph 125 of the Notice of Proposed Rulemaking

issued July 31, 2002 (Docket No. RM01-12-000) as such shall be modified or amended by FERC from time to time.

1.17 “Memorandum of Understanding” means the Memorandum of Understanding between the Parties dated June 24, 2001.

1.18 “Non-Disclosure Agreement” means the Non-Disclosure Agreement between the Parties dated June 24, 2002.

1.19 “Notice” has the meaning stated in section 7.11.

1.20 “Operating Agreement” means the Amended and Restated Operating Agreement of PJM Interconnection, L.L.C., as amended and restated from time to time.

1.21 “PJM South Region” means the control area, recognized by the North American Electric Reliability Council or any successor thereto, of Virginia Power.

1.22 “PJM Tariff” means the PJM Open Access Transmission Tariff under which PJM is the provider of transmission service and ancillary services, including any schedules, appendices, attachments, charts, annexes, or exhibits attached thereto, as in effect from time to time.

1.23 “PJM Transmission Owners Agreement” means the Transmission Owners Agreement, as amended and restated from time to time.

1.24 “PJM West Expansion” means the proposed expansion of the PJM West Region to include the American Electric Power system (Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kingsport Power Company, Kentucky Power Company, Ohio Power Company and Wheeling Power Company), Commonwealth Edison Company, and Dayton Power & Light Company.

1.25 “PJM West Region” means the aggregate of the control areas recognized by the North American Electric Reliability Council, or any successor thereto, of the participants in PJM West Expansion, and Monongahela Power Company, The Potomac Edison Company, and West Penn Power Company collectively doing business as Allegheny Power.

1.26 “Party” or “Parties” has the meaning stated in the preamble of this Implementation Agreement.

1.27. “Project Designee” has the meaning stated in section 3.2.8.

1.28 “Regional Transmission Organization” or “RTO” means a Regional Transmission Organization as defined by FERC in its Order No. 2000, as such order may be modified by FERC.

1.29 “SMD Proceeding” means the FERC proceeding initiated in the Notice of Proposed Rulemaking (NOPR) Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design (Docket No. RM01-12-000) and any ancillary proceedings thereto.

1.30 “SMD Tariff” means the tariff implementing any standard market design adopted as a final rule in the SMD Proceeding.

1.31 “South Region Expansion” has the meaning stated in section 3.2.1.

1.32 “South Reliability Assurance Agreement” means the PJM South Reliability Assurance Agreement among Load-Serving Entities in the PJM South Region.

1.33 “South Transmission Owner Agreement” means the South Transmission Owner Agreement between PJM Interconnection, L.L.C. and Virginia Power.

1.34 “Transmission Facilities” means those facilities of Virginia Power that meet the definition of transmission facilities pursuant to FERC’s Uniform System of Accounts or have been classified as transmission facilities in a ruling by FERC addressing such facilities.

1.35 “Withdrawal” has the meaning stated in section 5.3.2.

ARTICLE 2

EFFECTIVENESS; ADDITIONAL SIGNATORIES; ASSIGNMENT

2.1 Effective Date. This Agreement shall become effective upon the date specified in the first paragraph of this Implementation Agreement.

2.2 Effectiveness Not Subject to Regulatory Approval. The effectiveness of this Implementation Agreement is not conditioned upon whether regulatory approval of this Implementation Agreement is sought or obtained. Virginia Power agrees that it will satisfy its payment obligations under this Implementation Agreement without regard to whether any regulatory authority has asserted jurisdiction, approved, disapproved, or conditioned any provision of this Implementation Agreement or any other agreement related to the establishment of PJM as the Independent System Operator or Regional Transmission Organization with respect to the Transmission Facilities of Virginia Power.

ARTICLE 3

PARTIES’ UNDERTAKINGS IN FURTHERANCE OF DEVELOPMENT

OF PJM SOUTH REGION

3.1 Undertakings to Negotiate Agreements and Seek Regulatory Approvals from the FERC.

3.1.1 In order to implement the South Region Expansion, the Parties shall negotiate the South Transmission Owner Agreement, the South Reliability Assurance Agreement, and such amendments as may be required to the Operating Agreement, the PJM Tariff, and the PJM Transmission Owners Agreement, to enable Virginia Power to transfer functional control of its Transmission Facilities to PJM, to integrate its Control Area into the PJM Interchange Energy Market and other PJM markets, and otherwise to facilitate the establishment and operation of PJM as the Regional Transmission Organization with respect to Virginia Power’s Transmission Facilities. It is recognized that PJM, through its stakeholder and other processes, may make changes to any of the foregoing agreements to conform to the SMD Tariff. In the negotiations between Virginia Power and PJM, Virginia Power shall accept any reasonable changes that PJM may have made to conform any of the foregoing agreements to the SMD Tariff. The South Transmission Owner Agreement shall contain provisions regarding the withdrawal by Virginia Power from PJM substantially identical to sections 3.2 and 3.4 of the

PJM Transmission Owners Agreement. PJM and Virginia Power shall make good faith efforts to initiate and, subject to section 3.1.2, pursue diligently, all proceedings necessary and appropriate to seek and obtain all regulatory approvals that may be required from the FERC related to such agreements and amendments and for Virginia Power’s transfer of functional control of its Transmission Facilities to PJM. Such proceedings shall be initiated on or before December 15, 2002. Virginia Power recognizes that through PJM’s stakeholder process, in which Virginia Power is entitled to participate as a PJM member, or otherwise in accordance with the Operating Agreement or the Federal Power Act, amendments are made to the foregoing agreements from time to time. Virginia Power understands that such amendments may be pending, may be made after the Effective Date of this Implementation Agreement, and may be made after initiation of FERC proceedings hereunder and that, subject to its rights under the Federal Power Act, Virginia Power will be subject thereto.

3.1.2 Virginia Power shall have the right to seek regulatory approval by FERC of amendments to the PJM Tariff, which amendments PJM shall not oppose, to provide for the recovery of (i) Virginia Power’s costs so as to maintain revenue neutrality for Virginia Power, (ii) costs prudently incurred by Virginia Power in connection with the development of the Alliance RTO and South Region Expansion or membership as an owner of transmission facilities in PJM, and (iii) any other RTO development costs incurred by Virginia Power.

3.1.3 If, in accepting agreements or amendments submitted for approval under section 3.1.1 or 3.1.2, or related agreements or filings in furtherance of PJM’s service as the Regional Transmission Organization with respect to Virginia Power’s Transmission Facilities, the FERC rejects, modifies or conditions its acceptance of such amendments, agreements or filings, the Parties thereto, within thirty (30) days of the FERC order rejecting, modifying or otherwise imposing such conditions, shall either: (1) notify the FERC and each other of their acceptance of any such modification or condition; or (2) enter into discussions to determine whether the amendment, agreement or filing would be mutually beneficial in light of the FERC’s action. If either affected Party shall determine that the amendment, agreement or filing would not be mutually beneficial, the amendment, agreement, or other filing shall become null and void as to such Party, provided that nothing in this section shall diminish Virginia Power’s obligation to pay all amounts due to PJM under this Implementation Agreement.

3.2 Undertakings to Implement South Region Expansion

3.2.1 “South Region Expansion” shall mean the upgrade, expansion, modification, development, design, or acquisition by PJM of any new or existing hardware, software, systems, or facilities of PJM of any kind or description, or any other work required or appropriate to be performed, to facilitate PJM’s establishment of the PJM South Region such that, in accordance with the agreements and amendments referenced in section 3.1.1, PJM shall serve as the Independent System Operator or Regional Transmission Organization with respect to the Transmission Facilities of Virginia Power and administer the PJM markets in the PJM South Region. South Region Expansion shall exclude any upgrade, expansion, modification, development, design, acquisition, or other work performed solely in furtherance of: (a) PJM West Expansion or Illinois Power Expansion; (b) any other development or expansion of PJM; (c) development of any joint or common market with the Midwest Independent Transmission Operator, Inc.; and (d) the development or implementation of the SMD Tariff. The foregoing notwithstanding, and to the extent permitted under section 4.1.1, South Region Expansion shall include an allocable share of costs or expenses for expansion that, in the reasonable judgment of PJM, are common to all of South Region Expansion, PJM West Expansion and Illinois Power Expansion, and therefore not properly allocable solely to one of these three expansions.

3.2.2 “Project Implementation Plan” shall mean the plan for South Region Expansion, including the timing and costs associated therewith, attached hereto as Schedule 3.2.2 as amended by the Parties from time to time in accordance with this section. It is recognized that PJM has entered into arrangements for PJM West Expansion and Illinois Power Expansion and that the Project Implementation Plan shall take account of such expansions to assure that the South Region Expansion, PJM West Expansion and Illinois Power Expansion are all conducted efficiently. Either Party may propose from time to time reasonable changes to the Project Implementation Plan, which proposed changes the Party believes are necessary or appropriate to achieve economies, efficiencies, or the success of the project. In such event, the Parties shall in good faith negotiate amendments to the Project Implementation Plan, and in such negotiations neither Party shall withhold consent to reasonable changes to the Project Implementation Plan proposed by the other Party, provided, that PJM may withhold consent to proposed changes that, in its reasonable judgment, would delay or result in cost increases for PJM West Expansion or Illinois Power Expansion. Nothing in this section shall override the rights of Virginia Power under section 4.2.

3.2.3 SMD Tariff Impact. The Parties recognize that FERC has issued a Notice of Proposed Rulemaking (NOPR) providing a draft standard market design tariff and FERC may issue a final order before January 1, 2003 directing implementation of the SMD Tariff. PJM agrees that in the event the FERC issues such a final order, PJM will analyze the compatibility of its systems, practices, and governance with the requirements thereof. To the extent reasonably required, the results of that analysis will be used to shape the system, procedural, and governance requirements for the establishment of the PJM South Region so as to minimize or eliminate the need for further system, procedural, and governance changes in order to implement the SMD Tariff.

3.2.4 Independent Transmission Provider. The Parties recognize that FERC’s final order in the SMD Proceeding is expected to require that Virginia Power and each of the existing transmission owning members of PJM become members of an ITP. Accordingly, PJM agrees to use its best efforts to structure its markets, systems, procedures, and governance so as to satisfy all requirements of an ITP and to do so in a timely manner with respect to those dates established by FERC for Virginia Power’s required membership in an ITP. This provision shall be without prejudice to the right of either Party to seek modification or rehearing of or to appeal any order in the SMD Proceeding.

3.2.5 Requests for Information. Each Party shall respond, at its own cost (subject to such recovery as may be otherwise provided in this Implementation Agreement), with a full and timely good faith effort to reasonable requests for information, training, or technical support made by either Party from time to time to facilitate South Region Expansion.

3.2.6 PJM Staffing. Nothing in this Implementation Agreement shall require that PJM (a) increase internal staffing to meet the goals stated in section 3.2.1 or section 3.2.2 or (b) allocate staff in a manner that may cause it to fail to meet its obligations as the Regional Transmission Organization for any Control Area as to which it serves in such capacity.

3.2.7 Financing Condition. It is understood that, subject to reimbursement (see section 4.1.2.2), PJM will be required to make initial expenditures to cover Capitalized Expansion Costs as defined herein (see section 4.1.2.1). It is agreed that, except for the development of the Project Implementation Plan, PJM shall not be required to incur any Capitalized Expansion Costs until and unless one or more financial

closings have occurred under which PJM has obtained financing in a total amount no less than that specified in section 4.1.2.1.

3.2.8 Designees for Contract Administration. By Notice, PJM and Virginia Power shall each designate in writing an individual who shall have the primary responsibility of administering the Party’s responsibilities under this Implementation Agreement and shall designate an alternate to perform such responsibilities when the primary designee is unavailable (the primary and alternate designee are the “Project Designee”). A Party may change its designations by Notice.

3.3 Independent Transmission Company. The agreements and undertakings of the Parties in carrying out this Implementation Agreement shall preserve the right of Virginia Power to participate in the future in PJM through an independent transmission company.

3.4 Regional Transmission Organization . The Parties acknowledge the efforts of PJM to qualify as an RTO pursuant to FERC’s Order 2000 and agree to act to facilitate the qualification of PJM as an RTO. This provision shall be without prejudice to the right of either Party to seek modification or rehearing of or to appeal any FERC order relating to the qualification of PJM as an RTO or the requirement that Virginia Power be a member of an RTO.

ARTICLE 4

ALLOCATION AND PAYMENT OF EXPANSION COSTS

4.1 Definitions and Certain Payment Obligations.

4.1.1 “Expansion Costs” are all costs and expenses PJM incurs or has incurred in order to conduct South Region Expansion, including the costs of vendors, consultants, independent contractors, PJM employees (including allocable compensation and general and administrative overhead), and carrying costs (including actual or implicit costs of funds). The period during which Expansion Costs will be incurred commences June 25, 2002, and ends (“Completion Date”) (i) in the case of any Expansion Costs other than Common Costs as defined below, sixty (60) days after the completion of South Region Expansion, and (ii) in the case of Common Costs the latest of sixty (60) days after the completion of South Region Expansion, PJM West Expansion, and Illinois Power Expansion, but in no case later than December 31, 2004. Costs incurred prior to the Effective Date shall be included in Expansion Costs as the Parties may mutually agree. If on or before June 30, 2003,

PJM has reason to believe that Common Costs are likely to be incurred after the Completion Date or it would be desirable to defer incurring such costs until after the Completion Date, the Parties shall consult with each other about whether or not the Completion Date should be extended. The completion of South Region Expansion shall occur on the date PJM commences to serve as the transmission provider under the PJM Tariff with respect to the Transmission Facilities of Virginia Power and has completed integration of the PJM South Region into the PJM markets. Expansion Costs consist of the following cost categories.

Capitalized Expansion Costs (see section 4.1.2)

Directly Assigned Expansion Costs (see section 4.1.3)

Expensed Expansion Costs (see section 4.1.4)

The cost recovery provisions of this Implementation Agreement will minimize PJM’s carrying costs for Expensed Expansion Costs. Carrying costs for Capitalized Expansion Costs will be expensed. Subject to section 5.4, PJM will recover Capitalized Expansion Costs as described in section 4.1.2.2. To the extent that PJM incurs costs or expenses for expansion that, in the reasonable judgment of PJM, are common to South Region Expansion, PJM West Expansion and Illinois Power Expansion (“Common Costs”), and therefore not properly allocated solely to one region, PJM shall allocate such costs on the basis of the ratio of the total loads of Virginia Power to the total loads of the transmission owner participants in PJM West Expansion and Illinois Power Expansion. As of the Effective Date of this Implementation Agreement, this results in an allocation of 25.6282 percent of such costs to Virginia Power, 68.6403 percent to the PJM West Expansion participants and 5.7314 percent to Illinois Power (such percentages, the “Expansion Percentages”). These percentages shall not be adjusted except as provided in section 5.3.2. In addition to the foregoing Expansion Costs, in the event Virginia Power gives Notice under sections 4.2, 5.2 or section 5.3.1 or otherwise does not transfer control of its Transmission Facilities to PJM, Virginia Power may be required to pay Demobilization Costs, if any, and any additional costs due under section 5.3.2.

4.1.2 Capitalized Expansion Costs.

4.1.2.1 “Capitalized Expansion Costs” are all Expansion Costs that are properly capitalized under PJM’s accounting practices, excluding any such costs that are Directly Assigned Expansion

Costs. As of the date of this Implementation Agreement, Capitalized Expansion Costs are currently estimated by PJM to total $16,302,098.

4.1.2.2 PJM Recovery of Capitalized Expansion Costs. PJM shall recover Capitalized Expansion Costs from customers under Schedule 9 of the PJM Tariff.

4.1.3 Directly Assigned Expansion Costs.

4.1.3.1 Directly Assigned Expansion Costs” are all Expansion Costs PJM incurs to establish telecommunication links with Virginia Power. As of the Effective Date of this Implementation Agreement, it is estimated that Directly Assigned Expansion Costs will be $30,000 for Virginia Power.

4.1.3.2 Payment of Directly Assigned Expansion Costs. Virginia Power agrees to fund all applicable Directly Assigned Expansion Costs in accordance with the procedures set forth in sections 4.4.1 and 4.4.2.

4.1.4 Expensed Expansion Costs.

4.1.4.1 “Expensed Expansion Costs” are all Expansion Costs that are properly expensed under PJM’s accounting practices, and any carrying costs (including actual or implicit costs of funds), excluding any such costs that are Directly Assigned Expansion Costs. As of the Effective Date of this Implementation Agreement, it is estimated that Expensed Expansion Costs will be $9,326,102.

4.1.4.2 Payment of Expensed Expansion Costs. Virginia Power agrees to fund the Expensed Expansion Costs in accordance with the procedures set forth in sections 4.4.1 and 4.4.2.

4.2 Provision of Certain Expansion Costs Estimates. As of the Effective Date of this Implementation Agreement, it is estimated that total Expansion Costs will be $25,658,200. In the event PJM incurs or expects to incur Expansion Costs that exceed this estimate by more than twenty (20) percent, it shall notify Virginia Power and, without limiting the generality of Article 5, Virginia Power shall have a right to terminate this Implementation Agreement and withdraw from the South Region Expansion. In the event Virginia Power exercises such withdrawal right, sections 5.3.1 and 5.3.2 shall apply.

4.3 SMD Tariff Conformance Cost. The Parties understand that PJM may be required to modify its systems and procedures to comply with the SMD Tariff. Such modifications shall include, to the greatest degree practicable, accommodations to allow the PJM South Region to operate as a part of PJM. PJM shall not include any expenditures required to conform PJM’s systems to the SMD Tariff in either Capitalized Expansion Costs, Directly Assigned Expansion Costs, or Expensed Expansion Costs, other than the incremental costs due to the inclusion of the PJM South Region in such modifications.

4.4 Deposit and Billing Procedures.

4.4.1 Upon the Effective Date of this Implementation Agreement, Virginia Power shall deposit with PJM an amount equal to (i) Expensed Expansion Costs and (ii) Directly Assigned Expansion Costs, in each case that PJM estimates, in accordance with the budget set forth in the Project Implementation Plan, that it will incur during the first sixty (60) days (the “First Period”) following the Effective Date. PJM shall draw payments from deposited funds (including interest accrued thereon) in accordance with the billing and payment procedures set forth in section 4.4.2. On the 10th day of each month following the Effective Date (but not October 2002), until the Completion Date, PJM shall provide Virginia Power with (i) a written forecast of Directly Assigned Expansion Costs and Expensed Expansion Costs to be incurred by PJM hereunder during the sixty (60) day period following the end of the First Period (and each successive sixty (60) day period, as applicable) and (ii) an estimate of the remaining Expansion Costs. In accordance with the billing and payment procedures set forth in section 4.4.2, Virginia Power shall deposit with PJM such additional funds as are necessary to increase the total deposited funds to PJM’s estimate for such sixty (60) day period. After the Completion Date, and after all obligations under sections 4.1.3.2 and 4.1.4.2 and otherwise under this Implementation Agreement have been satisfied, PJM shall refund any outstanding deposits to Virginia Power. All interest earned on any deposited amount prior to withdrawal by PJM shall be credited for the benefit of Virginia Power.

4.4.2 On the 10th day of each month (or, if such day falls on a Saturday, Sunday, or holiday, on the next business day), PJM shall issue monthly billing statements to Virginia Power for amounts due under sections 4.1.3.2 and 4.1.4.2 or otherwise due under this Agreement, and PJM shall make payment to itself of such amounts from Virginia Power’s funds on deposit under section 4.4.1 to the extent such funds are available. Such billing statements shall set forth: (a) any additional payments required that were not covered by deposited funds

(including interest accrued thereon); (b) any additional deposit funds required under section 4.4.1; (c) an itemization of the costs and expenses incurred for which the billing is rendered; and (d) an estimate of the remaining Expansion Costs. Virginia Power shall make payment of any amounts not paid from funds on deposit no later than the 20th day of the same month (or if such day falls on a Saturday, Sunday, or holiday, on the next business day) by wire transfer in accordance with instructions PJM shall provide. In the event Virginia Power disputes any amount stated in PJM’s invoice, Virginia Power shall pay PJM’s invoice in full and the obligations of the Parties with respect to the payment shall be determined in accordance with the procedures provided for in Article 6. Within 10 days after the later of (i) the Completion Date or (ii) payment of all obligations of Virginia Power under sections 4.1.3.2 and 4.1.4.2, PJM shall refund to Virginia Power any remaining balance in the deposit account.

4.4.3 Upon request by Virginia Power, PJM shall provide to Virginia Power reasonable information regarding the determination of costs payable by Virginia Power pursuant to this Article 4.

