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DOMINION RESOURCES : VA/ Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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02/28/2017 | 02:45pm CET
MD&A discusses Dominion's results of operations and general financial condition
and Virginia Power's and Dominion Gas' results of operations. MD&A should be
read in conjunction with Item 1. Business and the Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data. Virginia
Power and Dominion Gas meet the conditions to file under the reduced disclosure
format, and therefore have omitted certain sections of MD&A.





CONTENTS OFMD&A

MD&A consists of the following information:

• Forward-Looking Statements

• Accounting Matters-Dominion



•   Dominion


  •   Results of Operations


  •   Segment Results of Operations


•   Virginia Power


  •   Results of Operations


•   Dominion Gas


  •   Results of Operations


•   Liquidity and Capital Resources-Dominion


•   Future Issues and Other Matters-Dominion






FORWARD-LOOKINGSTATEMENTS

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

The Companies make forward-looking statements with full knowledge that risks and
uncertainties exist that may cause actual results to differ materially from
predicted results. Factors that may cause actual results to differ are often
presented with the forward-looking statements themselves. Additionally, other
factors may cause actual results to differ materially from those indicated in
any forward-looking statement. These factors include but are not limited to:

• Unusual weather conditions and their effect on energy sales to customers and

energy commodity prices;

• Extreme weather events and other natural disasters, including hurricanes,

high winds, severe storms, earthquakes, flooding and changes in water

temperatures and availability that can cause outages and property damage to

     facilities;



• Federal, state and local legislative and regulatory developments, including

     changes in federal and state tax laws and regulations;



• Changes to federal, state and local environmental laws and regulations,

including those related to climate change, the tightening of emission or

discharge limits for GHGs and other emissions, more extensive permitting

requirements and the regulation of additional substances;

• Cost of environmental compliance, including those costs related to climate

     change;



• Changes in implementation and enforcement practices of regulators relating to

environmental standards and litigation exposure for remedial activities;




•    Difficulty in anticipating mitigation requirements associated with
     environmental and other regulatory approvals;



• Risks associated with the operation of nuclear facilities, including costs

associated with the disposal of spent nuclear fuel, decommissioning, plant

maintenance and changes in existing regulations governing such facilities;

• Unplanned outages at facilities in which the Companies have an ownership

     interest;




•    Fluctuations in energy-related commodity prices and the effect these could

have on Dominion's and Dominion Gas' earnings and the Companies' liquidity

     position and the underlying value of their assets;




•   Counterparty credit and performance risk;



• Global capital market conditions, including the availability of credit and

     the ability to obtain financing on reasonable terms;



• Risks associated with Virginia Power's membership and participation in PJM,

     including risks related to obligations created by the default of other
     participants;



• Fluctuations in the value of investments held in nuclear decommissioning

trusts by Dominion and Virginia Power and in benefit plan trusts by Dominion

     and Dominion Gas;




•   Fluctuations in interest rates or foreign currency exchange rates;



• Changes in rating agency requirements or credit ratings and their effect on

     availability and cost of capital;



• Changes in financial or regulatory accounting principles or policies imposed

     by governing bodies;



• Employee workforce factors including collective bargaining agreements and

     labor negotiations with union employees;



• Risks of operating businesses in regulated industries that are subject to

     changing regulatory structures;



• Impacts of acquisitions, including the recently completed Dominion Questar

Combination, divestitures, transfers of assets to joint ventures or Dominion

Midstream, including the recently completed contribution of Questar Pipeline

to Dominion Midstream, and retirements of assets based on asset portfolio

reviews;

• Receipt of approvals for, and timing of, closing dates for acquisitions and

     divestitures;




•   The timing and execution of Dominion Midstream's growth strategy;



• Changes in rules for RTOs and ISOs in which Dominion and Virginia Power

     participate, including changes in rate designs, changes in FERC's
     interpretation of market rules and new and evolving capacity models;




•   Political and economic conditions, including inflation and deflation;




•    Domestic terrorism and other threats to the Companies' physical and
     intangible assets, as well as threats to cybersecurity;




•    Changes in demand for the Companies' services, including industrial,

commercial and residential growth or decline in the Companies' service areas,

changes in supplies of natural gas delivered to Dominion and Dominion Gas'

pipeline and processing systems, failure to maintain or replace customer






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contracts on favorable terms, changes in customer growth or usage patterns,

including as a result of energy conservation programs, the availability of

energy efficient devices and the use of distributed generation methods;