ARTICLE 5

LIMITATIONS ON, AND PAYMENT

OBLIGATIONS IN THE EVENT OF, WITHDRAWAL

5.1 Unconditional Character of Payment Obligations. Except as may be otherwise provided in this Article 5, the withdrawal of Virginia Power from the South Transmission Owner Agreement, the failure of Virginia Power to transfer control of its Transmission Facilities to PJM, or the withdrawal by Virginia Power of its Transmission Facilities from PJM, shall not diminish the obligation of Virginia Power to pay Expansion Costs under this Implementation Agreement. By way of example but not limitation, the following events shall not excuse or diminish such payment obligations: (a) a failure by Virginia Power to meet any obligation under sections 3.1.1, 3.1.2, 3.1.3, or 3.1.4; (b) any action or inaction by the FERC or any other regulatory agency that has the effect of denying or failing to grant any required regulatory approval; (c) any change in law or regulation that reduces or eliminates any regulatory basis or requirement for such transfer of control of Transmission Facilities to, or retention of control of Transmission Facilities by, an Independent System Operator or Regional Transmission Organization; (d) any decision to transfer control, or seek to transfer control, of Transmission Facilities to an Independent System Operator or Regional Transmission Organization other than PJM or an organization other than

PJM that seeks or intends to seek approval from the FERC to serve as an Independent System Operator or Regional Transmission Organization; (e) withdrawal from the South Transmission Owner Agreement and/or Operating Agreement by Virginia Power; or (f) any order of the FERC approving withdrawal of Virginia Power from the South Transmission Owner Agreement or the withdrawal of any other owner of transmission facilities from PJM.

5.2 Suspension for Regulatory Delay. In the event that a regulatory body having jurisdiction over the PJM Tariff, the South Transmission Owner Agreement, the Operating Agreement, or the South Reliability Assurance Agreement has not issued an initial order concerning any required approval of any such agreement or amendments to such agreement, as applicable, on or before June 30, 2003, and PJM and Virginia Power concur that timely approval of such agreement is unlikely, then Virginia Power may by Notice to PJM suspend the South Region Expansion. In the event of such suspension, Virginia Power shall pay all Demobilization Costs. During the South Region Expansion, PJM will respond to reasonable requests from Virginia Power for estimates of Demobilization Costs that would be due under this section if such suspension were invoked under this section.

5.3 Obligations of Virginia Power if it Does Not Transfer Control of Transmission Facilities to PJM or Withdraws from PJM.

5.3.1 Notice; Termination of South Region Expansion. Subject only to any required regulatory approvals and its payment obligations to PJM, Virginia Power reserves the right at any time to terminate South Region Expansion and to otherwise withdraw from transferring control of its Transmission Facilities to PJM. If Virginia Power becomes aware of any event or occurrence that creates a material possibility that it will not transfer control of its Transmission Facilities to PJM, Virginia Power shall give immediate Notice to PJM. If PJM becomes aware of any event or occurrence that creates a material possibility that (i) PJM will not accept control of Virginia Power’s Transmission Facilities or (ii) Virginia Power will be unable to transfer such control, PJM shall give immediate Notice to Virginia Power. Upon receipt of Notice by one Party to the other Party, PJM and Virginia Power shall confer and, unless Virginia Power and PJM agree in writing that South Region Expansion shall continue, PJM shall immediately commence termination of such South Region Expansion, including demobilization and giving notice of termination or other applicable notice under contracts with third parties. In the event Virginia Power fails to give Notice under this section, PJM shall not be expected to terminate South Region Expansion regardless of

whether or not PJM is aware of the event or occurrence giving rise to the right to give Notice, and PJM may continue South Region Expansion at Virginia Power’s cost under this Implementation Agreement until Notice is given and the conference required under this section has occurred.

5.3.2 Virginia Power’s Obligation to Reimburse PJM if it Does Not Transfer Transmission Facilities. In the event Virginia Power exercises its right to withdraw under section 4.2, or gives Notice to PJM under section 5.3.1 and Virginia Power does not agree to continue the South Region Expansion, or Virginia Power otherwise does not transfer control of Transmission Facilities to PJM, (“Withdrawal”), Virginia Power shall, notwithstanding the Withdrawal: (i) continue to make all payments due under this Implementation Agreement, in accordance with the billing and payment procedures set forth in section 4.4.2, including ongoing Expensed Expansion Costs, (ii) make payments, under the billing and payment procedures set forth in section 4.4.2, of Capitalized Expansion Costs incurred after Withdrawal, and (iii) within thirty (30) days after the effective date of the Withdrawal, make a payment to PJM of an amount equal to all Capitalized Expansion Costs incurred prior to Withdrawal, provided that Virginia Power shall be entitled to a credit against Capitalized Expansion Costs of the value, if any, as determined by PJM in its reasonable judgment, to PJM customers of such Capitalized Expansion Costs in the absence of Virginia Power having transferred control of its Transmission Facilities to PJM and provided further to the extent that at some subsequent date either Virginia Power or another transmission owner transfers control of transmission facilities to PJM and such transfer renders valuable to PJM customers some or all of the Capitalized Expansion Costs paid by Virginia Power, such value, if any, as determined by PJM in its reasonable judgment, shall be paid to Virginia Power no later than sixty (60) days after such transfer. In the case of Withdrawal, PJM shall make good faith efforts to mitigate costs, including Common Costs, so as to minimize the amounts payable by Virginia Power pursuant to this section, and any resulting reduction in Common Costs shall accrue to the benefit of Virginia Power. It is recognized and agreed that the purpose of the continued payment and reimbursement obligations under this section is to assure that, due to the Withdrawal, expansion costs incurred in PJM West Expansion and Illinois Power Expansion do not increase. Except for amounts paid to reimburse PJM for Directly Assigned Expansion Costs and Expensed Expansion Costs incurred prior to the Withdrawal, or for Demobilization, PJM will credit all amounts received under this section 5.3.2 to PJM West Expansion and Illinois Power Expansion, as applicable. The foregoing notwithstanding, in the event of a Withdrawal, Virginia Power shall in no event be allocated or

otherwise required to pay any Expansion Costs after it has paid 150% of the estimated costs as set forth in the Project Implementation Plan as of the Effective Date. After Virginia Power has paid 150% of such amount, the Expansion Percentages shall be adjusted proportionately to the total loads of the remaining expansions for purposes of allocating any further Common Costs. Any payments due hereunder shall be made first from any amounts on deposit with PJM under section 4.4.1 of this Implementation Agreement. Upon request to PJM, PJM shall transfer to Virginia Power any assets attributable to Directly Assigned Expansion Costs for which Virginia Power has paid. In the event Virginia Power disputes any amount PJM asserts is due to it, Virginia Power shall pay PJM’s invoice in full and the obligations of the Parties with respect to the payment shall be determined in accordance with the procedures provided for in Article 6. The obligations of Virginia Power pursuant to this section with respect to Common Costs shall be contingent upon each of the transmission owning parties to the PJM West Expansion and the Illinois Power Expansion agreeing to substantially the same obligation for the payment of Common Costs in the case of such party’s withdrawal from either the PJM West Expansion or the Illinois Power Expansion.

5.4 Obligations of Virginia Power Due To Withdrawal Prior to Recovery of All Capitalized Expansion Costs. In the event Virginia Power withdraws control of its Transmission Facilities from PJM after having transferred such control, PJM shall issue an invoice to Virginia Power for the Capitalized Expansion Costs, if any, that PJM shall not have recovered pursuant to section 4.1.2.2 under the PJM Tariff as of the effective date of such withdrawal provided that Virginia Power shall be entitled to a credit against the unrecovered Capitalized Expansion Costs of the value, if any, as determined by PJM in its reasonable judgment, to PJM customers of such unrecovered Capitalized Expansion Costs subsequent to Virginia Power having withdrawn control of its Transmission Facilities from PJM and provided further to the extent that at some subsequent date either Virginia Power or another transmission owner transfers control of transmission facilities to PJM and such transfer renders valuable to PJM customers some or all of the unrecovered Capitalized Expansion Costs, such value, as determined by PJM in its reasonable judgment, shall be paid to Virginia Power no later than sixty (30) days after such transfer. No later than thirty (30) days after receipt of such invoice, and in no event later than the effectiveness of the withdrawal, Virginia Power shall pay the amount stated in the invoice. In the event Virginia Power disputes any amount PJM asserts is due to it, Virginia Power shall pay PJM’s invoice in full and the obligations of the Parties with respect to the payment shall be determined in accordance with the procedures provided for in Article 6.

ARTICLE 6

DISPUTE RESOLUTION

6.1 Disputes. Subject to section 6.2, any dispute arising under or relating to this Implementation Agreement shall be subject to binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association, to be held in Washington, D.C., and judgment thereon may be entered by a court with jurisdiction. Each Party consents to, and waives all objections to, personal jurisdiction and venue of courts in Washington, D.C. or Pennsylvania for such purpose. The Parties shall endeavor in any arbitration to have discovery (which may include depositions) completed within forty-five (45) days of the appointment of the arbitrators (or single arbitrator, if applicable) and to have a decision rendered by the arbitrator(s) within one hundred fifty (150) days after appointment. In the event temporary or preliminary injunctive relief has been issued under section 6.2, the parties to the judicial action in which such relief is issued shall request the court to hold further proceedings on the complaint in abeyance pending completion of arbitration under this article. If the court denies such request to hold further proceedings in abeyance, then the parties shall proceed in such court to have the dispute determined and the arbitration provisions of this section shall not be applicable to such dispute.

6.2 Permitted Judicial Proceeding. The foregoing arbitration agreement notwithstanding, in the case of a payment dispute, PJM may elect, in lieu of proceeding by arbitration exclusively, to bring a judicial action against Virginia Power to obtain relief with respect to such dispute, including injunctive relief to obtain or compel payment. Solely for such purpose Virginia Power consents to the personal jurisdiction and venue of any federal or state court located in Pennsylvania or Washington, D.C. Virginia Power acknowledges, and in any judicial proceeding brought hereunder shall be deemed to have admitted, that PJM, the competition it fosters through its service as an Independent System Operator or Regional Transmission Organization, and the public interest, will suffer irreparable harm if PJM does not recover any amounts due to PJM under this Implementation Agreement in accordance with the terms and conditions herein.

6.3 Disputes Concerning PJM West Expansion and Illinois Power Expansion. In any matter involving the allocation of Common Costs between Virginia Power and the transmission owner participants in the PJM West Expansion or the Illinois Power Expansion and in order to

avoid inconsistent determinations of liability for and the allocation of Common Costs, the Parties shall take all reasonable actions, subject to the agreement of the transmission owner participants in the PJM West Expansion and Illinois Power Expansion, and subject to jurisdictional or procedural impediments, to have such allocation issues resolved in a single arbitration proceeding or at PJM’s election under section 6.2, a single judicial proceeding (subject to being held in abeyance for the conduct of arbitration under section 6.2), which shall include all interested parties.

6.4 Interest. Any award pursuant to section 6.1 or section 6.2 shall bear interest at the rate earned by PJM with respect to funds in accounts subject to its control during the applicable period.

6.5 Audit. In any dispute, Virginia Power shall have the right to audit those costs assigned to Virginia Power pursuant to this Implementation Agreement.

ARTICLE 7

ADDITIONAL AND MISCELLANEOUS MATTERS

7.1 Relationship of the Parties. his Implementation Agreement shall not be interpreted or construed to create any association, joint venture, or partnership between or among the Parties or to impose any partnership obligation liability upon any Party. No Party shall have the right, power or authority under this Implementation Agreement to enter into any agreement or undertaking for, or act on behalf of, or to act as or be an agent or representative of, or to otherwise bind, any other Party.

7.2 Confidentiality. Any information provided by one Party to the other Party in carrying out this Implementation Agreement shall be subject to the Non-Disclosure Agreement.

7.3 Energy Management System Network Model. Upon execution of this Implementation Agreement, Virginia Power shall provide PJM a copy of its Energy Management System Network model and related software databases and applications subject to the reasonable terms and conditions of Virginia Power’s customary software licenses. PJM shall provide Virginia Power with a copy of PJM’s network model in Common Interface Model (CIM) format for use with Virginia Power’s contingency analysis and state estimator applications. The Parties agree to exchange real-time data using the Inter-Control Center Protocol (ICCP)

as needed to support the use of these models. The real-time data of Virginia Power shall be considered confidential Information under the Non-Disclosure Agreement, provided that Virginia Power consents to the release of such information as may be reasonably required to comply with FERC or NERC requirements. Real-time data of third parties shall be transferred by Virginia Power to PJM only to the extent that PJM has confidentiality agreements with such third parties permitting the transfer of such information.

7.4 Value of Virginia Power Systems. The Parties recognize that Virginia Power has developed or otherwise acquired systems and information related to the operation of Virginia Power’s transmission system and the transmission systems of nearby transmission owners, which systems and information Virginia Power considers proprietary. Nothing in this Implementation Agreement shall obligate Virginia Power to provide access to, copies of, or information from any such system except to the extent reasonable and necessary to establish the PJM South Region and integrate Virginia Power’s transmission system into the PJM system and markets. Should either party withdraw from this Implementation Agreement or in the event that the PJM South Region is not implemented, each Party shall immediately remove from its systems all instances of the network model provided by the other Party under section 7.3 and shall refrain from further use of the integrated network model developed from the software, systems, models or information provided pursuant to section 7.3. Physical copies of the network model, including archival/backup copies and associated documentation, shall be returned to, or destroyed with a certificate of such destruction to, the Party that supplied the data under section 7.3 within fifteen (15) days from the date of withdrawal or cessation of the PJM South Region implementation effort. To the extent that PJM desires additional or continued access to, copies of, or information from such systems, the terms therefore shall be negotiated separately.

7.5 No Third-party Beneficiaries. This Implementation Agreement is intended solely for the benefit of the Parties and their respective successors and permitted assigns and is not intended to and shall not confer any rights or benefits on, any third party (other than the Parties’ successors and permitted assigns) that is not a signatory hereto.

7.6 Term and Termination. This Implementation Agreement shall be effective as provided in Article 2 and shall continue in effect from year to year thereafter unless and until terminated, provided that all provisions concerning payment obligations, section 4.4.3, Article 6, and Article 7 shall survive such termination.

7.7 Successors and Assigns. This Implementation Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and assigns permitted herein, but shall not be assigned except to a successor in the operation of Virginia Power’s Transmission Facilities by reason of a merger, consolidation, reorganization, sale, spinoff, or foreclosure, as a result of which substantially all such Transmission Facilities are acquired by such successor, and such successor expressly is made a party to this Implementation Agreement.

7.8 Force Majeure. No Party shall be liable to any other Party for damages or otherwise be in breach of this Implementation Agreement to the extent and during the period such Party’s performance is made impracticable by any cause or causes beyond such Party’s control and without such Party’s fault or negligence, including but not limited to any act, omission, or circumstance occasioned by or in consequence of any act of God, labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, or curtailment, order, regulation or restriction imposed by governmental, military or lawfully established civilian authorities; provided, however, that any such foregoing event shall not excuse any payment obligation. Upon the occurrence of an event considered by a Party to constitute a force majeure event, such Party shall use due diligence to endeavor to continue to perform its obligations as far as reasonably practicable and to remedy the event, provided that this provision shall require no Party to settle any strike or labor dispute. The foregoing notwithstanding, the occurrence of a cause under this section shall not excuse Virginia Power from making any payment otherwise required under this Implementation Agreement.

7.9 Limitations on Liability. Except with respect to the payment obligations provided in this Implementation Agreement, no Party shall be liable to any other Party, or any affiliate or subsidiary thereof, for any claim for damages, whether direct, indirect, incidental, special or consequential damages, or loss of the other Party, including, but not limited to, loss of profits or revenues, cost of capital of financing, or loss of goodwill arising from such Party’s carrying out, or failing to carry out, any obligations contemplated by this Implementation Agreement.

7.10 Governing Law. This Implementation Agreement shall be interpreted, construed and governed by the laws of the state of Delaware.

7.11 Notice. Whether expressly so stated or not, all notices, demands, requests and other communications required or permitted by or provided for in this Implementation Agreement (“Notice”) shall be given in writing to a Party at the address set forth below, or at such other address as a Party shall designate for itself in writing in accordance with this section, and shall be delivered by hand, overnight courier, or electronic mail:

For all Notices:		With a copy to:

PJM Interconnection, L.L.C. 955 Jefferson Avenue Valley Forge Corporate Center Norristown, PA 19403-2497 Attn: Phillip Harris President E-mail: harrispg@pjm.com		PJM Interconnection, L.L.C. 955 Jefferson Avenue Valley Forge Corporate Center Norristown, PA 19403-2497 Attn: Richard Wodyka Chief Operating Officer E-mail: wodykara@pjm.com

Jimmy D. Staton Senior Vice President Electric Transmission & Distribution Virginia Electric & Power Company 701 East Cary Street Richmond, VA 23219 E-mail: Jimmy_Staton@dom.com		James F. Stutts Vice President & General Counsel Dominion Resources Services, Inc. 120 Tredegar Street Richmond, VA 23219 E-mail: James_Stutts@dom.com

7.12 Execution of Counterparts. This Implementation Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together will constitute one instrument, binding upon all Parties hereto, notwithstanding that all such Parties may not have executed the same counterpart.

7.13 Representations and Warranties.

7.13.1 Each Party represents and warrants to the other Parties that, as of the Effective Date of this Implementation Agreement as to such Party:

7.13.1.1 It is duly organized, validly existing and in good standing under the laws of the jurisdiction where organized, and,

in the case of Virginia Power, qualified to do business in each state in which its Transmission Facilities are located;

7.13.1.2 The execution and delivery of this Implementation Agreement and the performance of its obligations hereunder have been duly and validly authorized by all requisite action on the part of the Party and do not conflict with any applicable law or with any other agreement binding upon the Party. The Implementation Agreement has been duly executed and delivered by the Party. The Implementation Agreement constitutes the legal, valid and binding obligation of the Party enforceable against it in accordance with its terms except insofar as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditor’s rights generally and by general principles of equity concerning such enforcement, regardless of whether such principles are applied in a proceeding at law or in equity; and

7.13.1.3 There are no actions at law, suits in equity, proceedings or claims pending or, to the knowledge of the Party, threatened against the Party before or by any federal, state, foreign or local court, tribunal or governmental agency or authority that might materially delay, prevent or hinder the performance by the Party of its obligations hereunder.

7.14 Renegotiation. Each provision of this Implementation Agreement shall be considered severable, and if any provision is held by a court or regulatory authority of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall continue in full force and effect and shall in no way be affected, impaired or invalidated. If the Implementation Agreement is modified or conditioned by a regulatory authority exercising jurisdiction over this Implementation Agreement (other than the FERC, as to which section 3.1.3 applies), the Parties shall endeavor in good faith to negotiate such amendment or amendments as will restore the relative benefits and obligations of the Parties immediately prior to such holding, modification or condition. If after 60 days such negotiations are unsuccessful then this Implementation Agreement shall be deemed terminated, provided , that nothing in this section shall diminish Virginia Power’s obligation to pay all amounts due to PJM under this Implementation Agreement.

7.15 Headings. The article and section headings used in this Implementation Agreement are for convenience only and shall not affect the construction or interpretation of any of the provisions.

IN WITNESS WHEREOF, the Parties have caused this Implementation Agreement to be executed by their duly authorized representatives.

PJM Interconnection, L.L.C.

By:

/s/ Richard A. Wodyka

Name: Richard A. Wodyka

Title: VP & COO

Date: 10/01/02

Virginia Electric and Power Company

By:

/s/ Glenn B. Ross

Name: Glenn B. Ross

Title: Director - Delivery Policy

Date: 10/0/02

PROJECT IMPLEMENTATION PLAN

SCHEDULE 3.2.2

[Portions of Schedule 3.2.2 are being revised due to recent legislation.]

Capital and Expense Cash Flow Forecast
Project Costs
					Capital		$63,610,000
					Expense		$36,390,000
					Total		$100,000,000
Allocation Values
Participant	Agreement		Load		% of total		% of West agreement	% of DOM agreement	% of IP agreement	Total Expense	Total Capital	Total
AEP	West		126,485,726		36.1582	%	52.6778%			$13,157,969	$23,000,231	$36,158,200
Comed	West		96,919,286		27.7061	%	40.3642%			$10,082,250	$17,623,850	$27,706,100
Dominion	DOM		89,650,634		25.6282	%		100.0000%		$9,326,102	$16,302,098	$25,628,200
DP&L	West		16,706,972		4.7760	%	6.9580%			$1,737,986	$3,038,014	$4,776,000
IP	IP		20,049,273		5.7314	%			100.0000%	$2,085,656	$3,645,744	$5,731,400

	West		240,111,984		68.6403	%				$24,978,205	$43,662,095	$68,640,300
	DOM		89,650,634		25.6282	%				$9,326,102	$16,302,098	$25,628,200
	IP		20,049,273		5.7314	%				$2,085,656	$3,645,744	$5,731,400

Allocation
	Allocation				TOTAL COSTS			AEP	COMED	DOM	DP&L	IP
	Capital		Expense		Capital		Expense
Sep-02	0.00	%	3.00	%	$0		$1,091,700	$394,739	$302,467	$279,783	$52,140	$62,570
Oct-02	1.00	%	8.00	%	$636,100		$2,911,200	$1,052,638	$806,580	$746,088	$139,039	$166,853
Nov-02	8.00	%	7.00	%	$5,088,800		$2,547,300	$921,058	$705,757	$652,827	$121,659	$145,996
Dec-02	8.00	%	7.00	%	$5,088,800		$2,547,300	$921,058	$705,757	$652,827	$121,659	$145,996
Jan-03	8.00	%	4.00	%	$5,088,800		$1,455,600	$526,319	$403,290	$373,044	$69,519	$83,426
Feb-03	8.00	%	4.00	%	$5,088,800		$1,455,600	$526,319	$403,290	$373,044	$69,519	$83,426
Mar-03	8.00	%	4.00	%	$5,088,800		$1,455,600	$526,319	$403,290	$373,044	$69,519	$83,426
Apr-03	8.00	%	8.00	%	$5,088,800		$2,911,200	$1,052,638	$806,580	$746,088	$139,039	$166,853
May-03	8.00	%	8.00	%	$5,088,800		$2,911,200	$1,052,638	$806,580	$746,088	$139,039	$166,853
Jun-03	7.00	%	6.00	%	$4,452,700		$2,183,400	$789,478	$604,935	$559,566	$104,279	$125,139
Jul-03	7.00	%	6.00	%	$4,452,700		$2,183,400	$789,478	$604,935	$559,566	$104,279	$125,139
Aug-03	7.00	%	6.00	%	$4,452,700		$2,183,400	$789,478	$604,935	$559,566	$104,279	$125,139
Sep-03	7.00	%	7.00	%	$4,452,700		$2,547,300	$921,058	$705,757	$652,827	$121,659	$145,996
Oct-03	5.00	%	8.00	%	$3,180,500		$2,911,200	$1,052,638	$806,580	$746,088	$139,039	$166,853
Nov-03	5.00	%	8.00	%	$3,180,500		$2,911,200	$1,052,638	$806,580	$746,088	$139,039	$166,853
Dec-03	5.00	%	6.00	%	$3,180,500		$2,183,400	$789,478	$604,935	$559,566	$104,279	$125,139

Total	100.00	%	100.00	%	$63,610,000		$36,390,000	$13,157,972	$10,082,248	$9,326,100	$1,737,985	$2,085,657

Directly Assigned Expenses								$30,000	$30,000	$30,000	$30,000	$30,000

NOTES:

1. Allocation Values based on 2000 load data

FIRST AMENDMENT TO PJM SOUTH IMPLEMENTATION AGREEMENT

THIS FIRST AMENDMENT TO THE PJM SOUTH IMPLEMENTATION AGREEMENT (“First Amendment”), is entered into as of November , 2002, between Virginia Electric and Power Company (“Virginia Power”), a corporation organized under the laws of the Commonwealth of Virginia and PJM Interconnection, L.L.C. (“PJM”), a limited liability company organized under the laws of Delaware (each a “Party” and collectively, “Parties”).

WHEREAS, Virginia Power has determined to become a member of PJM, to transfer functional control of its Transmission Facilities to PJM for inclusion in a new PJM South Region, integrate its Control Area into the PJM Interchange Energy Market and certain other PJM markets, and to facilitate the establishment and operation of PJM as the Regional Transmission Organization, with respect to its Transmission Facilities;

WHEREAS, PJM is incurring certain costs in conjunction with the establishment of the PJM South Region;

WHEREAS, the Parties have entered into the PJM South Implementation Agreement, dated September 30, 2002, (“Implementation Agreement”) to provide for the allocation to and payment by Virginia Power of Expansion Costs being incurred by PJM;

WHEREAS, Expansion Costs include certain Common Costs that PJM is incurring in conjunction with the South Region Expansion, PJM West Expansion and Illinois Power Expansion and which are not properly allocable solely to any one region;

WHEREAS, a portion of such Common Costs were allocated to Virginia Power on the basis of the ratio of its total load to the total loads of all transmission owner participants in the South Region Expansion, PJM West Expansion and Illinois Power Expansion; and

WHEREAS, Illinois Power has not as of this date chosen to become a member of PJM and accordingly the percentage of Common Costs allocable to Virginia Power is subject to adjustment.

1. All capitalized terms not otherwise defined in this First Amendment shall have the meaning assigned to them in the Implementation Agreement unless the context clearly indicates otherwise.

2. The Expansion Percentages set out in Section 4.1.1 are hereby amended to be 27.18 percent for Virginia Power and 72.82 percent for PJM West Expansion participants, the references to Illinois Power Expansion and Illinois Power are deleted, and the language in such section modified accordingly.

3. Schedule 3.2.2 including the Capital and Expense Cash Flow Forecast to the Implementation Agreement shall be replaced in its entirety by the attached revised Schedule 3.2.2 and the revised Capital and Expense Cash Flow Forecast.

4. The amounts payable to PJM by Virginia Power pursuant to Section 4 of the Implementation Agreement, including amounts previously billed to Virginia Power, shall be adjusted in accordance with the amended Expansion Percentage.

5. If Illinois Power should prior to the Completion Date choose to become a member of PJM and to transfer functional control over its Transmission Facilities to PJM, the Expansion Percentages shall be adjusted retroactively to the Effective Date of the Implementation Agreement to those percentages in effect prior to this First Amendment and PJM will reimburse or credit Virginia Power for the difference between the amounts paid in accordance with this First Amendment and the amounts which would have been payable if the Expansion Percentages had not been adjusted pursuant to this First Amendment.

IN WITNESS WHEREOF, the Parties have caused this First Amendment to be executed by their duly authorized representatives.

PJM Interconnection, L.L.C.

By:

/s/ R ICHARD A. W ODYKA

Name: Richard A. Wodyka

Title: Chief Operating Officer

Date: 12-9-02

Virginia Electric and Power Company

By:

/s/ J IMMY D. S TATON

Name: Jimmy D. Staton

Title: Senior Vice President

Date: Dec. 6, 2002

Exhibit 10.5

$1,250,000,000

364-DAY CREDIT AGREEMENT

among

DOMINION RESOURCES, INC.,

VIRGINIA ELECTRIC AND POWER COMPANY,

CONSOLIDATED NATURAL GAS COMPANY,

The Several Lenders from Time to Time Parties Hereto,

JPMORGAN CHASE BANK,

as Administrative Agent,

BANK OF AMERICA, N.A. AND

THE BANK OF NOVA SCOTIA,

as Co-Syndication Agents,

and

BARCLAYS BANK PLC AND

CITIBANK, N.A.,

as Co-Documentation Agents

J.P. MORGAN SECURITIES INC.,

as Lead Arranger and Bookrunner

Dated as of May 30, 2002

Table of Contents

		Page
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS		1

1.1 Definitions		1
1.2 Computation of Time Periods; Other Definitional Provisions.		12
1.3 Accounting Terms.		13
1.4 Time.		13

SECTION 2. LOANS		13

2.1 Revolving Loan Commitment.		13
2.2 Method of Borrowing for Revolving Loans		16
2.3 Funding of Revolving Loans		17
2.4 Minimum Amounts of Revolving Loans		17
2.5 Reductions of Revolving Loan Commitment		18
2.6 Notes		18

SECTION 3. PAYMENTS		18

3.1 Interest		18
3.2 Prepayments		19
3.3 Payment in Full at Maturity		19
3.4 Fees		19
3.5 Place and Manner of Payments		20
3.6 Pro Rata Treatment		20
3.7 Computations of Interest and Fees		21
3.8 Sharing of Payments.		21
3.9 Evidence of Debt		22
3.10 Conversion Option		23

SECTION 4. ADDITIONAL PROVISIONS REGARDING LOANS		23

4.1 Eurodollar Loan Provisions.		23
4.2 Capital Adequacy		24
4.3 Compensation		25
4.4 Taxes		25
4.5 Mitigation; Mandatory Assignment.		27

SECTION 5. CONDITIONS PRECEDENT		28

5.1 Closing Conditions		28
5.2 Conditions to Loans		30

SECTION 6. REPRESENTATIONS AND WARRANTIES		30

		Page
6.1 Organization and Good Standing.		30
6.2 Due Authorization		31
6.3 No Conflicts		31
6.4 Consents		31
6.5 Enforceable Obligations		31
6.6 Financial Condition		31
6.7 No Default		32
6.8 Indebtedness		32
6.9 Litigation		32
6.10 Taxes		32
6.11 Compliance with Law		32
6.12 ERISA		33
6.13 Use of Proceeds		33
6.14 Government Regulation		33
6.15 Solvency		33

SECTION 7. AFFIRMATIVE COVENANTS		33

7.1 Information Covenants		34
7.2 Preservation of Existence and Franchises		35
7.3 Books and Records.		35
7.4 Compliance with Law.		35
7.5 Payment of Taxes.		35
7.6 Insurance		36
7.7 Performance of Obligations		36
7.8 ERISA.		36
7.9 Use of Proceeds		36
7.10 Audits/Inspections		36
7.11 Total Funded Debt to Capitalization		37

SECTION 8. NEGATIVE COVENANTS		37

8.1 Nature of Business		37
8.2 Consolidation and Merger		37
8.3 Sale or Lease of Assets		38
8.4 Limitation on Liens		38
8.5 Fiscal Year		38

SECTION 9. EVENTS OF DEFAULT		39

9.1 Events of Default		39
9.2 Acceleration; Remedies.		41
9.3 Allocation of Payments After Event of Default		42

SECTION 10. AGENCY PROVISIONS		42

10.1 Appointment		42

		Page
10.2 Delegation of Duties		43
10.3 Exculpatory Provisions		43
10.4 Reliance on Communications		44
10.5 Notice of Default		44
10.6 Non-Reliance on Administrative Agent and Other Lenders		44
10.7 Indemnification		45
10.8 Administrative Agent in Its Individual Capacity		45
10.9 Successor Administrative Agent		46

SECTION 11. MISCELLANEOUS		46

11.1 Notices		46
11.2 Right of Set-Off; Adjustments		46
11.3 Benefit of Agreement		47
11.4 No Waiver; Remedies Cumulative		50
11.5 Payment of Expenses, etc.		50
11.6 Amendments, Waivers and Consents		51
11.7 Counterparts; Telecopy		52
11.8 Headings		52
11.9 Defaulting Lender		52
11.10 Survival of Indemnification and Representations and Warranties		52
11.11 GOVERNING LAW		52
11.12 WAIVER OF JURY TRIAL		53
11.13 Severability		53
11.14 Entirety		53
11.15 Binding Effect		53
11.16 Submission to Jurisdiction		53
11.17 Confidentiality		54
11.18 Designation of SPVs		54

iii

SCHEDULES

Schedule 1.1	Commitment Percentages	Page
Schedule 6.8	Indebtedness
Schedule 11.1	Notices

EXHIBITS

Exhibit 2.1(b)	Form of Competitive Bid Request
Exhibit 2.2(a)	Form of Notice of Borrowing
Exhibit 2.2(c)	Form of Notice of Conversion/Continuation
Exhibit 2.6(a)	Form of Revolving Loan Note
Exhibit 2.6(b)	Form of Competitive Bid Loan Note
Exhibit 5.1(c)	Form of Closing Certificate
Exhibit 5.1(f)	Form of Legal Opinion
Exhibit 7.1(c)	Form of Officer’s Certificate
Exhibit 11.3	Form of Assignment Agreement

364-DAY

CREDIT AGREEMENT

364-DAY CREDIT AGREEMENT (this “ Credit Agreement ”), dated as of May 30, 2002 among DOMINION RESOURCES, INC., a Virginia corporation, VIRGINIA ELECTRIC AND POWER COMPANY, a Virginia corporation, CONSOLIDATED NATURAL GAS COMPANY, a Delaware corporation (each of the above, individually, a “ Borrower ” and collectively, the “ Borrowers ”), the several banks and other financial institutions from time to time parties to this Credit Agreement (each a “ Lender ” and, collectively, the “ Lenders ”), JPMORGAN CHASE BANK, a New York banking corporation, as administrative agent for the Lenders hereunder (in such capacity, the “ Administrative Agent ”), BANK OF AMERICA, N.A. and THE BANK OF NOVA SCOTIA, as Co-Syndication Agents, and BARCLAYS BANK PLC and CITIBANK, N.A., as Co-Documentation Agents.

The parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS AND ACCOUNTING TERMS

1.1 Definitions

As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms herein shall include in the singular number the plural and in the plural the singular:

“ Absolute Rate Competitive Bid Loan ” means a Competitive Bid Loan bearing interest at a fixed percentage rate per annum as requested by the relevant Borrower and as specified in the Competitive Bid made by the Lender in connection with such Competitive Bid Loan.

“ Adjusted Base Rate ” means with respect to any Borrower the Base Rate plus the Applicable Percentage for Base Rate Loans for the relevant Borrower.

“ Adjusted Eurodollar Rate ” means with respect to any Borrower the Eurodollar Rate plus the Applicable Percentage for Eurodollar Loans for the relevant Borrower.

“ Administrative Agent ” means JPMorgan Chase Bank and any successors and assigns in such capacity.

“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (i) to vote 20% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.

“ Applicable Percentage ” means, for Revolving Loans made to, and Utilization Fees payable by, each Borrower, the appropriate applicable percentages, in each case, corresponding to the long-term, unsecured, senior, non –credit-enhanced debt rating of the relevant Borrower in effect from time to time as shown below:

Pricing Level	Long-Term Senior Unsecured Non-Credit Enhanced Debt Rating of Borrower	Applicable Percentage for Base Rate Loans		Applicable Percentage for Eurodollar Loans		Applicable Percentage for Facility Fees		Applicable Percentage for Utilization Fees
I.	³ A from S&P or	0	%	.345	%	.080	%	.125	%
	³ A2 from Moody’s
II.	A- from S&P or	0	%	.450	%	.100	%	.125	%
	A3 from Moody’s
III.	BBB+ from S&P or	0	%	.625	%	.125	%	.125	%
	Baa1 from Moody’s
IV.	BBB from S&P or	0	%	.725	%	.150	%	.125	%
	Baa2 from Moody’s
V.	£ BBB- from S&P or	0	%	.925	%	.200	%	.125	%
	£ Baa3 from Moody’s

provided , that in the event the Loans are converted pursuant to Section 3.10, the Applicable Percentage for such Loan shall be increased by .25% per annum.

Notwithstanding the above, if at any time there is a split in ratings between S&P and Moody’s of one level, the Applicable Percentage will be determined based upon the higher rating, and if at any time there is a split in ratings between S&P and Moody’s of two or more levels, the Applicable Percentage shall be determined based upon the ratings level that is one level below the higher of the S&P or Moody’s rating.

The Applicable Percentages shall be determined and adjusted on the date of any applicable change in the long term unsecured senior, non –credit-enhanced debt rating of the relevant Borrower. Any adjustment in the Applicable Percentages shall be applicable to all existing Loans as well as any new Loans.

understood that the initial Applicable Percentages for Facility Fees are based on Pricing Level III (as shown above) and shall remain at Pricing Level III until an applicable change in the rating index of the lowest rated Borrower. In the event that such ratings differ by only one level, the higher rating shall apply. In the event that such ratings differ by two or more levels, the rating one level below the higher rating shall apply.

Each Borrower shall promptly deliver to the Administrative Agent, at the address set forth on Schedule 11.1 , information regarding any change in the long-term, unsecured senior, non-credit enhanced debt rating of such Borrower that would change the existing Pricing Level (as set forth in the chart above) with respect to such Borrower and/or the Facility Fees.

“ Bankruptcy Code ” means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.

“ Base Rate ” means, for any day, a simple rate per annum equal to the greater of (a) the Prime Rate for such day or (b) the sum of one-half of one percent (.50%) plus the Federal Funds Rate for such day.

“ Base Rate Loan ” means a Loan that bears interest at an Adjusted Base Rate.

“ Borrower ” has the meaning set forth in the preamble hereof.

“ Business Day ” means any day other than a Saturday, a Sunday, a legal holiday or a day on which banking institutions are authorized or required by law or other governmental action to close in New York, New York; provided that in the case of Eurodollar Loans, such day is also a day on which dealings between banks are carried on in U.S. dollar deposits in the London interbank market.

“ Capital Stock ” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

“ Capitalization ” means the sum of (a) Total Funded Debt plus (b) Net Worth.

“ Change of Control ” means with respect to Dominion Resources the direct or indirect acquisition by any person (as such term is defined in Section 13(d) of the Securities and Exchange Act of 1934, as amended) of beneficial ownership of more than 50% of the outstanding shares of the capital stock of Dominion Resources entitled to vote generally for the election of directors of Dominion Resources, and with respect to any other Borrower, either such Borrower shall cease to be a Subsidiary of Dominion Resources or a Change of Control shall occur with respect to Dominion Resources.

“ Closing Date ” means the date hereof.

“ CNG ” means Consolidated Natural Gas Company, a Delaware corporation and its successors and permitted assigns.

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

“ Commitment Percentage ” means, for each Lender, the percentage identified as its Commitment Percentage opposite such Lender’s name on Schedule 1.1 attached hereto, as such percentage may be modified by assignment in accordance with the terms of this Credit Agreement.

“ Commitment ” means, with respect to each Lender, such Lender’s share of the Revolving Loan Commitment based upon such Lender’s Commitment Percentage.

“ Competitive Bid ” means an offer by a Lender to make a Competitive Bid Loan to a Borrower pursuant to the terms of Section 2.1(b) hereof.

“ Competitive Bid Loan ” means a loan made by a Lender to a Borrower in its discretion pursuant to the provisions of Section 2.1(b) hereof.

“ Competitive Bid Loan Notes ” means with respect to any Borrower the promissory notes of such Borrower in favor of each Lender evidencing the Competitive Bid Loans made to such Borrower and substantially in the form of Exhibit 2.6(b) , as such promissory notes may be amended, modified, supplemented or replaced from time to time.

“ Competitive Bid Rate ” means, as to any Competitive Bid made by a Lender to a Borrower in accordance with the provisions of Section 2.1(b) hereof, the rate of interest offered by the Lender making the Competitive Bid (which for a Eurodollar Competitive Bid Loan shall be a rate of interest determined by reference to the Eurodollar Rate).

“ Competitive Bid Request ” means a request by a Borrower for Competitive Bids in the form of Exhibit 2.1(b) .

“ Competitive Bid Request Fee ” means $2500 for each Competitive Bid Request made by a Borrower.

“ Consolidated Subsidiary ” means, as to any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired), the financial statements of which are consolidated with the financial statements of such Person in accordance with GAAP, including principles of consolidation.

“ Controlled Group ” means with respect to each Borrower (i) the controlled group of corporations as defined in Section 414(b) of the Code and the applicable regulations thereunder or (ii) the group of trades or businesses under common control as defined in Section 414(c) of the Code and the applicable regulations thereunder, of which such Borrower is a part or may become a part.

“ Conversion Date ” has the meaning set forth in Section 3.10 hereof.

“ Credit Documents ” means this Credit Agreement, the Notes, and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto.

“ Credit Exposure ” has the meaning set forth in the definition of “Required Lenders” below.

“ Default ” means with respect to each Borrower any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default by such Borrower.

“ Defaulting Lender ” means, at any time, any Lender that, at such time (a) has failed to make a Loan required pursuant to the terms of this Credit Agreement, (b) has failed to pay to the Administrative Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar official.

“ Dominion Resources or DRI ” means Dominion Resources, Inc., a Virginia corporation, and its successors and permitted assigns.

“ Effective Date ” has the meaning set forth in Section 11.15 hereof.

“ Eligible Assignee ” means (a) any Lender or Affiliate or Subsidiary of a Lender and (b) any other commercial bank, financial institution or “accredited investor” (as defined in Regulation D) that is either a bank organized or licensed under the laws of the United States of America or any State thereof or that has agreed to provide the information listed in Section 4.4(d) to the extent that it may lawfully do so and that is approved by the Administrative Agent and the Borrowers (such approval not to be unreasonably withheld or delayed); provided that (i) the Borrowers’ consent is not required during the existence and continuation of a Default or an Event of Default and (ii) neither the Borrowers nor any Affiliate or Subsidiary of the Borrowers shall qualify as an Eligible Assignee.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.

“ ERISA Affiliate ” means with respect to each Borrower each person (as defined in Section 3(9) of ERISA) which together with such Borrower or any Subsidiary of such Borrower would be deemed to be a member of the same “controlled group” within the meaning of Section 414(b), (c), (m) and (o) of the Code.

“ Eurodollar Competitive Bid Loan ” means a Competitive Bid Loan bearing interest at a fixed rate of interest determined by reference to the Eurodollar Rate as requested by the relevant Borrower and as specified in the Competitive Bid made by the Lender in connection with such Competitive Bid Loan.