•    Additional competition in industries in which the Companies operate,
     including in electric markets in which Dominion's merchant generation
     facilities operate and potential competition from the development and
     deployment of alternative energy sources, such as self-generation and

distributed generation technologies, and availability of market alternatives

to large commercial and industrial customers;

• Competition in the development, construction and ownership of certain

     electric transmission facilities in Virginia Power's service territory in
     connection with FERC Order 1000;




•    Changes in technology, particularly with respect to new, developing or
     alternative sources of generation and smart grid technologies;



• Changes to regulated electric rates collected by Virginia Power and regulated

gas distribution, transportation and storage rates, including LNG storage,

     collected by Dominion and Dominion Gas;




•   Changes in operating, maintenance and construction costs;



• Timing and receipt of regulatory approvals necessary for planned construction

or expansion projects and compliance with conditions associated with such

     regulatory approvals;



• The inability to complete planned construction, conversion or expansion

projects at all, or with the outcomes or within the terms and time frames

     initially anticipated;



• Adverse outcomes in litigation matters or regulatory proceedings; and

• The impact of operational hazards, including adverse developments with

respect to pipeline and plant safety or integrity, equipment loss,

malfunction or failure, operator error, and other catastrophic events.

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


The Companies' forward-looking statements are based on beliefs and assumptions
using information available at the time the statements are made. The Companies
caution the reader not to place undue reliance on their forward-looking
statements because the assumptions, beliefs, expectations and projections about
future events may, and often do, differ materially from actual results. The
Companies undertake no obligation to update any forward-looking statement to
reflect developments occurring after the statement is made.





ACCOUNTING MATTERS

Critical Accounting Policies and Estimates


Dominion has identified the following accounting policies, including certain
inherent estimates, that as a result of the judgments, uncertainties, uniqueness
and complexities of the underlying accounting standards and operations involved,
could result in material changes to its financial condition or results of
operations under different conditions or using different assumptions. Dominion
has discussed the development, selection and disclosure of each of these
policies with the Audit Committee of its Board of Directors.

ACCOUNTING FOR REGULATED OPERATIONS


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

Dominion evaluates whether or not recovery of its regulatory assets through
future rates is probable and makes various assumptions in its analysis. The
expectations of future recovery are generally based on orders issued by
regulatory commissions, legislation or historical experience, as well as
discussions with applicable regulatory authorities and legal counsel. If
recovery of a regulatory asset is determined to be less than probable, it will
be written off in the period such assessment is made. See Notes 12 and 13 to the
Consolidated Financial Statements for additional information.

ASSET RETIREMENT OBLIGATIONS


Dominion recognizes liabilities for the expected cost of retiring tangible
long-lived assets for which a legal obligation exists and the ARO can be
reasonably estimated. These AROs are recognized at fair value as incurred and
are capitalized as part of the cost of the related long-lived assets. In the
absence of quoted market prices, Dominion estimates the fair value of its AROs
using present value techniques, in which it makes various assumptions including
estimates of the amounts and timing of future cash flows associated with
retirement activities, credit-adjusted risk free rates and cost escalation
rates. The impact on measurements of new AROs or remeasurements of existing
AROs, using different cost escalation rates in the future, may be significant.
When Dominion revises any assumptions used to calculate the fair value of
existing AROs, it adjusts the carrying amount of both the ARO liability and the
related long-lived asset for assets that are in service; for assets that have
ceased operations, Dominion adjusts the carrying amount of the ARO liability
with such changes recognized in income. Dominion accretes the ARO liability to
reflect the passage of time. In 2016, Dominion recorded an increase in AROs of
$449 million primarily related to future ash pond and landfill closure costs at
certain utility generation facilities and the Dominion Questar Combination. See
Note 22 to the Consolidated Financial Statements for additional information.

In 2016, 2015 and 2014, Dominion recognized $104 million, $93 million and
$81 million, respectively, of accretion, and expects to recognize $117 million
in 2017. Dominion records accretion and depreciation associated with utility
nuclear decommissioning AROs and regulated pipeline replacement





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Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

AROs as an adjustment to the regulatory liabilities related to these items.


A significant portion of Dominion's AROs relates to the future decommissioning
of its merchant and utility nuclear facilities. These nuclear decommissioning
AROs are reported in the Dominion Generation segment. At December 31, 2016,
Dominion's nuclear decommissioning AROs totaled $1.5 billion, representing
approximately 60% of its total AROs. Based on their significance, the following
discussion of critical assumptions inherent in determining the fair value of
AROs relates to those associated with Dominion's nuclear decommissioning
obligations.

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

INCOMETAXES


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

Given the uncertainty and judgment involved in the determination and filing of
income taxes, there are standards for recognition and measurement in financial
statements of positions taken or expected to be taken by an entity in its income
tax returns. Positions taken by an entity in its income tax returns that are
recognized in the financial statements must satisfy a more-likely-than-not
recognition threshold, assuming that the position will be examined by tax
authorities with full knowledge of all relevant information. At
December 31, 2016, Dominion had $64 million of unrecognized tax benefits.
Changes in these unrecognized tax benefits may result from remeasurement of
amounts expected to be realized, settlements with tax authorities and expiration
of statutes of limitations.

Deferred income tax assets and liabilities are recorded representing future
effects on income taxes for temporary differences between the bases of assets
and liabilities for financial reporting and tax purposes. Dominion evaluates
quarterly the probability of realizing deferred tax assets by considering
current and historical financial results, expectations for future taxable income
and the availability of tax planning strategies that can be implemented, if
necessary, to realize deferred tax assets. Failure to achieve forecasted taxable
income or successfully implement tax planning strategies may affect the
realization of deferred tax assets. Dominion establishes a valuation allowance
when it is more-likely-than-not that all or a portion of a deferred tax asset
will not be

realized. At December 31, 2016, Dominion had established $135 million of valuation allowances.

ACCOUNTING FOR DERIVATIVE CONTRACTS AND OTHERINSTRUMENTS AT FAIR VALUE


Dominion uses derivative contracts such as physical and financial forwards,
futures, swaps, options and FTRs to manage commodity, interest rate and foreign
currency exchange rate risks of its business operations. Derivative contracts,
with certain exceptions, are reported in the Consolidated Balance Sheets at fair
value. Accounting requirements for derivatives and related hedging activities
are complex and may be subject to further clarification by standard-setting
bodies. The majority of investments held in Dominion's nuclear decommissioning
and rabbi trusts and pension and other postretirement funds are also subject to
fair value accounting. See Notes 6 and 21 to the Consolidated Financial
Statements for further information on these fair value measurements.

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

Dominion maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

USE OF ESTIMATES IN GOODWILL IMPAIRMENT TESTING

As of December 31, 2016, Dominion reported $6.4 billion of goodwill in its Consolidated Balance Sheet. A significant portion resulted from the acquisition of the former CNG in 2000 and the Dominion Questar Combination in 2016.


In April of each year, Dominion tests its goodwill for potential impairment, and
performs additional tests more frequently if an event occurs or circumstances
change in the interim that would more-likely-than-not reduce the fair value of a
reporting unit below its carrying amount. The 2016, 2015 and 2014 annual tests
and any interim tests did not result in the recognition of any goodwill
impairment.

In general, Dominion estimates the fair value of its reporting units by using a
combination of discounted cash flows and other valuation techniques that use
multiples of earnings for peer group companies and analyses of recent business
combinations involving peer group companies. Fair value estimates are dependent
on subjective factors such as Dominion's estimate of future cash flows, the
selection of appropriate discount and growth rates, and the selection of peer
group companies and recent transactions. These underlying assumptions and
estimates are made as of a point in time; subsequent modifications, particularly
changes in





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discount rates or growth rates inherent in Dominion's estimates of future cash
flows, could result in a future impairment of goodwill. Although Dominion has
consistently applied the same methods in developing the assumptions and
estimates that underlie the fair value calculations, such as estimates of future
cash flows, and based those estimates on relevant information available at the
time, such cash flow estimates are highly uncertain by nature and may vary
significantly from actual results. If the estimates of future cash flows used in
the most recent tests had been 10% lower, the resulting fair values would have
still been greater than the carrying values of each of those reporting units
tested, indicating that no impairment was present.

See Note 11 to the Consolidated Financial Statements for additional information.

USE OF ESTIMATES IN LONG-LIVEDASSET IMPAIRMENT TESTING


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

EMPLOYEE BENEFIT PLANS


Dominion sponsors noncontributory defined benefit pension plans and other
postretirement benefit plans for eligible active employees, retirees and
qualifying dependents. The projected costs of providing benefits under these
plans are dependent, in part, on historical information such as employee
demographics, the level of contributions made to the plans and earnings on plan
assets. Assumptions about the future, including the expected long-term rate of
return on plan assets, discount rates applied to benefit obligations, mortality
rates and the anticipated rate of increase in healthcare costs and participant
compensation, also have a significant impact on employee benefit costs. The
impact of changes in these factors, as well as differences between Dominion's

assumptions and actual experience, is generally recognized in the Consolidated Statements of Income over the remaining average service period of plan participants, rather than immediately.