“ Eurodollar Loans ” means a Loan that bears interest at the Eurodollar Rate (including a Eurodollar Competitive Bid Loan).

“ Eurodollar Rate ” means with respect to any Eurodollar Loan, for the Interest Period applicable thereto, a rate per annum determined pursuant to the following formula:

“ Eurodollar Rate ” =		Interbank Offered Rate
		1 - Eurodollar Reserve Percentage

“ Eurodollar Reserve Percentage ” means, for any day, that percentage (expressed as a decimal) which is in effect from time to time under Regulation D, as such regulation may be amended from time to time or any successor regulation, as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of Eurodollar Loans is determined), whether or not any Lender has any Eurocurrency liabilities subject to such reserve requirement at that time. Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credits for proration, exceptions or offsets that may be available from time to time to a Lender. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage.

“ Eurodollar Revolving Loan ” means a Revolving Loan bearing interest at a rate of interest determined by reference to the Eurodollar Rate.

“ Event of Default ” with respect to any Borrower has the meaning specified in Section 9.1.

“ Exchange Act ” means the Securities and Exchange Act of 1934, as amended.

“ Facility Fees ” has the meaning set forth in Section 3.4(a).

“ Federal Funds Rate ” means for any day the rate per annum (rounded upward to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the immediately preceding Business Day and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Administrative Agent on such day on such transactions as determined by the Administrative Agent.

“ Final Date ” has the meaning set forth in Section 3.10 hereof.

“ First Mortgage Bond Indenture ” means the first mortgage bond indenture, dated November 1, 1935, by and between VaPower and The Chase Manhattan Bank, as supplemented and amended.

“ Funded Debt ” means, as to any Person, without duplication: (a) all Indebtedness of such Person for borrowed money or which has been incurred in connection with the acquisition of assets (excluding letters of credit, bankers’ acceptances, Non-Recourse Debt, Mandatorily Convertible Securities and Trust Preferred Securities), (b) all capital lease obligations (including Synthetic Lease Obligations) of such Person and (c) all Guaranty Obligations of Funded Debt of other Persons.

“ GAAP ” means generally accepted accounting principles in the United States applied on a consistent basis and subject to Section 1.3.

“ Governmental Authority ” means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body.

“ Granting Lender ” has the meaning set forth in Section 11.17 hereof.

“ Guaranty Obligations ” means, in respect of any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness of another Person, including, without limitation, any obligation (a) to purchase or pay, or advance or supply funds for the purchase or payment of, such Indebtedness or (b) entered into primarily for the purpose of assuring the owner of such Indebtedness of the payment thereof (such as, for example, but without limitation, an agreement to advance or provide funds or other support for the payment or purchase of such Indebtedness or to maintain working capital, solvency or other balance sheet conditions of such other Person, including, without limitation, maintenance agreements, comfort letters or similar agreements or arrangements, or to lease or purchase property, securities or services) if such obligation would constitute an indirect guarantee of indebtedness of others, the disclosure of which would be required in the relevant Borrower’s financial statements under GAAP; provided , however , that the term Guaranty Obligations shall not include (i) endorsements for deposit or collection in the ordinary course of business, (ii) obligations under purchased power contracts or (iii) obligations of such Borrower otherwise constituting Guaranty Obligations under this definition to provide contingent equity support, to keep well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise in respect of any Subsidiary or Affiliate of such Borrower in connection with the non-utility nonrecourse financing activities of such Subsidiary or Affiliate.

“ Indebtedness ” means, as to any Person, without duplication: (a) all obligations of such Person for borrowed money or evidenced by bonds, debentures, notes or similar instruments; (b) all obligations of such Person for the deferred purchase price of property or services (except trade accounts payable arising in the ordinary course of business, customer deposits, provisions for rate refunds, deferred fuel expenses and obligations in respect of pensions and other post-retirement benefits); (c) all capital lease obligations of such Person; (d) all Indebtedness of others secured by a Lien on any properties, assets or revenues of such Person (other than stock, partnership interests or other equity interests of a Borrower or any of its Subsidiaries in other entities) to the extent of the lesser of the value of the property subject to such Lien or the amount of such Indebtedness; (e) all Guaranty Obligations; and (f) all non-contingent obligations of such Person under any letters of credit or bankers’ acceptances.

“ Indenture ” means the Indenture dated as of April 1, 1995 between CNG and United States Trust Company of New York, as Trustee, as in effect on the date hereof and without giving effect to any modifications or supplements thereto, or terminations thereof, after the date hereof.

“ Interbank Offered Rate ” means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided , however, if more than one rate is specified on Telerate Page 3750, the applicable rate shall be the

arithmetic mean of all such rates. If, for any reason, such rate is not available, the term “Interbank Offered Rate” shall mean, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided , however , if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%).

“ Interest Payment Date ” means (a) as to Base Rate Loans of any Borrower, the last day of each fiscal quarter of such Borrower and on the Maturity Date, (b) as to Eurodollar Loans of any Borrower, on the last day of each applicable Interest Period and on the Maturity Date and (c) as to Absolute Rate Competitive Bid Loans of any Borrower, on the last day of the Interest Period for each Absolute Rate Competitive Bid Loan and on the Maturity Date, and, in addition, where the applicable Interest Period for a Eurodollar Loan of any Borrower is greater than three months, then also on the last day of each three-month period during such Interest Period. If an Interest Payment Date falls on a date which is not a Business Day, such Interest Payment Date shall be deemed to be the next succeeding Business Day, except that in the case of Eurodollar Loans where the next succeeding Business Day falls in the next succeeding calendar month, then such Interest Payment Date shall be deemed to be the immediately preceding day.

“ Interest Period ” means, (a) as to Eurodollar Loans, a period of one, two, three or six months’ duration, as the relevant Borrower may elect, commencing, in each case, on the date of the borrowing (including continuations and conversions of Eurodollar Revolving Loans) and (b) with respect to Absolute Rate Competitive Bid Loans, a period beginning on the date the Absolute Rate Competitive Bid Loan is made and ending on the date specified in the respective Competitive Bid whereby the offer to make such Absolute Rate Competitive Loan was extended, which shall not be less than 7 days nor more than 360 days duration; provided , however , (i) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then such Interest Period shall end on the next preceding Business Day), (ii) no Interest Period shall extend beyond the Maturity Date and (iii) with respect to Eurodollar Loans, where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month.

“ JPMCB ” means JPMorgan Chase Bank.

“ Lead Arranger ” means J.P. Morgan Securities Inc.

“ Lenders ” means those banks and other financial institutions identified as such on the signature pages hereto and such other institutions that may become Lenders pursuant to Section 11.3.

other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof).

“ Loan ” means any loan made by any Lender pursuant to this Agreement.

“ Mandatorily Convertible Securities ” means any mandatorily convertible equity-linked securities issued by a Borrower, so long as the terms of such securities require no repayments or prepayments and no mandatory redemptions or repurchases, in each case prior to at least 91 days after the later of the termination of the Commitments and the repayment in full of the Loans and all other amounts due under the Credit Agreement.

“ Material Adverse Effect ” means with respect to any Borrower a material adverse effect, after taking into account applicable insurance, if any, on (a) the operations, financial condition or business of such Borrower, (b) the ability of such Borrower to perform its obligations under this Credit Agreement or (c) the validity or enforceability of this Credit Agreement or any of the other Credit Documents against such Borrower, or the rights and remedies of the Lenders against such Borrower hereunder or thereunder; provided , however , that a transfer of assets permitted under and in compliance with Section 8.3 shall not be considered to have a Material Adverse Effect.

“ Material Subsidiary ” shall mean with respect to any Borrower, a Subsidiary of such Borrower whose total assets (as determined in accordance with GAAP) represent at least 20% of the total assets of such Borrower, on a consolidated basis.

“ Maturity Date ” means the date 364 days after the Closing Date.

“ Moody’s ” means Moody’s Investors Service, Inc., or any successor or assignee of the business of such company in the business of rating securities.

“ Multiemployer Plan ” means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the Controlled Group during such five year period but only with respect to the period during which such Person was a member of the Controlled Group.

“ Net Worth ” means with respect to any Borrower, as of any date, the shareholders’ equity or net worth of such Borrower and its Consolidated Subsidiaries, on a consolidated basis, as determined in accordance with GAAP.

“ Non-Recourse Debt ” means Indebtedness (a) as to which no Borrower (i) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (ii) is directly or indirectly liable as a guarantor or otherwise, or (iii) constitutes the lender; (b) no default with respect to which would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Loans or the Notes) of any Borrower to declare a default on such other Indebtedness or cause the payment thereof to be

accelerated or payable prior to its stated maturity; and (c) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of any Borrower.

“ Notes ” means the collective reference to the Revolving Loan Notes and the Competitive Bid Loan Notes of the Borrowers.

“ Notice of Borrowing ” means a request by a Borrower for a Loan in the form of Exhibit 2.2(a) .

“ Notice of Continuation/Conversion ” means a request by a Borrower for the continuation or conversion of a Loan in the form of Exhibit 2.2(c) .

“ Other Taxes ” has the meaning set forth in Section 4.4(b) hereof.

“ PBGC ” means the Pension Benefit Guaranty Corporation established under ERISA and any successor thereto.

“ Pension Plans ” has the meaning set forth in Section 7.8 hereof.

“ Person ” means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated), or any government or political subdivision or any agency, department or instrumentality thereof.

“ Plan ” means any single-employer plan as defined in Section 4001 of ERISA, which is maintained, or at any time during the five calendar years preceding the date of this Credit Agreement was maintained, for employees of a Borrower, any Subsidiary of a Borrower or any ERISA Affiliate of a Borrower.

“ Prime Rate ” means the per annum rate of interest established from time to time by JPMCB at its principal office in New York, New York as its Prime Rate. Any change in the interest rate resulting from a change in the Prime Rate shall become effective as of 12:01 a.m. of the Business Day on which each change in the Prime Rate is announced by the Administrative Agent. The Prime Rate is a reference rate used by the Administrative Agent in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged on any extension of credit to any debtor.

“ Register ” has the meaning set forth in Section 11.3(c).

“ Regulation A, D, T, U or X ” means Regulation A, D, T, U or X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.

“ Reportable Event ” means a “reportable event” as defined in Section 4043 of ERISA with respect to which the notice requirements to the PBGC have not been waived.

then there shall be excluded from the determination of Required Lenders the aggregate principal amount of Credit Exposure of such Lender at such time. For purposes of the preceding sentence, the term “ Credit Exposure ” as applied to each Lender shall mean (a) at any time prior to the termination of the Commitments, the Commitment Percentage of such Lender multiplied times the Revolving Loan Commitment and (b) at any time after the termination of the Commitments, the outstanding amount of Loans owed to such Lender.

“ Revolving Loan Commitment ” means One Billion Two Hundred Fifty Million Dollars ($1,250,000,000), as such amount may be otherwise reduced in accordance with Section 2.5.

“ Revolving Loan ” means a Loan made by the Lenders to a Borrower pursuant to Section 2.1(a) hereof.

“ Revolving Loan Notes ” means with respect to any Borrower the promissory notes of such Borrower in favor of each Lender evidencing the Revolving Loans made to such Borrower and substantially in the form of Exhibit 2.6(a) , as such promissory notes may be amended, modified, supplemented or replaced from time to time.

“ S&P ” means Standard & Poor’s Ratings Group, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities.

“ Solvent ” means, with respect to any Person as of a particular date, that on such date (a) the fair saleable value (on a going concern basis) of such Person’s assets exceeds its liabilities, contingent or otherwise, fairly valued, (b) such Person will be able to pay its debts as they become due, (c) such Person does not have unreasonably small capital with which to satisfy all of its current and reasonably anticipated obligations and (d) such Person does not intend to incur nor does it reasonably anticipate that it will incur debts beyond its ability to pay as such debts become due.

“ SPV ” has the meaning set forth in Section 11.17 hereof.

“ Subsidiary ” means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (b) any partnership, association, joint venture or other entity in which such person directly or indirectly through Subsidiaries has more than 50% equity interest at any time.

“ Synthetic Lease ” means each arrangement, however described, under which the obligor accounts for its interest in the property covered thereby under GAAP as lessee of a lease which is not a capital lease under GAAP and accounts for its interest in the property covered thereby for federal income tax purposes as the owner.

accounted for as a capital lease on a balance sheet of such Person in accordance with GAAP) be required to be capitalized on the balance sheet of such Person at such time.

“ Taxes ” has the meaning set forth in Section 4.4(a).

“ Three-Year Credit Agreement ” means the Three-Year Credit Agreement, dated as of the date hereof, among the Borrowers, the several banks and other financial institutions from time to time parties thereto, JPMorgan Chase Bank, as administrative agent, and the other agents party thereto.

“ Total Funded Debt ” means with respect to each Borrower all Funded Debt of such Borrower and its Consolidated Subsidiaries, on a consolidated basis, as determined in accordance with GAAP.

“ Trust Preferred Securities ” means the trust preferred securities issued by one of the five subsidiary capital trusts established by any of the Borrowers outstanding on the date hereof and reflected as such in the financial statements of Dominion Resources for the fiscal year ended December 31, 2001, and any additional trust preferred securities that are substantially similar thereto, along with the junior subordinated debt obligations of the Borrowers, so long as (a) the terms thereof require no repayments or prepayments and no mandatory redemptions or repurchases, in each case prior to at least 91 days after the later of the termination of the Commitments and the repayment in full of the Loans and all other amounts due under the Credit Agreement, (b) such securities are subordinated and junior in right of payment to all obligations of the Borrowers for or in respect of borrowed money and (c) the obligors in respect of such preferred securities and subordinated debt have the right to defer interest and dividend payments, in each case to substantially the same extent as such currently outstanding preferred securities or on similar terms customary for trust preferred securities and not materially less favorable to the interests of the Borrowers or the Lenders.

“ Utilization Fees ” has the meaning set forth in Section 3.4(b).

“ Utilized Revolving Commitment ” means, for any Borrower for any day from the Closing Date to the Maturity Date, an amount equal to the aggregate principal amount of all Loans outstanding on such day to such Borrower.

“ VaPower ” means Virginia Electric and Power Company, a Virginia corporation and its successors and assigns.

“ Wholly Owned Subsidiary ” means, as to any Person, any other Person all of the Capital Stock of which (other than de minimis directors’ qualifying shares or local ownership shares required by law and outstanding publicly owned preferred stock of VaPower) is owned by such Person directly and/or through other Wholly Owned Subsidiaries.

1.2 Computation of Time Periods; Other Definitional Provisions .

For purposes of computation of periods of time hereunder, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding.”

References in this Credit Agreement to “Sections”, “Schedules” and “Exhibits” shall be to Sections, Schedules or Exhibits of or to this Credit Agreement unless otherwise specified.

1.3 Accounting Terms .

Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. All calculations made for the purposes of determining compliance with this Credit Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1 (or, prior to the delivery of the first financial statements pursuant to Section 7.1, consistent with the financial statements described in Section 5.1(g)); provided , however , if (a) a Borrower shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Administrative Agent or the Required Lenders shall so object in writing within 30 days after delivery of such financial statements, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by such Borrower to the Lenders as to which no such objection shall have been made.

1.4 Time .

All references to time herein shall be references to Eastern Standard Time or Eastern Daylight time, as the case may be, unless specified otherwise.

SECTION 2. LOANS

2.1 Revolving Loan Commitment .

(a) Revolving Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make revolving loans to each Borrower in U.S. dollars, at any time and from time to time, during the period from the Closing Date to the Maturity Date (each a “ Revolving Loan ” and collectively the “ Revolving Loans ”); provided that (i) the sum of the aggregate amount of Revolving Loans plus the aggregate amount of Competitive Bid Loans outstanding to the Borrowers on any day shall not exceed the Revolving Loan Commitment and (ii) with respect to each individual Lender, the Lender’s pro rata share of outstanding Revolving Loans shall not exceed such Lender’s Commitment Percentage of the Revolving Loan Commitment. Revolving Loans made to any Borrower shall be the several obligations of such Borrower. Subject to the terms and conditions of this Credit Agreement, each Borrower may borrow, repay and reborrow the amount of the Revolving Loan Commitment made to it.

(b) Competitive Bid Loans Subfacility .

however , that (A) the sum of the aggregate amount of Revolving Loans outstanding plus the aggregate amount of Competitive Bid Loans outstanding to the Borrowers on any day shall not exceed the Revolving Loan Commitment and (B) if a Lender makes a Competitive Bid Loan, such Lender’s obligation to make its pro rata share of any Revolving Loan shall not be reduced thereby.

(ii) Competitive Bid Requests . Each Borrower may solicit Competitive Bids by delivery of a Competitive Bid Request to the Administrative Agent by 10:00 a.m. (A) with respect to a request for a Eurodollar Competitive Bid Loan, on a Business Day four Business Days prior to the date of a requested Eurodollar Competitive Bid Loan and (B) with respect to a request for an Absolute Rate Competitive Bid Loan, on a Business Day not less than one nor more than five Business Days prior to the date of the requested Absolute Rate Competitive Bid Loan. A Competitive Bid Request must be substantially in the form of Exhibit 2.1(b) , shall be accompanied by the Competitive Bid Request Fee and shall specify (I) the date of the requested Competitive Bid Loan (which shall be a Business Day), (II) the amount of the requested Competitive Bid Loan, (III) whether such Borrower is requesting a Eurodollar Competitive Bid Loan or an Absolute Rate Competitive Bid Loan and (IV) the applicable Interest Period or Interest Periods requested. The Administrative Agent shall notify the Lenders of its receipt of a Competitive Bid Request and the contents thereof and invite the Lenders to submit Competitive Bids in response thereto. Such Borrower may not request a Competitive Bid for more than three different Interest Periods per Competitive Bid Request nor request Competitive Bid Requests more frequently than four times every calendar month.

(iii) Competitive Bid Procedure . Each Lender may, in its sole discretion, make one or more Competitive Bids to the relevant Borrower in response to a Competitive Bid Request. Each Competitive Bid must be received by the Administrative Agent not later than 10:00 a.m. (A) with respect to a request for a Eurodollar Competitive Bid Loan, three Business Days prior to the date of the requested Eurodollar Competitive Bid Loan and (B) with respect to a request for an Absolute Rate Competitive Bid Loan, on the proposed date of the requested Absolute Rate Competitive Bid Loan; provided , however , that should the Administrative Agent, in its capacity as a Lender, desire to submit a Competitive Bid it shall notify such Borrower of its Competitive Bid and the terms thereof not later than 15 minutes prior to the time the other Lenders are required to submit their Competitive Bids. A Lender may offer to make all or part of the requested Competitive Bid Loan and may submit multiple Competitive Bids in response to a Competitive Bid Request. Any Competitive Bid must specify (I) the particular Competitive Bid Request as to which the Competitive Bid is submitted, (II) the minimum (which shall be not less than $5,000,000 and integral multiples of $1,000,000 in excess thereof) and maximum principal amounts of the requested Competitive Bid Loan or Loans which the Lender is willing to make and (III) the applicable interest rate or rates and Interest Period or Interest Periods therefor. A Competitive Bid submitted by a Lender in accordance with the provisions hereof shall be irrevocable. The Administrative Agent shall promptly notify the relevant Borrower of all Competitive Bids made and the terms thereof. The Administrative Agent shall send a copy of each of the Competitive Bids to such Borrower and each of the Lenders for their respective records as soon as practicable.

(iv) Acceptance of Competitive Bids . Each Borrower may, in its sole discretion, subject only to the provisions of this subsection (iv), accept or refuse any Competitive Bid offered to it. To accept a Competitive Bid, the relevant Borrower shall give oral notification of its acceptance of any or all such Competitive Bids (which shall be promptly confirmed in writing) to the Administrative Agent by 11:00 a.m. (A) with respect to a request for a Eurodollar Competitive Bid Loan, three Business Days prior to the date of the requested Eurodollar Competitive Bid Loan and (B) with respect to a request for an Absolute Rate Competitive Bid Loan, on the proposed date of the Absolute Rate Competitive Bid Loan; provided , however , (I) the failure by such Borrower to give timely notice of its acceptance of a Competitive Bid shall be deemed to be a refusal thereof, (II) to the extent Competitive Bids are for comparable Interest Periods, such Borrower may accept Competitive Bids only in ascending order of rates, (III) the aggregate amount of Competitive Bids accepted by such Borrower shall not exceed the principal amount specified in the Competitive Bid Request, (IV) if such Borrower shall accept a bid or bids made at a particular Competitive Bid Rate, but the amount of such bid or bids shall cause the total amount of bids to be accepted by such Borrower to be in excess of the amount specified in the Competitive Bid Request, then such Borrower shall accept a portion of such bid or bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance in the case of multiple bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such bid at such Competitive Bid Rate and (V) no bid shall be accepted for a Competitive Bid Loan unless such Competitive Bid Loan is in a minimum principal amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof, except that where a portion of a Competitive Bid is accepted in accordance with the provisions of clause (IV) of subsection (iv) hereof, then in a minimum principal amount of $500,000 and integral multiples of $100,000 (but not in any event less than the minimum amount specified in the Competitive Bid), and in calculating the pro rata allocation of acceptances of portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (IV) of subsection (iv) hereof, the amounts shall be rounded to integral multiples of $100,000 in a manner which shall be in the discretion of such Borrower. A notice of acceptance of a Competitive Bid given by a Borrower in accordance with the provisions hereof shall be irrevocable. The Administrative Agent shall, not later than noon (A) with respect to a Eurodollar Competitive Bid Loan, three Business Days prior to the date of such Eurodollar Competitive Bid Loan and (B) with respect to a Absolute Rate Competitive Bid Loan, on the proposed date of such Competitive Bid Loan, notify each bidding Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate), and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Bid Loan in respect of which its bid has been accepted.