The expected long-term rates of return on plan assets, discount rates, healthcare cost trend rates and mortality rates are critical assumptions. Dominion determines the expected long-term rates of return on plan assets for pension plans and other postretirement benefit plans by using a combination of:


•   Expected inflation and risk-free interest rate assumptions;




• Historical return analysis to determine long term historic returns as well as

     historic risk premiums for various asset classes;




•   Expected future risk premiums, asset volatilities and correlations;




•   Forecasts of an independent investment advisor;



• Forward-looking return expectations derived from the yield on long-term bonds

     and the expected long-term returns of major stock market indices; and



• Investment allocation of plan assets. The strategic target asset allocation

for Dominion's pension funds is 28% U.S. equity, 18% non-U.S. equity, 35%

fixed income, 3% real estate and 16% other alternative investments, such as

private equity investments.



Strategic investment policies are established for Dominion's prefunded benefit
plans based upon periodic asset/liability studies. Factors considered in setting
the investment policy include those mentioned above such as employee
demographics, liability growth rates, future discount rates, the funded status
of the plans and the expected long-term rate of return on plan assets.
Deviations from the plans' strategic allocation are a function of Dominion's
assessments regarding short-term risk and reward opportunities in the capital
markets and/or short-term market movements which result in the plans' actual
asset allocations varying from the strategic target asset allocations. Through
periodic rebalancing, actual allocations are brought back in line with the
target. Future asset/liability studies will focus on strategies to further
reduce pension and other postretirement plan risk, while still achieving
attractive levels of returns.

Dominion develops assumptions, which are then compared to the forecasts of an
independent investment advisor to ensure reasonableness. An internal committee
selects the final assumptions. Dominion calculated its pension cost using an
expected long-term rate of return on plan assets assumption of 8.75% for 2016,
2015 and 2014. For 2017, the expected long-term rate of return for pension cost
assumption is 8.75%. Dominion calculated its other postretirement benefit cost
using an expected long-term rate of return on plan assets assumption of 8.50%
for 2016, 2015 and 2014. For 2017, the expected long-term rate of return for
other postretirement benefit cost assumption is 8.50%. The rate used in
calculating other postretirement benefit cost is lower than the rate used in
calculating pension cost because of differences in the relative amounts of
various types of investments held as plan assets.

Dominion determines discount rates from analyses of AA/Aa rated bonds with cash
flows matching the expected payments to be made under its plans. The discount
rates used to calculate pension cost and other postretirement benefit cost
ranged from 2.87% to 4.99% for pension plans and 3.56% to 4.94% for other
postretirement benefit plans in 2016, were 4.40% in 2015,





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Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

ranged from 5.20% to 5.30% for pension plans and 4.20% to 5.10% for other
postretirement benefit plans in 2014. Dominion selected a discount rate ranging
from 3.31% to 4.50% for pension plans and ranging from 3.92% to 4.47% for other
postretirement benefit plans for determining its December 31, 2016 projected
benefit obligations.

Dominion establishes the healthcare cost trend rate assumption based on analyses
of various factors including the specific provisions of its medical plans,
actual cost trends experienced and projected, and demographics of plan
participants. Dominion's healthcare cost trend rate assumption as of
December 31, 2016 was 7.00% and is expected to gradually decrease to 5.00% by
2021 and continue at that rate for years thereafter.

Mortality rates are developed from actual and projected plan experience for
postretirement benefit plans. Dominion's actuary conducts an experience study
periodically as part of the process to select its best estimate of mortality.
Dominion considers both standard mortality tables and improvement factors as
well as the plans' actual experience when selecting a best estimate. During
2016, Dominion conducted a new experience study as scheduled and, as a result,
updated its mortality assumptions.

The following table illustrates the effect on cost of changing the critical actuarial assumptions previously discussed, while holding all other assumptions constant:




                                                                              Increase in Net Periodic Cost
                                       Change in                                                      Other
                                       Actuarial                     Pension                 Postretirement
                                      Assumption                    Benefits                       Benefits
(millions, except
percentages)
Discount rate                              (0.25 )%          $            18               $              2
Long-term rate of return
on plan assets                             (0.25 )%                       18                              4
Healthcare cost trend rate                     1  %                      N/A                             23


In addition to the effects on cost, at December 31, 2016, a 0.25% decrease in
the discount rate would increase Dominion's projected pension benefit obligation
by $287 million and its accumulated postretirement benefit obligation by
$43 million, while a 1.00% increase in the healthcare cost trend rate would
increase its accumulated postretirement benefit obligation by $152 million.