(v) Funding of Competitive Bid Loans . Each Lender which is to make a Competitive Bid Loan shall make its Competitive Bid Loan available to the Administrative Agent by 2:00 p.m. on the date specified in the Competitive Bid Request by deposit of immediately available funds at the office of the Administrative Agent in New York, New York or at such other address as the Administrative Agent may

designate in writing. The Administrative Agent will, upon receipt, make the proceeds of such Competitive Bid Loans available to the relevant Borrower.

(vi) Maturity of Competitive Bid Loans . Each Competitive Bid Loan shall mature and be due and payable in full on the last day of the Interest Period applicable thereto. Unless the relevant Borrower shall give notice to the Administrative Agent otherwise (or repays such Competitive Bid Loan), or a Default or Event of Default with respect to such Borrower exists and is continuing, such Borrower shall be deemed to have requested Revolving Loans from all of the Lenders (in the amount of the maturing Competitive Bid Loan and accruing interest at the Base Rate), the proceeds of which will be used to repay such Competitive Bid Loan.

2.2 Method of Borrowing for Revolving Loans .

(a) Base Rate Loans . By no later than 11:00 a.m. on the date of a Borrower’s request for the borrowing (or for the conversion of Eurodollar Revolving Loans to Base Rate Loans), such Borrower shall submit a Notice of Borrowing to the Administrative Agent setting forth (i) the amount requested, (ii) the desire to have such Revolving Loans accrue interest at the Base Rate and (iii) except in the case of conversions of Eurodollar Revolving Loans to Base Rate Loans, complying in all respects with Section 5.2 hereof.

(b) Eurodollar Revolving Loans . By no later than 11:00 a.m. three Business Days prior to the date of a Borrower’s request for the borrowing (or for the conversion of Base Rate Loans to Eurodollar Revolving Loans or the continuation of existing Eurodollar Loans), such Borrower shall submit a Notice of Borrowing to the Administrative Agent setting forth (i) the amount requested, (ii) the desire to have such Revolving Loans accrue interest at the Adjusted Eurodollar Rate, (iii) the Interest Period applicable thereto, and (iv) except in the case of conversions of Base Rate Loans to Eurodollar Revolving Loans or the continuation of existing Eurodollar Loans, to complying in all respects with Section 5.2 hereof.

(c) Continuation and Conversion. Each Borrower shall have the option, on any Business Day, to continue existing Eurodollar Revolving Loans made to it for a subsequent Interest Period, to convert Base Rate Loans made to it into Eurodollar Revolving Loans or to convert Eurodollar Revolving Loans made to it into Base Rate Loans. By no later than 11:00 a.m. (a) on the date of the requested conversion of a Eurodollar Revolving Loan to a Base Rate Loan or (b) three Business Days prior to the date for a requested continuation of a Eurodollar Revolving Loan or conversion of a Base Rate Loan to a Eurodollar Revolving Loan, the relevant Borrower shall provide telephonic notice to the Administrative Agent, followed promptly by a written Notice of Continuation/Conversion, setting forth (i) whether the relevant Borrower wishes to continue or convert such Loans and (ii) or if the request is to continue a Eurodollar Revolving Loan or convert a Base Rate Loan to a Eurodollar Revolving Loan, the Interest Period applicable thereto. Notwithstanding anything herein to the contrary, (i) except as provided in Section 4.1 hereof, Eurodollar Revolving Loans may be converted to Base Rate Loans only on the last day of an Interest Period applicable thereto; (ii) Eurodollar Revolving Loans may be continued and Base Rate Loans may be converted to Eurodollar Revolving Loans only if no Default or Event of Default with respect to the relevant Borrower is in existence on the date of such extension or conversion; (iii) any continuation or conversion must comply with Sections

2.2(a) or 2.2(b) hereof, as applicable; and (iv) failure by such Borrower to properly continue Eurodollar Revolving Loans at the end of an Interest Period shall be deemed a conversion to Base Rate Loans.

2.3 Funding of Revolving Loans .

Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly inform the Lenders as to the terms thereof. Each Lender will make its pro rata share of the Revolving Loans available to the Administrative Agent by 1:00 p.m. on the date specified in the Notice of Borrowing by deposit (in U.S. dollars) of immediately available funds at the offices of the Administrative Agent at its principal office in New York, New York, or at such other address as the Administrative Agent may designate in writing. All Revolving Loans shall be made by the Lenders prorata on the basis of each Lender’s Commitment Percentage.

No Lender shall be responsible for the failure or delay by any other Lender in its obligation to make Loans hereunder; provided , however , that the failure of any Lender to fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder. Unless the Administrative Agent shall have been notified by any Lender prior to the date of any such Loan that such Lender does not intend to make available to the Administrative Agent its portion of the Loans to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on the date of such Loans, and the Administrative Agent in reliance upon such assumption, may (in its sole discretion without any obligation to do so) make available to the relevant Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent, the Administrative Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent will promptly notify the relevant Borrower and such Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover from the Lender or such Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to such Borrower to the date such corresponding amount is recovered by the Administrative Agent at a per annum rate equal to (a) from such Borrower at the applicable rate for such Loan pursuant to the Notice of Borrowing and (b) from a Lender at the Federal Funds Rate.

2.4 Minimum Amounts of Revolving Loans .

Each request for Revolving Loans shall be in the case of Eurodollar Revolving Loans, in an aggregate principal amount that is not less than the lesser of $10,000,000 or the remaining amount available to be borrowed and in the case of Base Rate Loans, in an aggregate principal amount that is not less than the lesser of $5,000,000 or the remaining amount available to be borrowed. Any Revolving Loan requested shall be in an integral multiple of $1,000,000 unless the request is for all of the remaining amount available to be borrowed.

2.5 Reductions of Revolving Loan Commitment .

Upon at least three Business Days’ notice, Dominion Resources, on its own behalf and/or acting on the request of any other Borrower, shall have the right to permanently terminate or reduce the aggregate unused amount of the Revolving Loan Commitment available to it and/or such other Borrower at any time or from time to time; provided that (a) each partial reduction shall be in an aggregate amount at least equal to $10,000,000 and in integral multiples of $1,000,000 above such amount and (b) no reduction shall be made which would reduce the Revolving Loan Commitment to an amount less than the sum of the then outstanding Revolving Loans plus the then outstanding Competitive Bid Loans. Any reduction in (or termination of) the Revolving Loan Commitment shall be permanent and may not be reinstated.

2.6 Notes .

(a) Revolving Loan Notes . The Revolving Loans made by the Lenders to a Borrower shall be evidenced, upon request by any Lender, by a promissory note of such Borrower payable to each Lender in substantially the form of Exhibit 2.6(a) hereto (the “ Revolving Loan Notes ”) and in a principal amount equal to the amount of such Lender’s Commitment Percentage of the Revolving Loan Commitment as originally in effect.

(b) Competitive Bid Loan Notes . The Competitive Bid Loans made by the Lenders to a Borrower shall be evidenced, upon request by any Lender, by a promissory note of such Borrower payable to each Lender in substantially the form of Exhibit 2.6(b) hereto (the “ Competitive Bid Loan Notes ”) and in a principal amount equal to the Revolving Loan Commitment as originally in effect.

The date, amount, type, interest rate and duration of Interest Period (if applicable) of each Loan made by each Lender to each Borrower, and each payment made on account of the principal thereof, shall be recorded by such Lender on its books; provided that the failure of such Lender to make any such recordation or endorsement shall not affect the obligations of such Borrower to make a payment when due of any amount owing hereunder or under any Note in respect of the Loans to be evidenced by such Note, and each such recordation or endorsement shall be conclusive and binding absent manifest error.

SECTION 3. PAYMENTS

3.1 Interest .

(a) Interest Rate .

(i) All Base Rate Loans made to a Borrower shall accrue interest at the Adjusted Base Rate with respect to such Borrower.

(ii) All Eurodollar Loans made to a Borrower shall accrue interest at the Adjusted Eurodollar Rate with respect to such Borrower applicable to such Eurodollar Loan.

(iii) All Competitive Bid Loans shall accrue interest at the applicable Competitive Bid Rate with respect to each Competitive Bid Loan.

(b) Default Rate of Interest . Upon the occurrence, and during the continuance, of an Event of Default with respect to any Borrower, the principal of and, to the extent permitted by law, interest on the Loans outstanding to such Borrower and any other amounts owing by such Borrower hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate equal to 2% plus the rate which would otherwise be applicable (or if no rate is applicable, then the rate for Loans outstanding to such Borrower that are Base Rate Loans plus 2% per annum).

3.2 Prepayments .

(a) Voluntary Prepayments . Each Borrower shall have the right to prepay Loans made to it in whole or in part from time to time without premium or penalty; provided , however, that (i) Eurodollar Loans may only be prepaid on three Business Days’ prior written notice to the Administrative Agent and any prepayment of Eurodollar Loans will be subject to Section 4.3 hereof and (ii) each such partial prepayment of Loans shall be in the minimum principal amount of $10,000,000. Amounts prepaid hereunder shall be applied as such Borrower may elect; provided that if such Borrower fails to specify the application of a voluntary prepayment then such prepayment shall be applied in each case first to Base Rate Loans of such Borrower and then to Eurodollar Revolving Loans of such Borrower in direct order of Interest Period maturities. Any Loan outstanding after the Conversion Date, once prepaid, may not be reborrowed.

(b) Mandatory Prepayments . If at any time the amount of Revolving Loans outstanding plus the aggregate amount of Competitive Bid Loans outstanding exceeds the Revolving Loan Commitment, one or more of the Borrowers shall immediately make a principal payment to the Administrative Agent in the manner and in an amount necessary to be in compliance with Section 2.1 hereof. Any payments made under this Section 3.2(b) shall be subject to Section 4.3 hereof and shall be applied first to Base Rate Loans of the relevant Borrower, then to Eurodollar Revolving Loans of the relevant Borrower in direct order of Interest Period maturities, then to Competitive Bid Loans of the relevant Borrower pro rata among all Lenders holding same.

3.3 Payment in Full at Maturity .

On the Maturity Date, the entire outstanding principal balance of all Loans, together with accrued but unpaid interest and all other sums owing under this Credit Agreement, shall be due and payable in full, unless accelerated sooner pursuant to Section 9 hereof.

3.4 Fees .

(a) Facility Fees .

(i) In consideration of the Revolving Loan Commitment being made available by the Lenders hereunder, DRI agrees to pay to the Administrative Agent, for the pro rata benefit of each Lender, a per annum fee equal to the Applicable Percentage for Facility Fees multiplied by the Revolving Loan Commitment (the “ Facility Fees ”).

(ii) The accrued Facility Fees shall be due and payable in arrears on the first Business Day of each January, April, July and October (as well as on the Maturity Date and on any date that the Revolving Loan Commitment is reduced) for the immediately preceding fiscal quarter (or portion thereof), beginning with the first of such dates to occur after the Closing Date.

(b) Utilization Fees .

(i) If on any day the aggregate outstanding principal amount of all Loans to the Borrowers exceeds the product of (A) one-third ( ¹ / 3 ) times (B) the Revolving Loan Commitment, each Borrower shall pay to the Administrative Agent, for the pro rata benefit of each Lender, a per annum fee equal to the Applicable Percentage for Utilization Fees multiplied by such Borrower’s outstanding Eurodollar Revolving Loans (the “ Utilization Fees ”).

(ii) The accrued Utilization Fees shall be due and payable in arrears on the first Business Day of each January, April, July and October (as well as on the Maturity Date and on any date that the Revolving Loan Commitment is reduced) for the immediately preceding fiscal quarter (or portion thereof), beginning with the first of such dates to occur after the Closing Date.

(c) Administrative Fees . Dominion Resources agrees to pay to the Administrative Agent an annual fee as agreed to between the Borrowers and the Administrative Agent.

3.5 Place and Manner of Payments .

All payments of principal, interest, fees, expenses and other amounts to be made by each Borrower under this Credit Agreement shall be received not later than 2:00 p.m. on the date when due in U.S. dollars and in immediately available funds, without setoff, deduction, counterclaim or withholding of any kind, by the Administrative Agent at its offices in New York, New York. Each Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Administrative Agent, the Loans, fees or other amounts payable by such Borrower hereunder to which such payment is to be applied (and in the event that it fails to specify, or if such application would be inconsistent with the terms hereof, the Administrative Agent, shall distribute such payment to the Lenders in such manner as it reasonably determines in its sole discretion).

3.6 Pro Rata Treatment .

reduction of the Revolving Loan Commitment, and each conversion or continuation of any Revolving Loans, shall be allocated pro rata among the Lenders in accordance with the respective Commitment Percentages.

3.7 Computations of Interest and Fees .

(a) Except for Base Rate Loans, on which interest shall be computed on the basis of a 365 or 366 day year as the case may be, all computations of interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days.

(b) It is the intent of the Lenders and each Borrower to conform to and contract in strict compliance with applicable usury law from time to time in effect. All agreements between the Lenders and the Borrowers are hereby limited by the provisions of this paragraph which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any event or contingency (including but not limited to prepayment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, or received under this Credit Agreement, under the Notes or otherwise, exceed the maximum non-usurious amount permissible under applicable law. If, from any possible construction of any of the Credit Documents or any other document, interest would otherwise be payable in excess of the maximum non-usurious amount, any such construction shall be subject to the provisions of this paragraph and such documents shall be automatically reduced to the maximum non-usurious amount permitted under applicable law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest on the Loans under applicable law and which would, apart from this provision, be in excess of the maximum lawful amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Loans of the relevant Borrower and not to the payment of interest, or refunded to the relevant Borrower or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal amount of the Loans of the relevant. The right to demand payment of the Loans of any Borrower or any other indebtedness evidenced by any of the Credit Documents does not include the right to receive any interest which has not otherwise accrued on the date of such demand, and the Lenders do not intend to charge or receive any unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Loans shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount of interest on account of such indebtedness does not exceed the maximum non-usurious amount permitted by applicable law.

3.8 Sharing of Payments .

that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. Each Lender further agrees that if a payment to a Lender (which is obtained by such Lender through the exercise of a right of set-off, banker’s lien, counterclaim or otherwise) shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a participation theretofore sold, return its share of that benefit to each Lender whose payment shall have been rescinded or otherwise restored. Each Borrower agrees that any Lender so purchasing such a participation in Loans made to such Borrower may, to the fullest extent permitted by law, exercise all rights of payment, including set-off, banker’s lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Loan or other obligation in the amount of such participation. Except as otherwise expressly provided in this Credit Agreement, if any Lender shall fail to remit to the Administrative Agent or any other Lender an amount payable by such Lender to the Administrative Agent or such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall accrue interest thereon, for each day from the date such amount is due until the day such amount is paid to the Administrative Agent or such other Lender, at a rate per annum equal to the Federal Funds Rate.

3.9 Evidence of Debt .

(a) Each Lender shall maintain an account or accounts evidencing each Loan made by such Lender to a Borrower from time to time, including the amounts of principal and interest payable and paid to such Lender by or for the amount of each Borrower from time to time under this Credit Agreement. Each Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary.

(b) The Administrative Agent shall maintain the Register for each Borrower pursuant to Section 11.3(c), and a subaccount for each Lender, in which Registers and subaccounts (taken together) shall be recorded (i) the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from or for the account of the Borrowers and each Lender’s share thereof. The Administrative Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary.

(c) The entries made in the accounts, Registers and subaccounts maintained pursuant to subsection (b) of this Section 3.9 (and, if consistent with the entries of the Administrative Agent, subsection (a)) shall be prima facie evidence of the existence and amounts of the obligations of each Borrower therein recorded; provided , however, that the failure of any Lender or the Administrative Agent to maintain any such account, such Registers or such subaccounts, as applicable, or any error therein, shall not in any manner affect the obligation of any Borrower to repay the Loans made by such Lender to such Borrower in accordance with the terms hereof.

3.10 Conversion Option . On the Maturity Date, the Borrower shall pay the entire outstanding principal balance of all Loans (unless accelerated sooner pursuant to Section 9 hereof); provided that if the Borrower shall have delivered a notice to the Administrative Agent requesting a conversion of the Loans and an extension of the Maturity Date not earlier than 30 days but at least 20 days prior to the Maturity Date (which notice shall be accompanied by a certificate signed by a Responsible Officer as to the matters specified in Section 5.2(b) and (c) hereof), then (a) the then outstanding principal amount of each Loan shall be aggregated on the Maturity Date (the “ Conversion Date ”) into one Loan with one Interest Period, and each Lender’s Commitment shall be reduced to an amount equal to the principal amount of such Lender’s outstanding Loans on the Conversion Date and (b) the Loan shall become due and payable on the first anniversary of the Maturity Date (the “ Final Date ”). In the event the Loans are converted on the Conversion Date, the term “Maturity Date” shall mean the Final Date. The conversion of the Loans on the Conversion Date shall be subject to, and shall constitute a representation and warranty of, the correctness as of the Conversion Date of the matters specified in Section 5.2 (b) and (c) hereof. The Administrative Agent shall promptly inform the Lenders of the receipt of the notice of conversion and the Conversion Date.

SECTION 4. ADDITIONAL PROVISIONS REGARDING LOANS

4.1 Eurodollar Loan Provisions .

(a) Unavailability . In the event that the Administrative Agent shall have determined in good faith (i) that U.S. dollar deposits in the principal amounts requested with respect to a Eurodollar Loan are not generally available in the London interbank Eurodollar market or (ii) that reasonable means do not exist for ascertaining the Eurodollar Rate, the Administrative Agent shall, as soon as practicable thereafter, give notice of such determination to the Borrowers and the Lenders. In the event of any such determination under clauses (i) or (ii) above, until the Administrative Agent shall have advised the Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist, (A) any request by a Borrower for Eurodollar Loans shall be deemed to be a request for Base Rate Loans (or Absolute Rate Competitive Bid Loans, as the case may be), and (B) any request by a Borrower for conversion into or continuation of Eurodollar Revolving Loans shall be deemed to be a request for conversion into or continuation of Base Rate Loans.

(b) Change in Legality .

(i) Notwithstanding any other provision herein, if any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the relevant Borrower and to the Administrative Agent, such Lender may:

or for conversion into or continuation of, Base Rate Loans (or Absolute Rate Competitive Bid Loans, as the case may be), unless such declaration shall be subsequently withdrawn; and

(B) require that all outstanding Eurodollar Loans made by it to such Borrower be converted to Base Rate Loans (or Absolute Rate Competitive Bid Loans, as the case may be) in which event all such Eurodollar Loans shall be automatically converted to Base Rate Loans (or Absolute Rate Competitive Bid Loans, as the case may be).

In the event any Lender shall exercise its rights under clause (A) or (B) above, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender to such Borrower or the converted Eurodollar Loans of such Lender to such Borrower shall instead be applied to repay the Base Rate Loans (or Absolute Rate Competitive Bid Loans, as the case may be) made by such Lender to such Borrower in lieu of, or resulting from the conversion of, such Eurodollar Loans.

(c) Increased Costs . If at any time a Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to the making, the commitment to make or the maintaining of any Eurodollar Loan because of (i) any change since the date of this Credit Agreement in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or such order) including, without limitation, the imposition, modification or deemed applicability of any reserves, deposits or similar requirements (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Adjusted Eurodollar Rate) or (ii) other circumstances affecting the London interbank Eurodollar market; then the relevant Borrower shall pay to such Lender promptly upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender may determine in its sole discretion) as may be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder.

Each determination and calculation made by a Lender under this Section 4.1 shall, absent manifest error, be binding and conclusive on the parties hereto.

4.2 Capital Adequacy .

If, after the date hereof, any Lender has determined that the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender (or its parent corporation) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender’s (or parent corporation’s) capital or assets as a consequence of its commitments or obligations hereunder to any Borrower to a level below that which such Lender (or its parent

corporation) could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender’s (or parent corporation’s) policies with respect to capital adequacy), then, upon notice from such Lender, the relevant Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender (or its parent corporation) for such reduction. Each determination by any such Lender of amounts owing under this Section 4.2 shall, absent manifest error, be conclusive and binding on the parties hereto.

4.3 Compensation .

Each Borrower shall compensate each Lender, upon its written request, for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by the Lender to fund its Eurodollar Loans to such Borrower) which such Lender may sustain:

(a) if for any reason (other than a default by such Lender or the Administrative Agent) a borrowing of Eurodollar Loans or Absolute Rate Competitive Bid Loans to such Borrower does not occur on a date specified therefor in a Notice of Borrowing or Competitive Bid Request to such Borrower, as the case may be;

(b) if any repayment, continuation or conversion of any Eurodollar Loan or Absolute Rate Competitive Bid Loan by such Borrower occurs on a date which is not the last day of an Interest Period applicable thereto, including, without limitation, in connection with any demand, acceleration, mandatory prepayment or otherwise (including any demand under this Section 4); or

(c) if such Borrower fails to repay its Eurodollar Loans or Absolute Rate Competitive Bid Loan when required by the terms of this Credit Agreement.

Calculation of all amounts payable to a Lender under this Section 4.3 shall be made as though the Lender has actually funded its relevant Eurodollar Loan through the purchase of a Eurodollar deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of that Loan, having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided , however , that each Lender may fund each of its Eurodollar Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 4.3.

4.4 Taxes.

(a) Tax Liabilities Imposed on a Lender . Any and all payments by a Borrower hereunder or under any of the Credit Documents shall be made, in accordance with the terms hereof and thereof, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes measured by net income and franchise taxes imposed on any Lender by the jurisdiction under the laws of which such Lender is organized or transacting business or any political subdivision thereof (all such non-excluded taxes, being hereinafter referred to as “Taxes”). If such Borrower shall be required by law to deduct any Taxes from or in respect of

any sum payable hereunder to any Lender, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.4) such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions, (iii) such Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law, and (iv) such Borrower shall deliver to such Lender evidence of such payment to the relevant Governmental Authority.

(b) Other Taxes . In addition, each Borrower agrees to pay, upon notice from a Lender and prior to the date when penalties attach thereto, all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies of the United States or any state or political subdivision thereof or any applicable foreign jurisdiction that arise from any payment made hereunder by such Borrower or from the execution, delivery or registration of, or otherwise from such Borrower’s participation with respect to, this Credit Agreement (collectively, the “ Other Taxes ”).

(c) Refunds . If a Lender or the Administrative Agent (as the case may be) shall become aware that it is entitled to claim a refund (or a refund in the form of a credit) (each, a “ Refund ”) from a Governmental Authority (as a result of any error in the amount of Taxes or Other Taxes paid to such Governmental Authority or otherwise) of Taxes or Other Taxes which a Borrower has paid, or with respect to which a Borrower has paid additional amounts, pursuant to this Section 4.4, it shall promptly notify such Borrower of the availability of such Refund and shall, within 30 days after receipt of written notice by such Borrower, make a claim to such Governmental Authority for such Refund at such Borrower’s expense if, in the judgment of such Lender or the Administrative Agent (as the case may be), the making of such claim will not be otherwise disadvantageous to it; provided that nothing in this subsection (c) shall be construed to require any Lender or the Administrative Agent to institute any administrative proceeding (other than the filing of a claim for any such Refund) or judicial proceeding to obtain such Refund.

If a Lender or the Administrative Agent (as the case may be) receives a Refund from a Governmental Authority (as a result of any error in the amount of Taxes or Other Taxes paid to such Governmental Authority or otherwise) of any Taxes or Other Taxes which have been paid by a Borrower, or with respect to which a Borrower has paid additional amounts pursuant to this Section 4.4, it shall promptly pay to such Borrower the amount so received (but only to the extent of payments made, or additional amounts paid, by such Borrower under this Section 4.4 with respect to Taxes or Other Taxes giving rise to such Refund), net of all reasonable out-of-pocket expenses (including the net amount of taxes, if any, imposed on such Lender or the Administrative Agent with respect to such Refund) of such Lender or Administrative Agent, and without interest (other than interest paid by the relevant Governmental Authority with respect to such Refund); provided , however , that such Borrower, upon the request of Lender or the Administrative Agent, agrees to repay the amount paid over to such Borrower (plus penalties, interest or other charges) to such Lender or the Administrative Agent in the event such Lender or the Administrative Agent is required to repay such Refund to such Governmental Authority. Nothing contained in this Section 4.4(c) shall require any Lender or the Administrative Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary).

(d) Foreign Lender . Each Lender (which, for purposes of this Section 4.4, shall include any Affiliate of a Lender that makes any Eurodollar Loan pursuant to the terms of this Credit Agreement) that is not a “United States person” (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrowers and the Administrative Agent on or before the Closing Date (or, in the case of a Person that becomes a Lender after the Closing Date by assignment, promptly upon such assignment), two duly completed and signed copies of (A) either (1) Form 1001, or any applicable successor form, of the United States Internal Revenue Service entitling such Lender to a complete exemption from withholding on all amounts to be received by such Lender pursuant to this Credit Agreement and/or the Notes or (2) Form 4224, or any applicable successor form, of the United States Internal Revenue Service relating to all amounts to be received by such Lender pursuant to this Credit Agreement and/or the Notes and, if applicable, (B) an Internal Revenue Service Form W-8 or W-9 entitling such Lender to receive a complete exemption from United States backup withholding tax. Each such Lender shall, from time to time after submitting either such form, submit to the Borrowers and the Administrative Agent such additional duly completed and signed copies of such forms (or such successor forms or other documents as shall be adopted from time to time by the relevant United States taxing authorities) as may be (1) reasonably requested in writing by the Borrowers or the Administrative Agent and (2) appropriate under then current United States laws or regulations. Upon the reasonable request of any Borrower or the Administrative Agent, each Lender that has not provided the forms or other documents, as provided above, on the basis of being a United States person shall submit to the Borrowers and the Administrative Agent a certificate to the effect that it is such a “United States person.”

4.5 Mitigation; Mandatory Assignment .

The Administrative Agent and each Lender shall use reasonable efforts to avoid or mitigate any increased cost or suspension of the availability of an interest rate under Sections 4.1 through 4.4 above to the greatest extent practicable (including transferring the Loans to another lending office or Affiliate of a Lender) unless, in the opinion of the Administrative Agent or such Lender, such efforts would be likely to have an adverse effect upon it. In the event a Lender makes a request to a Borrower for additional payments in accordance with Section 4.1, 4.2 or 4.4, then, provided that no Default or Event of Default with respect to such Borrower has occurred and is continuing at such time, such Borrower may, at its own expense (such expense to include any transfer fee payable to the Administrative Agent under Section 11.3(b) and any expense pursuant to Section 4 hereof) and in its sole discretion, require such Lender to transfer and assign in whole (but not in part), without recourse (in accordance with and subject to the terms and conditions of Section 11.3(b)), all of its interests, rights and obligations under this Credit Agreement to an Eligible Assignee which shall assume such assigned obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment); provided that (a) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority and (b) the Borrowers or such Eligible Assignee shall have paid to the assigning Lender in immediately available funds the principal of and interest accrued to the date of such payment on the portion of the Loans hereunder held by such assigning Lender and all other amounts owed to such assigning Lender hereunder, including amounts owed pursuant to Sections 4.1 through 4.4 hereof.

SECTION 5. CONDITIONS PRECEDENT

5.1 Closing Conditions .

The obligation of the Lenders to enter into the Credit Documents is subject to satisfaction of the following conditions (in form and substance acceptable to the Lenders):

(a) Credit Documents . Receipt by the Administrative Agent of duly executed copies of: (i) this Credit Agreement and (ii) the other Credit Documents.

(b) Corporate Documents . Receipt by the Administrative Agent of the following:

(i) Charter Documents . Copies of the articles of incorporation or other charter documents of each Borrower certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation and certified by a secretary or assistant secretary of the relevant Borrower to be true and correct as of the Closing Date.

(ii) Bylaws . A copy of the bylaws of each Borrower certified by a secretary or assistant secretary of the relevant Borrower to be true and correct as of the Closing Date.

(iii) Resolutions . Copies of resolutions of the Board of Directors of each Borrower approving and adopting the Credit Documents, the transactions contemplated herein and therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of the relevant Borrower to be true and correct and in force and effect as of the Closing Date.

(iv) Good Standing . Copies of (a) certificates of good standing, existence or its equivalent with respect to each Borrower certified as of a recent date by the appropriate Governmental Authorities of its jurisdiction of incorporation and each other jurisdiction in which the failure to so qualify and be in good standing would have a Material Adverse Effect on such Borrower and (b) to the extent available, a certificate indicating payment of all corporate franchise taxes certified as of a recent date by the appropriate Governmental Authorities of each Borrower’s jurisdiction of incorporation and each other jurisdiction from which the failure to pay such franchise taxes would have a Material Adverse Effect on such Borrower.

(c) Closing Certificate . Receipt by the Administrative Agent of a certificate of each Borrower, dated the Closing Date, substantially in the form of Exhibit 5.1(c) , executed by any Assistant Treasurer and the Secretary or any Assistant Secretary of such Borrower, and attaching the documents referred to in subsections 5.1(b).

(d) Outstanding Facility . Each of (i) the Borrowers’ $1,750,000 364-Day Credit Agreement, dated as of May 31, 2001 and (ii) Dominion Resources, Inc. $300,000,000 Credit Agreement, dated as of April 3, 1996, shall have been terminated and all amounts owing thereunder shall have been paid in full.

(e) Fees . The Lenders, the Administrative Agent and the Lead Arranger shall have received all fees required to be paid, and all expenses for which invoices have been presented.

(f) Opinion of Counsel . Receipt by the Administrative Agent of an opinion, or opinions, satisfactory in form and content to the Administrative Agent and the Lenders, addressed to the Administrative Agent and each of the Lenders and dated as of the Closing Date, substantially in the form of Exhibit 5.1(f) , from McGuireWoods LLP, legal counsel to the Borrowers.

(g) Financial Statements . Receipt and approval by the Administrative Agent and the Lenders of the audited financial statements of each Borrower and its Consolidated Subsidiaries dated as of December 31, 2001 and the unaudited financial statements of each Borrower and its Consolidated Subsidiaries dated as of March 31, 2002.

(h) Consents . Receipt by the Administrative Agent of a written representation from each Borrower that (i) all governmental, shareholder and third party consents (including Securities and Exchange Commission clearance) and approvals necessary or, in the reasonable opinion of the Administrative Agent, advisable in connection with the transactions contemplated hereby have been received and are in full force and effect and (ii) no condition or requirement of law exists which could reasonably be likely to restrain, prevent or impose any material adverse condition on the transactions contemplated hereby, and receipt by the Administrative Agent of copies of any required orders of the Virginia State Corporation Commission or any other state utilities commission approving the relevant Borrower’s execution, delivery and performance of this Credit Agreement and the borrowings hereunder.

(i) No Default; Representations and Warranties . As of the Closing Date (i) there shall exist no Default or Event of Default by any Borrower and (ii) all representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects.

(j) Material Adverse Effect . No event or condition shall have occurred since the dates of the financial statements delivered pursuant to Section 5.1(g) above that has or would be likely to have a material adverse effect, after taking into account applicable insurance, if any, on (a) the business, assets, liabilities (actual or contingent), operations or condition (financial or otherwise) of the Borrowers and their respective Consolidated Subsidiaries taken as a whole, (b) the ability of the Borrowers to perform their respective obligations under this Credit Agreement or (c) the validity or enforceability of this Credit Agreement, any of the other Credit Documents, or the rights and remedies of the Lenders hereunder or thereunder.

(k) Other . Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender.

The Administrative Agent shall provide written notice to the Borrowers and the Lenders upon the occurrence of the Effective Date (as defined in Section 11.15).

5.2 Conditions to Loans .

In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be obligated to make new Loans to any Borrower unless:

(a) Request . Such Borrower shall have timely delivered a duly executed and completed Notice of Borrowing or Competitive Bid Request, as applicable, in conformance with all the terms and conditions of this Credit Agreement.

(b) Representations and Warranties . The representations and warranties made by such Borrower in or pursuant to the Credit Documents are true and correct in all material respects at and as if made as of the date of the funding of the Loans; provided , however, that the representation and warranty set forth in clause (ii) of the second paragraph of Section 6.6 hereof need not be true and correct as a condition to any borrowing utilized by the relevant Borrower in connection with the repayment of its commercial paper program or programs.

(c) No Default . On the date of the funding of the Loans, no Default or Event of Default with respect to such Borrower has occurred and is continuing or would be caused by making the Loans.

(d) Availability . Immediately after giving effect to the making of a Loan (and the application of the proceeds thereof), the sum of Loans outstanding shall not exceed the Revolving Loan Commitment.

The delivery of each Notice of Borrowing shall constitute a representation and warranty by such Borrower of the correctness of the matters specified in subsections (b), (c) and (d) above.

SECTION 6. REPRESENTATIONS AND WARRANTIES

Each Borrower, severally and not jointly, hereby represents and warrants to each Lender that:

6.1 Organization and Good Standing .

Such Borrower and each Material Subsidiary of each Borrower (other than any Material Subsidiary that is not a corporation) (a) is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (b) is duly qualified and in good standing as a foreign corporation authorized to do business in every jurisdiction where the failure to so qualify would have a Material Adverse Effect on such Borrower and (c) has the requisite corporate power and authority to own its properties and to carry on its business as now conducted and as proposed to be conducted. Each Material Subsidiary of such Borrower that is not a corporation (a) is a legal entity duly organized, existing and in good standing under the laws of its jurisdiction of organization, (b) is registered or qualified as an entity authorized to do business in every jurisdiction where the failure to be so registered or qualified would have a Material Adverse Effect on such Borrower and (c) has the requisite power and authority to own its properties and to carry on its business as now conducted and as proposed to be conducted.

6.2 Due Authorization .

Such Borrower (a) has the requisite corporate power and authority to execute, deliver and perform this Credit Agreement and the other Credit Documents and to incur the obligations herein and therein provided for and (b) is duly authorized to, and has been authorized by all necessary corporate action, to execute, deliver and perform this Credit Agreement and the other Credit Documents.

6.3 No Conflicts .

Neither the execution and delivery of the Credit Documents nor the consummation of the transactions contemplated therein, nor performance of and compliance with the terms and provisions thereof by such Borrower will (a) violate or conflict with any provision of its articles of incorporation or bylaws, (b) violate, contravene or materially conflict with any law (including without limitation, the Public Utility Holding Company Act of 1935, as amended (the “ 1935 Act ”)), regulation (including without limitation, Regulation U or Regulation X), order, writ, judgment, injunction, decree or permit applicable to it, (c) violate, contravene or materially conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it may be bound, the violation of which could have a Material Adverse Effect on such Borrower or (d) result in or require the creation of any Lien upon or with respect to its properties.

6.4 Consents .

No consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required to be obtained or made by such Borrower in connection with such Borrower’s execution, delivery or performance of this Credit Agreement or any of the other Credit Documents that has not been obtained or made.

6.5 Enforceable Obligations .

This Credit Agreement and the other Credit Documents have been duly executed and delivered and constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms, except as may be limited by bankruptcy or insolvency laws or similar laws affecting creditors’ rights generally or by general equitable principles.

6.6 Financial Condition .

The financial statements provided to the Lenders pursuant to Section 5.1(g) and pursuant to Section 7.1(a) and (b) present fairly the financial condition, results of operations and cash flows of such Borrower and its Consolidated Subsidiaries as of the date stated therein.

In addition, (i) such financial statements were prepared in accordance with GAAP and, (ii) since the latest date of such financial statements, there have occurred no changes or

circumstances which have had or would be reasonably expected to have a Material Adverse Effect on such Borrower.

6.7 No Default .

Neither such Borrower nor any of its Material Subsidiaries is in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default would have or would be reasonably expected to have a Material Adverse Effect on such Borrower.

6.8 Indebtedness .

As of the Closing Date, such Borrower has no Indebtedness except as disclosed in the financial statements referenced in Section 5.1(g) and on Schedule 6.8 .

6.9 Litigation .

Except as disclosed in such Borrower’s Annual Report on Form 10-K for the year ended December 31, 2001 and such Borrower’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, there are no actions, suits or legal, equitable, arbitration or administrative proceedings, pending or, to the knowledge of such Borrower, threatened against such Borrower or a Material Subsidiary of such Borrower in which there is a reasonable possibility of an adverse decision which would have or would reasonably be expected to have a Material Adverse Effect on such Borrower.

6.10 Taxes .

Such Borrower and each Material Subsidiary of such Borrower has filed, or caused to be filed, all material tax returns (federal, state, local and foreign) required to be filed by it and paid all amounts of taxes shown thereon to be due (including interest and penalties) and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes which are not yet delinquent or that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP. Such Borrower is not aware of any proposed tax assessments against it or any of its Material Subsidiaries.

6.11 Compliance with Law .

Except as disclosed in such Borrower’s Annual Report on Form 10-K for the year ended December 31, 2001 and such Borrower’s Quarterly Report for the quarter ended March 31, 2002, such Borrower and each Material Subsidiary of such Borrower is in compliance with all laws, rules, regulations, orders and decrees applicable to it, or to its properties, unless such failure to comply would not have a Material Adverse Effect on such Borrower.

6.12 ERISA .

(a) No Reportable Event has occurred and is continuing with respect to any Plan of such Borrower; (b) no Plan of such Borrower has an accumulated funding deficiency determined under Section 412 of the Code; (c) no proceedings have been instituted, or, to the knowledge of such Borrower, planned to terminate any Plan of such Borrower; (d) neither such Borrower, nor any member of a Controlled Group including such Borrower, nor any duly-appointed administrator of a Plan of such Borrower has instituted or intends to institute proceedings to withdraw from any Multiemployer Pension Plan (as defined in Section 3(37) of ERISA); and (e) each Plan of such Borrower has been maintained and funded in all material respects in accordance with its terms and with the provisions of ERISA applicable thereto.

6.13 Use of Proceeds .

The proceeds of the Loans made to such Borrower hereunder will be used solely for the purposes specified in Section 7.9.

6.14 Government Regulation .

(a) None of the proceeds of the Loans made to such Borrower hereunder will be used for the purpose of purchasing or carrying any “margin stock” which violates Regulation U or Regulation X or for the purpose of reducing or retiring in violation of Regulation U or Regulation X any Indebtedness which was originally incurred to purchase or carry “margin stock” or for any other purpose which might constitute this transaction a “purpose credit” in violation of Regulation U or Regulation X.

(b) As of the Closing Date, Dominion Resources and CNG each is a registered “holding company” within the meaning of that term under the 1935 Act. The issuance by such Borrower of the Notes, its incurrence of the Indebtedness contemplated by this Credit Agreement and the borrowing, repayment and reborrowing of Loans hereunder is permitted by the 1935 Act and requires no authorization or approval of any Governmental Authority other than such authorizations and approvals as have already been obtained.

(c) Such Borrower is not an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended (the “ Investment Company Act ”), and is not controlled by such a company, nor is otherwise subject to regulation under the Investment Company Act.

6.15 Solvency .

Such Borrower is and, after the consummation of the transactions contemplated by this Credit Agreement and the other Credit Documents, will be Solvent.

SECTION 7. AFFIRMATIVE COVENANTS

Each Borrower, severally but not jointly, hereby covenants and agrees that so long as this Credit Agreement is in effect and until the Loans made to it, together with interest, fees

and other obligations hereunder, have been paid in full and the Commitments hereunder shall have terminated:

7.1 Information Covenants .

Such Borrower will furnish, or cause to be furnished, to the Administrative Agent and each Lender:

(a) Annual Financial Statements . As soon as available, and in any event within 120 days after the close of each fiscal year of such Borrower, a Form 10-K, as required to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Exchange Act, which includes financial information required by such Form 10-K, such financial information to be in reasonable form and detail and audited by Deloitte & Touche or another independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent and whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified in any respect.

(b) Quarterly Financial Statements . As soon as available, and in any event within 60 days after the close of each of the first three fiscal quarters of such Borrower a Form 10-Q, as required to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Exchange Act, which includes the financial information required by such Form 10-Q, such financial information to be in reasonable form and detail and reasonably acceptable to the Administrative Agent, and accompanied by a certificate of the chief financial officer of such Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of such Borrower and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments.

(c) Officer’s Certificate . At the time of delivery of the financial statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of the chief financial officer of such Borrower, substantially in the form of Exhibit 7.1(c) , (i) demonstrating compliance with the financial covenant contained in Section 7.11 by calculation thereof as of the end of each such fiscal period and (ii) stating that no Default or Event of Default by such Borrower exists, or if any such Default or Event of Default does exist, specifying the nature and extent thereof and what action such Borrower proposes to take with respect thereto.

(d) Reports . Promptly upon transmission or receipt thereof, copies of any filings and registrations with, and reports to or from, the Securities and Exchange Commission, or any successor agency, and copies of all financial statements, proxy statements, notices and reports as Dominion Resources shall send to its shareholders.

any litigation, arbitral or governmental proceeding against such Borrower or a Material Subsidiary of such Borrower which, if adversely determined, is likely to have a Material Adverse Effect on such Borrower, (B) the institution of any proceedings against such Borrower or a Material Subsidiary of such Borrower with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation, or alleged violation of any federal, state or local law, rule or regulation, the violation of which would likely have a Material Adverse Effect on such Borrower or (C) any notice or determination concerning the imposition of any withdrawal liability by a Multiemployer Plan against such Borrower or any of its ERISA Affiliates, the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA or the termination of any Plan of such Borrower.

(f) Other Information . With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of such Borrower as the Administrative Agent or the Required Lenders may reasonably request.

7.2 Preservation of Existence and Franchises .

Such Borrower will do (and will cause each of its Material Subsidiaries to do) all things necessary to preserve and keep in full force and effect its existence, rights, franchises and authority; provided that nothing in this Section 7.2 shall prevent any transaction otherwise permitted under Section 8.2 or Section 8.3 or any change in the form of organization (by merger or otherwise) of any Material Subsidiary of any Borrower so long as such change shall not have an adverse effect on such Borrower’s ability to perform its obligations hereunder.

7.3 Books and Records .

Such Borrower will keep (and will cause each of its Material Subsidiaries to keep) complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP (including the establishment and maintenance of appropriate reserves).

7.4 Compliance with Law .

Such Borrower will comply (and will cause each of its Material Subsidiaries to comply) with all laws, rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its property if noncompliance with any such law, rule, regulation, order or restriction would be reasonably expected to have a Material Adverse Effect on such Borrower.

7.5 Payment of Taxes .

Such Borrower will pay and discharge all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent; provided , however , that such Borrower shall not be required to pay any such tax, assessment, charge, levy, or claim which is being contested in good faith by appropriate proceedings and as to which adequate reserves therefor have been established in accordance with GAAP.

7.6 Insurance .

Such Borrower will at all times maintain in full force and effect insurance (including worker’s compensation insurance, liability insurance, casualty insurance and business interruption insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice.

7.7 Performance of Obligations .

Such Borrower will perform (and will cause each of its Material Subsidiaries to perform) in all material respects all of its obligations under the terms of all material agreements, indentures, mortgages, security agreements or other debt instruments to which it is a party or by which it is bound.

7.8 ERISA .

Such Borrower and each of its ERISA Affiliates will (a) at all times make prompt payment of all contributions (i) required under all employee pension benefit plans (as defined in Section 3(2) of ERISA) (“ Pension Plans ”) and (ii) required to meet the minimum funding standard set forth in ERISA with respect to each of its Plans; (b) promptly upon request, furnish the Administrative Agent and the Lenders copies of each annual report/return (Form 5500 Series), as well as all schedules and attachments required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA, and the regulations promulgated thereunder, in connection with each of its Pension Plans for each Plan Year (as defined in ERISA); (c) notify the Administrative Agent immediately of any fact, including, but not limited to, any Reportable Event arising in connection with any of its Plans, which might constitute grounds for termination thereof by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Plan, together with a statement, if requested by the Administrative Agent, as to the reason therefor and the action, if any, proposed to be taken in respect thereof; and (d) furnish to the Administrative Agent, upon its request, such additional information concerning any of its Plans as may be reasonably requested. Such Borrower will not nor will it permit any of its ERISA Affiliates to (A) terminate a Plan if any such termination would have a Material Adverse Effect on such Borrower or (B) cause or permit to exist any Reportable Event under ERISA or other event or condition which presents a material risk of termination at the request of the PBGC if such termination would have a Material Adverse Effects.

7.9 Use of Proceeds .

The proceeds of the Loans made to each Borrower hereunder may be used solely (a) to provide credit support for such Borrower’s commercial paper, (b) for working capital of such Borrower and its Subsidiaries and (c) for other general corporate purposes.

7.10 Audits/Inspections .

accountants, agents, attorneys, and appraisers to visit and inspect such Borrower’s property, including its books and records, its accounts receivable and inventory, the Borrower’s facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit any Lender or the Administrative Agent or its representatives to investigate and verify the accuracy of information provided to the Lenders and to discuss all such matters with the officers, employees and representatives of such Borrower.

7.11 Total Funded Debt to Capitalization .

The ratio of (a) Total Funded Debt to (b) Capitalization for such Borrower shall at all times be less than or equal to .65 to 1.00, in the case of Dominion Resources (on a consolidated basis), or .60 to 1.00, in the case of each of VaPower and CNG (each on a consolidated basis).

SECTION 8. NEGATIVE COVENANTS

Each Borrower, severally but not jointly, hereby covenants and agrees that so long as this Credit Agreement is in effect and until the Loans, together with interest, fees and other obligations hereunder, have been paid in full and the Commitments hereunder shall have terminated:

8.1 Nature of Business .

Such Borrower will not alter the character of its business from that conducted as of the Closing Date and activities reasonably related thereto and similar and related businesses; provided , however , that VaPower may transfer assets related to its electric power generation and marketing and trading operations to one or more Wholly-Owned Subsidiaries of DRI to the extent permitted under Section 8.3.

8.2 Consolidation and Merger .

Such Borrower will not enter into any transaction of merger or consolidation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); provided that notwithstanding the foregoing provisions of this Section 8.2, the following actions may be taken if, after giving effect thereto, no Default or Event of Default by such Borrower exists:

(a) a Subsidiary of such Borrower may be merged or consolidated with or into any Borrower; provided that a Borrower shall be the continuing or surviving entity;

(b) such Borrower may merge or consolidate with any other Person if either (i) such Borrower shall be the continuing or surviving entity or (ii) such Borrower shall not be the continuing or surviving entity and the entity so continuing or surviving (A) is an entity organized and duly existing under the law of any state of the United States and (B) executes and delivers to the Administrative Agent and the Lenders an instrument in form satisfactory to the Required Lenders pursuant to which it expressly assumes the Loans of such Borrower and all of the other obligations of such Borrower under the Credit Documents and procures for the Administrative Agent and each Lender an opinion in form satisfactory to the Required Lenders

and from counsel satisfactory to the Required Lenders in respect of the due authorization, execution, delivery and enforceability of such instrument and covering such other matters as the Required Lenders may reasonably request; and

8.3 Sale or Lease of Assets .

Such Borrower will not convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or substantially all of its business or assets whether now owned or hereafter acquired, it being understood and agreed that VaPower may transfer assets related to its electric power generation and marketing and trading operations to one or more Wholly-Owned Subsidiaries generally in accordance with a plan submitted to the Virginia State Corporation Commission, provided that (i) each such Wholly-Owned Subsidiary remains at all times a Wholly Owned Subsidiary of Dominion Resources and (ii) the long-term, unsecured, senior, non-credit-enhanced debt ratings of Dominion Resources and VaPower will not be lowered to less than BBB by S&P or Baa2 by Moody’s in connection with or as a result of such transfer.

8.4 Limitation on Liens .

In the case of VaPower, VaPower shall not, nor shall it permit any of its Material Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for (i) Liens permitted by the First Mortgage Bond Indenture and (ii) Liens created in the ordinary course of business.

In the case of CNG, if CNG shall pledge, mortgage or hypothecate, or permit any Lien upon, any property or assets at any time owned by CNG and by reason thereof CNG would under the Indenture be obligated to cause the Securities outstanding under the Indenture as from time to time in effect to be secured by such pledge, mortgage, hypothecation or other Lien, CNG shall concurrently make effective provision whereby the Loans outstanding hereunder will be equally and ratably secured with any and all other indebtedness thereby secured.

In the case of Dominion Resources, if Dominion Resources shall pledge as security for any indebtedness or obligations, or permit any Lien as security for Indebtedness or obligations upon, any capital stock owned by it on the date hereof or thereafter acquired, of any of its Material Subsidiaries, Dominion Resources will secure the outstanding Loans ratably with the indebtedness or obligations secured by such pledge, except for Liens incurred or otherwise arising in the ordinary course of business.

8.5 Fiscal Year .

Such Borrower will not change its fiscal year without prior notification to the Lenders.

SECTION 9. EVENTS OF DEFAULT

9.1 Events of Default .

An Event of Default with respect to a Borrower shall exist upon the occurrence and continuation of any of the following specified events with respect to such Borrower (each an “ Event of Default ”):

(a) Payment . Such Borrower shall:

(i) default in the payment when due of any principal of any of the Loans; or

(ii) default, and such default shall continue for three or more days, in the payment when due of any interest on the Loans or of any fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith.

(b) Representations . Any representation, warranty or statement made or deemed to be made by such Borrower herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made.

(i) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.2, 7.9, 7.11 or 8.1 through 8.5, inclusive; or

(ii) default in the due performance or observance by it of any term, covenant or agreement contained in Section 7.1(a), (b), (c) or (e) and such default shall continue unremedied for a period of five Business Days after the earlier of an officer of such Borrower becoming aware of such default or notice thereof given by the Administrative Agent; or

(iii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b), (c)(i), or (c)(ii) of this Section 9.1) contained in this Credit Agreement or any other Credit Document and such default shall continue unremedied for a period of at least 30 days after the earlier of an officer of such Borrower becoming aware of such default or notice thereof given by the Administrative Agent.

(d) Credit Documents . Any Credit Document shall fail to be in full force and effect with respect to such Borrower or to give the Administrative Agent and/or the Lenders the security interests, liens, rights, powers and privileges purported to be created thereby and relating to such Borrower.

insolvency or other similar law now or hereafter in effect, or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Borrower or a Material Subsidiary of such Borrower or for any substantial part of its property or ordering the winding up or liquidation of its affairs; or (ii) an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect is commenced against such Borrower or a Material Subsidiary of such Borrower and such petition remains unstayed and in effect for a period of 60 consecutive days; or (iii) such Borrower or a Material Subsidiary of such Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Person or any substantial part of its property or make any general assignment for the benefit of creditors; or (iv) such Borrower or a Material Subsidiary of such Borrower shall admit in writing its inability to pay its debts generally as they become due or any action shall be taken by such Person in furtherance of any of the aforesaid purposes.

(f) Defaults under Other Agreements . With respect to any Indebtedness (other than Indebtedness outstanding under this Credit Agreement) of such Borrower or a Material Subsidiary of such Borrower in a principal amount in excess of $25,000,000, (i) such Borrower or a Material Subsidiary of such Borrower shall (A) default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to any such Indebtedness, or (B) default (after giving effect to any applicable grace period) in the observance or performance of any covenant or agreement relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause, or permit, the holder or holders of such Indebtedness (or trustee or agent on behalf of such holders) to cause any such Indebtedness to become due prior to its stated maturity; or (ii) any such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; or (iii) any such Indebtedness matures and is not paid at maturity.

(g) Judgments . One or more judgments, orders, or decrees shall be entered against such Borrower or a Material Subsidiary of such Borrower involving a liability of $25,000,000 or more, in the aggregate, (to the extent not paid or covered by insurance provided by a carrier who has acknowledged coverage) and such judgments, orders or decrees shall continue unsatisfied, undischarged and unstayed for a period ending on the first to occur of (i) the last day on which such judgment, order or decree becomes final and unappealable and, where applicable, with the status of a judicial lien or (ii) 30 days.

impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan of such Borrower; or (iv) a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan of such Borrower must be terminated; or (v) there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the Controlled Group including such Borrower to incur a current payment obligation in excess of $20,000,000.

(i) Change of Control . The occurrence of any Change of Control with respect to such Borrower.

9.2 Acceleration; Remedies .

Upon the occurrence of an Event of Default with respect to any Borrower, and at any time thereafter unless and until such Event of Default has been waived by the Required Lenders or cured to the satisfaction of the Required Lenders, the Administrative Agent may with the consent of the Required Lenders, and shall, upon the request and direction of the Required Lenders, by written notice to such Borrower take any of the following actions without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against such Borrower, except as otherwise specifically provided for herein:

(i) Termination of Commitments . Declare the Commitments with respect to such Borrower (and, if such Borrower is either VaPower or CNG, then also to Dominion Resources) terminated whereupon the Commitments with respect to such Borrower (and, if such Borrower is either VaPower or CNG, then also to Dominion Resources) shall be immediately terminated.

(ii) Acceleration of Loans . Declare the unpaid principal of and any accrued interest in respect of all Loans made to such Borrower (and, if such Borrower is either VaPower or CNG, then also to Dominion Resources) and any and all other indebtedness or obligations of any and every kind owing by such Borrower (and, if such Borrower is either VaPower or CNG, then also by Dominion Resources) to any of the Lenders or the Administrative Agent hereunder to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by such Borrower (and, if such Borrower is either VaPower or CNG, then also by Dominion Resources).

(iii) Enforcement of Rights . Enforce any and all rights and interests created and existing under the Credit Documents, including, without limitation, all rights of set-off, as against such Borrower.

Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(e) shall occur, then the Commitments with respect to such Borrower (and, if such Borrower is either VaPower or CNG, then also to Dominion Resources) shall automatically terminate and all Loans made to such Borrower (and, if such Borrower is either VaPower or CNG, then also to Dominion Resources), all accrued interest in respect thereof, all accrued and unpaid fees and other

indebtedness or obligations owing by such Borrower (and, if such Borrower is either VaPower or CNG, then also by Dominion Resources) to the Lenders and the Administrative Agent hereunder shall immediately become due and payable without the giving of any notice or other action by the Administrative Agent or the Lenders.

9.3 Allocation of Payments After Event of Default .

Notwithstanding any other provisions of this Credit Agreement, after the occurrence and during the continuance of an Event of Default with respect to any Borrower, all amounts collected or received by the Administrative Agent or any Lender on account of amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows:

FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys’ fees) of the Administrative Agent or any of the Lenders in connection with enforcing the rights of the Lenders under the Credit Documents against such Borrower and any protective advances made by the Administrative Agent or any of the Lenders, pro rata as set forth below;

SECOND, to payment of any fees owed to the Administrative Agent or any Lender by such Borrower, pro rata as set forth below;

THIRD, to the payment of all accrued interest payable to the Lenders by such Borrower hereunder, pro rata as set forth below;

FOURTH, to the payment of the outstanding principal amount of the Loans of such Borrower, prorata as set forth below;

FIFTH, to all other obligations which shall have become due and payable of such Borrower under the Credit Documents and not repaid pursuant to clauses “FIRST” through “FOURTH” above; and

SIXTH, the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus.

In carrying out the foregoing, (a) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category and (b) each of the Lenders shall receive an amount equal to its pro rata share (based on each Lender’s Commitment Percentages) of amounts available to be applied.

SECTION 10. AGENCY PROVISIONS

10.1 Appointment .

of the other Credit Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere herein and in the other Credit Documents, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Credit Agreement or any of the other Credit Documents, or shall otherwise exist against the Administrative Agent. The provisions of this Section are solely for the benefit of the Administrative Agent and the Lenders and no Borrower shall have any rights as a third party beneficiary of the provisions hereof. In performing its functions and duties under this Credit Agreement and the other Credit Documents, the Administrative Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for any Borrower.

10.2 Delegation of Duties .

The Administrative Agent may execute any of its duties hereunder or under the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

10.3 Exculpatory Provisions .

Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection herewith or in connection with any of the other Credit Documents (except for its or such Person’s own gross negligence or willful misconduct), or responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by a Borrower contained herein or in any of the other Credit Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection herewith or in connection with the other Credit Documents, or enforceability or sufficiency therefor of any of the other Credit Documents, or for any failure of the Borrowers to perform their respective obligations hereunder or thereunder. The Administrative Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Credit Agreement, or any of the other Credit Documents or for any representations, warranties, recitals or statements made herein or therein or made by a Borrower in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to the Lenders or by or on behalf of a Borrower to the Administrative Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default or to inspect the properties, books or records of a Borrower. The Administrative Agent is not a trustee for the Lenders and owes no fiduciary duty to the Lenders. None of the Lenders identified on the facing page or signature pages of this Agreement as “Co-Syndication Agents” or “Co-Documentation Agents” shall have any right, power, obligation, liability, responsibility or duty under this

Agreement other than those applicable to all Lenders as such, nor shall they have or be deemed to have any fiduciary relationship with any Lender.

10.4 Reliance on Communications .

The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to a Borrower, independent accountants and other experts selected by the Administrative Agent with reasonable care). The Administrative Agent may deem and treat the Lenders as the owner of its interests hereunder for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent in accordance with Section 11.3(b). The Administrative Agent shall be fully justified in failing or refusing to take any action under this Credit Agreement or under any of the other Credit Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or under any of the other Credit Documents in accordance with a request of the Required Lenders (or to the extent specifically provided in Section 11.6, all the Lenders) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders (including their successors and assigns).

10.5 Notice of Default .

The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the relevant Borrower referring to the Credit Document, describing such Default or Event of Default and stating that such notice is a “notice of default.” In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Required Lenders (or, to the extent specifically provided in Section 11.6, all the Lenders).

10.6 Non-Reliance on Administrative Agent and Other Lenders .

creditworthiness of a Borrower and made its own decision to make its Loans hereunder and enter into this Credit Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Credit Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of a Borrower. Except for (i) delivery of the Credit Documents and (ii) notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial or other conditions, prospects or creditworthiness of a Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.

10.7 Indemnification .

Each Lender agrees to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by a Borrower and without limiting the obligation of a Borrower to do so), ratably according to its Revolving Loan Commitment, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in its capacity as such in any way relating to or arising out of this Credit Agreement or the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent. If any indemnity furnished to the Administrative Agent for any purpose shall, in the opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder and under the other Credit Documents.

10.8 Administrative Agent in Its Individual Capacity .

The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with a Borrower as though the Administrative Agent were not Administrative Agent hereunder. With respect to the Loans made by it, the Administrative Agent shall have the same rights and powers under this Credit Agreement as any Lender and may exercise the same as though they were not Administrative Agent, and the terms “Lender” and “Lenders” shall include the Administrative Agent in its individual capacity.

10.9 Successor Administrative Agent .

The Administrative Agent may, at any time, resign upon 30 days written notice to the Lenders. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment, within 30 days after the notice of resignation, then the retiring Administrative Agent shall select a successor Administrative Agent provided such successor is an Eligible Assignee (or if no Eligible Assignee shall have been so appointed by the retiring Administrative Agent and shall have accepted such appointment, then the Lenders shall perform all obligations of the retiring Administrative Agent until such time, if any, as a successor Administrative Agent shall have been so appointed and shall have accepted such appointment as provided for above). Upon the acceptance of any appointment as Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations as Administrative Agent, as appropriate, under this Credit Agreement and the other Credit Documents and the provisions of this Section 10.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Credit Agreement.

SECTION 11. MISCELLANEOUS

11.1 Notices .

Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (a) when delivered, (b) when transmitted via telecopy (or other facsimile device), (c) the Business Day following the day on which the same has been delivered prepaid (or pursuant to an invoice arrangement) to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address or telecopy numbers set forth on Schedule 11.1 , or at such other address as such party may specify by written notice to the other parties hereto.

Notices and other communications to any Lender hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Section 2 unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

11.2 Right of Set-Off; Adjustments .

is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set-off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender (including, without limitation branches, agencies or Affiliates of such Lender wherever located) to or for the credit or the account of such Borrower against obligations and liabilities of such Borrower to the Lenders hereunder, under the Notes, the other Credit Documents or otherwise, irrespective of whether the Administrative Agent or the Lenders shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. Each Borrower hereby agrees that any Person purchasing a participation in the Loans and Commitments to it hereunder pursuant to Section 11.3(c) may exercise all rights of set-off with respect to its participation interest as fully as if such Person were a Lender hereunder.

Except to the extent that this Credit Agreement expressly provides for payments to be allocated to a particular Lender, if any Lender (a “ Benefitted Lender ”) shall receive any payment of all or part of the obligations owing to it by a Borrower under this Credit Agreement, receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 9.1(e), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of the obligations owing to such other Lender by such Borrower under this Credit Agreement, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of the obligations owing to each such other Lender, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided , however , that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest.

11.3 Benefit of Agreement .

(a) Generally . This Credit Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided that a Borrower may not assign and transfer any of its interests (except as permitted by Section 8.2) without prior written consent of the Lenders; and provided further that the rights of each Lender to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth in this Section 11.3.

(b) Assignments . Each Lender may assign all or a portion of its rights and obligations under this Credit Agreement (including, without limitation, all or a portion of its Loans, its Notes, and its Commitment); provided , however , that:

(i) each such assignment shall be to an Eligible Assignee;

(ii) except (A) in the case of an assignment to another Lender, (B) in the case of an assignment of all of a Lender’s rights and obligations under this Credit Agreement,

or (C) with the consent of the Administrative Agent and the Borrowers (such consent by the Borrowers (i) not to be unreasonably withheld and (ii) not being required during the existence of a Default or Event of Default), any such partial assignment shall be in an amount at least equal to $10,000,000 (or, if less, the remaining amount of the Commitment being assigned by such Lender) or an integral multiple of $5,000,000 in excess thereof;

(iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Credit Agreement and the Notes; and

(iv) the parties to such assignment shall execute and deliver to the Administrative Agent for its acceptance an Assignment Agreement in substantially the form of Exhibit 11.3 , together with a processing fee from the assignor of $4,000.

Upon execution, delivery, and acceptance of such Assignment Agreement, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Credit Agreement. Upon the consummation of any assignment pursuant to this Section 11.3(b), the assignor, the Administrative Agent and the relevant Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignee. If the assignee is not incorporated under the laws of the United States of America or a State thereof, it shall deliver to such Borrower and the Administrative Agent certification as to exemption from deduction or withholding of taxes in accordance with Section 4.4.

By executing and delivering an assignment agreement in accordance with this Section 11.3(b), the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (A) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and the assignee warrants that it is an Eligible Assignee; (B) except as set forth in clause (A) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto or the financial condition of a Borrower or the performance or observance by such Borrower of any of its obligations under this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto; (C) such assignee represents and warrants that it is legally authorized to enter into such assignment agreement; (D) such assignee confirms that it has received a copy of this Credit Agreement, the other Credit Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such assignment agreement; (E) such assignee will independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in

taking or not taking action under this Credit Agreement and the other Credit Documents; (F) such assignee appoints and authorizes the Administrative Agent to take such action on its behalf and to exercise such powers under this Credit Agreement or any other Credit Document as are delegated to the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; and (G) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Credit Agreement and the other Credit Documents are required to be performed by it as a Lender.

For avoidance of doubt, the parties to this Credit Agreement acknowledge that the provisions of this Section 11.3 concerning assignments relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including any pledge or assignment by a Lender to any Federal Reserve Bank in accordance with applicable law.

(c) Register . The Administrative Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time by each Borrower (collectively, the “ Registers ”). The entries in the Registers shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the relevant Register as a Lender hereunder for all purposes of this Credit Agreement. The Registers shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d) Acceptance . Upon its receipt of an assignment agreement executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Administrative Agent shall, if such Assignment Agreement has been completed and is in substantially the form of Exhibit 11.3 , (i) accept such assignment agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto.

(e) Participations . Each Lender may sell, transfer, grant or assign participations in all or any part of such Lender’s interests and obligations hereunder; provided that (i) such selling Lender shall remain a “Lender” for all purposes under this Credit Agreement (such selling Lender’s obligations under the Credit Documents remaining unchanged) and the participant shall not constitute a Lender hereunder, (ii) no such participant shall have, or be granted, rights to approve any amendment or waiver relating to this Credit Agreement or the other Credit Documents except to the extent any such amendment or waiver would (A) reduce the principal of or rate of interest on or fees in respect of any Loans in which the participant is participating, or (B) postpone the date fixed for any payment of principal (including extension of the Maturity Date or the date of any mandatory prepayment), interest or fees in respect of any Loans in which the participant is participating, (iii) sub-participations by the participant (except to an Affiliate, parent company or Affiliate of a parent company of the participant) shall be permitted with the consent of the Borrowers (which, in each case, shall not be unreasonably withheld or delayed and shall not be required during the existence of a Default or Event of Default), and (iv) any such participations shall be in a minimum aggregate amount of $10,000,000 of the Revolving Loan Commitment and in integral multiples of $5,000,000 in excess thereof. In the case of any such participation, the participant shall not have any rights

under this Credit Agreement or the other Credit Documents (the participant’s rights against the selling Lender in respect of such participation to be those set forth in the participation agreement with such Lender creating such participation) and all amounts payable by such Borrower hereunder shall be determined as if such Lender had not sold such participation; provided, however, that such participant shall be entitled to receive additional amounts under Section 4 to the same extent that the Lender from which such participant acquired its participation would be entitled to the benefit of such cost protection provisions.

(f) Payments . No Eligible Assignee, participant or other transferee of any Lender’s rights shall be entitled to receive any greater payment under Section 4 than such Lender would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower’s written consent.

(g) Nonrestricted Assignments . Notwithstanding any other provision set forth in this Credit Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any operating circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder.

(h) Information . Any Lender may furnish any information concerning a Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants) who is notified of the confidential nature of the information and agrees to use its reasonable best efforts to keep confidential all non-public information from time to time supplied to it.

11.4 No Waiver; Remedies Cumulative .

No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between a Borrower and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on a Borrower in any case shall entitle such Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand.

11.5 Payment of Expenses, etc .

such amendments, waivers or consents resulting from or related to any work-out, renegotiation or restructure relating to the performance by such Borrower under this Credit Agreement and (ii) of the Administrative Agent, the Lead Arranger and the Lenders in connection with enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, in connection with any such enforcement, the reasonable fees and disbursements of counsel for the Administrative Agent and each of the Lenders) against such Borrower; and (b) indemnify the Administrative Agent, the Lead Arranger and each Lender, their respective officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not the Administrative Agent, the Lead Arranger or any Lender is a party thereto) related to the entering into and/or performance of any Credit Document or the use of proceeds of any Loans (including other extensions of credit) hereunder or the consummation of any other transactions contemplated in any Credit Document by such Borrower, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of gross negligence or willful misconduct on the part of the Person to be indemnified).

11.6 Amendments, Waivers and Consents.

Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing and signed by the Required Lenders and the Borrowers; provided that no such amendment, change, waiver, discharge or termination shall without the consent of each Lender affected thereby:

(a) extend the Maturity Date;

(b) reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon or fees hereunder;

(d) increase or extend the Commitment of a Lender over the amount thereof in effect (it being understood and agreed that a waiver of any Default or Event of Default or a waiver of any mandatory reduction in the Commitments shall not constitute a change in the terms of any Commitment of any Lender);

(e) release a Borrower from its obligations under the Credit Documents or consent to the transfer or assignment of such obligations;

(f) amend, modify or waive any provision of this Section or Section 3.6, 3.8, 9.1(a), 10.7, 11.2, 11.3 or 11.5; or

(g) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders.

Notwithstanding the above, no provisions of Section 10 may be amended or modified without the consent of the Administrative Agent.

Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, each Lender is entitled to vote as such Lender sees fit on any reorganization plan that affects the Loans and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersede the unanimous consent provisions set forth herein.

11.7 Counterparts; Telecopy .

This Credit Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Credit Agreement to produce or account for more than one such counterpart. Delivery of executed counterparts by facsimile shall be effective as an original and shall constitute a representation that an original will be delivered.

11.8 Headings .

The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement.

11.9 Defaulting Lender .

Each Lender understands and agrees that if such Lender is a Defaulting Lender then it shall not be entitled to vote on any matter requiring the consent of the Required Lenders or to object to any matter requiring the consent of all the Lenders; provided, however, that all other benefits and obligations under the Credit Documents shall apply to such Defaulting Lender.

11.10 Survival of Indemnification and Representations and Warranties .

All indemnities set forth herein and all representations and warranties made herein shall survive the execution and delivery of this Credit Agreement, the making of the Loans, and the repayment of the Loans and other obligations and the termination of the Commitments hereunder.

11.11 GOVERNING LAW .

THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK . Each Borrower irrevocably consents to the service of process out of any competent court in any action or proceeding brought in connection with this Credit Agreement by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address for notices pursuant to Section

11.1, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of a Lender to serve process in any other manner permitted by law.

11.12 WAIVER OF JURY TRIAL .

EACH OF THE PARTIES TO THIS CREDIT AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.

11.13 Severability .

If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.

11.14 Entirety .

This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein.

11.15 Binding Effect .

This Credit Agreement shall become effective at such time (the “ Effective Date ”) when all of the conditions set forth in Section 5.1 have been satisfied or waived by the Lenders and this Credit Agreement shall have been executed by each of the Borrowers and the Administrative Agent, and the Administrative Agent shall have received copies (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of each Borrower, the Administrative Agent and each Lender and their respective successors and permitted assigns.

11.16 Submission to Jurisdiction .

otherwise have to bring any action or proceeding relating to this Credit Agreement against any Borrower or its properties in the courts of any jurisdiction. Each Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Credit Agreement in any court referred to above. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each of the Borrowers also hereby irrevocably and unconditionally waives any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

11.17 Confidentiality .

Each of the Administrative Agent and each Lender agrees to keep confidential all non-public information provided to it by any Borrower pursuant to this Agreement that is designated by such Borrower as confidential; provided that nothing herein shall prevent the Administrative Agent or any Lender from disclosing any such information (a) to the Administrative Agent, any other Lender or any of its Affiliates, (b) subject to an agreement to comply with the provisions of this Section, to any actual or prospective Assignee or participant, (c) to its employees, directors, agents, attorneys and accountants or those of any of its affiliates, (d) upon the request or demand of any Governmental Authority, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any requirement of law, (f) if required to do so in connection with any litigation or similar proceeding, (g) that has been publicly disclosed, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder or under any other Credit Document.

11.18 Designation of SPVs .

Notwithstanding anything to the contrary contained herein, any Lender, (a “ Granting Lender ”) may grant to a special purpose funding vehicle (an “ SPV ”), identified as such in writing from time to time by such Granting Lender to the Administrative Agent and the Borrowers, the option to fund all or any part of any Loan that such Granting Lender would otherwise be obligated to fund pursuant to this Credit Agreement; provided that (i) nothing herein shall constitute a commitment by any SPV to fund any Loan, (ii) if an SPV elects not to exercise such option or otherwise fails to fund all or any part of such Loan, the Granting Lender shall be obligated to fund such Loan pursuant to the terms hereof, (iii) no SPV shall have any voting rights pursuant to Section 11.6 and (iv) with respect to notices, payments and other matters hereunder, the Borrowers, the Administrative Agent and the Lenders shall not be obligated to deal with an SPV, but may limit their communications and other dealings relevant to such SPV to the applicable Granting Lender. The funding of a Loan by an SPV hereunder shall utilize the Revolving Loan Commitment of the Granting Lender to the same extent that, and as if, such Loan were funded by such Granting Lender.

Lender an irrevocable power of attorney, to deliver and receive all communications and notices under this Agreement (and any related documents) and to exercise on such SPV’s behalf, all of such SPV’s voting rights under this Credit Agreement. No additional Note shall be required to evidence the Loans or portion thereof made by an SPV; and the related Granting Lender shall be deemed to hold its Note as agent for such SPV to the extent of the Loans or portion thereof funded by such SPV. In addition, any payments for the account of any SPV shall be paid to its Granting Lender as agent for such SPV.

Each party hereto hereby agrees that no SPV shall be liable for any indemnity or payment under this Agreement for which a Lender would otherwise be liable for so long as, and to the extent, the Granting Lender provides such indemnity or makes such payment. In furtherance of the foregoing, each party hereto hereby agrees (which agreements shall survive the termination of this Credit Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPV, it will not institute against, or join any other person in instituting against, such SPV any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof.

In addition, notwithstanding anything to the contrary contained in this Credit Agreement, any SPV may (i) at any time and without paying any processing fee therefor, assign or participate all or a portion of its interest in any Loans to the Granting Lender or to any financial institutions providing liquidity and/or credit support to or for the account of such SPV to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancements to such SPV. This Section 11.17 may not be amended without the written consent of any Granting Lender affected thereby.

[Remainder of Page Intentionally Blank]

Each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written.

DOMINION RESOURCES, INC., as a Borrower

By:		/s/ G. S COTT H ETZER
		Name: Title:

VIRGINIA ELECTRIC AND POWER COMPANY, as a Borrower

By:		/s/ G. S COTT H ETZER
		Name: Title:

CONSOLIDATED NATURAL GAS COMPANY, as a Borrower

By:		/s/ G. S COTT H ETZER
		Name: Title:

JPMORGAN CHASE BANK, as Administrative Agent and as a Lender

By:		/s/ P ETER M. L ING
		Name: Peter M. Ling Title: Vice President

Exhibit 10.6

$750,000,000

THREE-YEAR CREDIT AGREEMENT

among

DOMINION RESOURCES, INC.,

VIRGINIA ELECTRIC AND POWER COMPANY,

CONSOLIDATED NATURAL GAS COMPANY,

The Several Lenders from Time to Time Parties Hereto,

JPMORGAN CHASE BANK,

as Administrative Agent,

BANK OF AMERICA, N.A. AND

THE BANK OF NOVA SCOTIA,

as Co-Syndication Agents,

and

BARCLAYS BANK PLC AND

CITIBANK, N.A.,

as Co-Documentation Agents

J.P. MORGAN SECURITIES INC.,

as Lead Arranger and Bookrunner

Dated as of May 30, 2002

Table of Contents

		Page

SECTION 1. DEFINITIONS AND ACCOUNTING TERMS		1

1.1 Definitions		1
1.2 Computation of Time Periods; Other Definitional Provisions.		13
1.3 Accounting Terms.		13
1.4 Time.		13

SECTION 2. LOANS		14

2.1 Revolving Loan Commitment.		14
2.2 Method of Borrowing for Revolving Loans		16
2.3 Funding of Revolving Loans		17
2.4 Minimum Amounts of Revolving Loans		18
2.5 Reductions of Revolving Loan Commitment		18
2.6 Notes		18

SECTION 3. PAYMENTS		19

3.1 Interest		19
3.2 Prepayments		19
3.3 Payment in Full at Maturity		20
3.4 Fees		20
3.5 Place and Manner of Payments		21
3.6 Pro Rata Treatment		21
3.7 Computations of Interest and Fees		21
3.8 Sharing of Payments.		22
3.9 Evidence of Debt		22

SECTION 4. ADDITIONAL PROVISIONS REGARDING LOANS		23

4.1 Eurodollar Loan Provisions		23
4.2 Capital Adequacy		24
4.3 Compensation		25
4.4 Taxes		25
4.5 Mitigation; Mandatory Assignment.		27

SECTION 5. LETTERS OF CREDIT		28

5.1 L/C Commitment		28
5.2 Procedure for Issuance of Letter of Credit		28
5.3 Fees and Other Charges		28
5.4 L/C Participations		29
5.5 Reimbursement Obligation of the Borrower		30

		Page
5.6 Obligations Absolute		30
5.7 Letter of Credit Payments		30
5.8 Applications		31

SECTION 6. CONDITIONS PRECEDENT		31

6.1 Closing Conditions		31
6.2 Conditions to Loans		33

SECTION 7. REPRESENTATIONS AND WARRANTIES		33

7.1 Organization and Good Standing.		33
7.2 Due Authorization		34
7.3 No Conflicts		34
7.4 Consents		34
7.5 Enforceable Obligations		34
7.6 Financial Condition		35
7.7 No Default		35
7.8 Indebtedness		35
7.9 Litigation		35
7.10 Taxes		35
7.11 Compliance with Law		36
7.12 ERISA		36
7.13 Use of Proceeds		36
7.14 Government Regulation		36
7.15 Solvency		37

SECTION 8. AFFIRMATIVE COVENANTS		37

8.1 Information Covenants		37
8.2 Preservation of Existence and Franchises		38
8.3 Books and Records.		38
8.4 Compliance with Law.		38
8.5 Payment of Taxes.		39
8.6 Insurance		39
8.7 Performance of Obligations		39
8.8 ERISA.		39
8.9 Use of Proceeds		40
8.10 Audits/Inspections		40
8.11 Total Funded Debt to Capitalization		40

SECTION 9. NEGATIVE COVENANTS		40

9.1 Nature of Business		40
9.2 Consolidation and Merger		40
9.3 Sale or Lease of Assets		41
9.4 Limitation on Liens		41

		Page
9.5 Fiscal Year		42

SECTION 10. EVENTS OF DEFAULT		42

10.1 Events of Default		42
10.2 Acceleration; Remedies.		44
10.3 Allocation of Payments After Event of Default		45

SECTION 11. AGENCY PROVISIONS		46

11.1 Appointment		46
11.2 Delegation of Duties		46
11.3 Exculpatory Provisions		47
11.4 Reliance on Communications		47
11.5 Notice of Default		48
11.6 Non-Reliance on Administrative Agent and Other Lenders		48
11.7 Indemnification		49
11.8 Administrative Agent in Its Individual Capacity		49
11.9 Successor Administrative Agent		49

SECTION 12. MISCELLANEOUS		50

12.1 Notices		50
12.2 Right of Set-Off; Adjustments		50
12.3 Benefit of Agreement		51
12.4 No Waiver; Remedies Cumulative		54
12.5 Payment of Expenses, etc.		54
12.6 Amendments, Waivers and Consents		55
12.7 Counterparts; Telecopy		55
12.8 Headings		56
12.9 Defaulting Lender		56
12.10 Survival of Indemnification and Representations and Warranties		56
12.11 GOVERNING LAW		56
12.12 WAIVER OF JURY TRIAL		56
12.13 Severability		56
12.14 Entirety		57
12.15 Binding Effect		57
12.16 Submission to Jurisdiction		57
12.17 Confidentiality		58
12.18 Designation of SPVs		58

iii

SCHEDULES		Page

Schedule 1.1	Commitment Percentages
Schedule 7.8	Indebtedness
Schedule 12.1	Notices

EXHIBITS

Exhibit 2.1(b)	Form of Competitive Bid Request
Exhibit 2.2(a)	Form of Notice of Borrowing
Exhibit 2.2(c)	Form of Notice of Conversion/Continuation
Exhibit 2.6(a)	Form of Revolving Loan Note
Exhibit 2.6(b)	Form of Competitive Bid Loan Note
Exhibit 6.1(c)	Form of Closing Certificate
Exhibit 6.1(f)	Form of Legal Opinion
Exhibit 8.1(c)	Form of Officer’s Certificate
Exhibit 12.3	Form of Assignment Agreement

THREE-YEAR

CREDIT AGREEMENT

THREE-YEAR CREDIT AGREEMENT (this “ Credit Agreement ”), dated as of May 30, 2002 among DOMINION RESOURCES, INC., a Virginia corporation, VIRGINIA ELECTRIC AND POWER COMPANY, a Virginia corporation, CONSOLIDATED NATURAL GAS COMPANY, a Delaware corporation (each of the above, individually, a “ Borrower ” and collectively, the “ Borrowers ”), the several banks and other financial institutions from time to time parties to this Credit Agreement (each a “ Lender ” and, collectively, the “ Lenders ”), JPMORGAN CHASE BANK, a New York banking corporation, as administrative agent for the Lenders hereunder (in such capacity, the “ Administrative Agent ”), BANK OF AMERICA, N.A. and THE BANK OF NOVA SCOTIA, as Co-Syndication Agents, and BARCLAYS BANK PLC and CITIBANK, N.A., as Co-Documentation Agents.

The parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS AND ACCOUNTING TERMS

1.1 Definitions

“ Adjusted Base Rate ” means with respect to any Borrower the Base Rate plus the Applicable Percentage for Base Rate Loans for the relevant Borrower.

“ Adjusted Eurodollar Rate ” means with respect to any Borrower the Eurodollar Rate plus the Applicable Percentage for Eurodollar Loans for the relevant Borrower.

“ Administrative Agent ” means JPMorgan Chase Bank and any successors and assigns in such capacity.

Pricing Level	Long-Term Senior Unsecured Non-Credit Enhanced Debt Rating of Borrower	Applicable Percentage for Base Rate Loans	Applicable Percentage for Eurodollar Loans	Applicable Percentage for Facility Fees	Applicable Percentage for Utilization Fees
I.	³ A from S&P or	0%	.325%	.100%	.125%
	³ A2 from Moody’s
II.	A- from S&P or	0%	.425%	.125%	.125%
	A3 from Moody’s
III.	BBB+ from S&P or	0%	.600%	.150%	.125%
	Baa1 from Moody’s
IV.	BBB from S&P or	0%	.675%	.200%	.125%
	Baa2 from Moody’s
V.	£ BBB- from S&P or	0%	.875%	.250%	.125%
	£ Baa3 from Moody’s

The Applicable Percentage for the Facility Fees payable by DRI shall be the appropriate applicable percentages from time to time, as shown above, calculated based on the rating index of the lowest rated Borrower at such time. This lowest rating index shall be determined based upon the long term unsecured, senior, non-credit enhanced public debt rating for the relevant Borrower in effect on such day as published by S&P and Moody’s; it being understood that the initial Applicable Percentages for Facility Fees are based on Pricing Level III (as shown above) and shall remain at Pricing Level III until an applicable change in the rating index of the lowest rated Borrower. In the event that such ratings differ by only one level, the

higher rating shall apply. In the event that such ratings differ by two or more levels, the rating one level below the higher rating shall apply.

Each Borrower shall promptly deliver to the Administrative Agent, at the address set forth on Schedule 12.1 , information regarding any change in the long-term, unsecured senior, non-credit enhanced debt rating of such Borrower that would change the existing Pricing Level (as set forth in the chart above) with respect to such Borrower and/or the Facility Fees.

“ Application ” means an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to issue a Letter of Credit.