See Note 21 to the Consolidated Financial Statements for additional information on Dominion's employee benefit plans.

New Accounting Standards

See Note 2 to the Consolidated Financial Statements for a discussion of new accounting standards.

Dominion





RESULTS OFOPERATIONS

Presented below is a summary of Dominion's consolidated results:



Year Ended
December 31,                                        2016       $ Change        2015       $ Change        2014
(millions, except EPS)
Net Income attributable to Dominion              $ 2,123     $      224     $ 1,899     $      589     $ 1,310
Diluted EPS                                         3.44           0.24        3.20           0.96        2.24


Overview

2016 VS. 2015

Net income attributable to Dominion increased 12%, primarily due to higher
renewable energy investment tax credits and the new PJM capacity performance
market effective June 2016. These increases were partially offset by a decrease
in gains from agreements to convey shale development rights underneath several
natural gas storage fields and charges related to future ash pond and landfill
closure costs at certain utility generation facilities.

2015 VS. 2014


Net income attributable to Dominion increased 45%, primarily due to the absence
of charges associated with Virginia legislation enacted in April 2014 relating
to the development of a third nuclear unit located at North Anna and offshore
wind facilities, the absence of losses related to the repositioning of
Dominion's producer services business in the first quarter of 2014, and the
absence of charges related to Dominion's Liability Management Exercise. See Note
13 to the Consolidated Financial Statements for more information on legislation
related to North Anna and offshore wind facilities. See Liquidity and Capital
Resources for more information on the Liability Management Exercise.

Analysis of Consolidated Operations


Presented below are selected amounts related to Dominion's results of
operations:



Year Ended December 31,            2016         $ Change            2015         $ Change            2014
(millions)
Operating Revenue              $ 11,737       $       54        $ 11,683       $     (753 )      $ 12,436
Electric fuel and other
energy-related purchases          2,333             (392 )         2,725             (675 )         3,400
Purchased electric
capacity                             99             (231 )           330              (31 )           361
Purchased gas                       459              (92 )           551             (804 )         1,355
Net Revenue                       8,846              769           8,077              757           7,320
Other operations and
maintenance                       3,064              469           2,595             (170 )         2,765
Depreciation, depletion
and amortization                  1,559              164           1,395              103           1,292
Other taxes                         596               45             551                9             542
Other income                        250               54             196              (54 )           250
Interest and related
charges                           1,010              106             904             (289 )         1,193
Income tax expense                  655             (250 )           905              453             452






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An analysis of Dominion's results of operations follows:

2016 VS. 2015

Net revenue increased 10%, primarily reflecting:

• A $544 million increase from electric utility operations, primarily

reflecting:

• A $225 million electric capacity benefit, primarily due to the new PJM

capacity performance market effective June 2016 ($155 million) and the

        expiration of non-utilitygenerator contracts in 2015 ($58 million);


  •   An increase from rate adjustment clauses ($183 million); and

• The absence of an $85 million write-off of deferred fuel costs associated

        with Virginia legislation enacted in February 2015; and


•   A $305 million increase due to the Dominion Questar Combination.

These increases were partially offset by:

• A $47 million decrease from merchant generation operations, primarily due to

lower realized prices at certain merchant generation facilities ($64 million)

and an increase in planned and unplanned outage days in 2016 ($26 million),

     partially offset by additional solar generating facilities placed into
     service ($37 million);

• A $19 million decrease from regulated natural gas transmission operations,

primarily due to:

• A $14 million decrease in gas transportation and storage activities,

primarily due to decreased demand charges ($28 million), increased fuel

costs ($13 million), contract rate changes ($11 million) and decreased

revenue from gathering and extraction services ($8 million), partially

offset by expansion projects placed in service ($18 million) and increased

        regulated gas sales ($20 million); and


   •    A $17 million decrease in NGL activities, due to decreased prices ($15
        million) and volumes ($2 million); partially offset by

• A $12 million increase in other revenues, primarily due to an increase in

services performed for Atlantic Coast Pipeline ($21 million), partially

        offset by decreased amortization of deferred revenue associated with
        conveyed shale development rights ($4 million); and

• A $12 million decrease from regulated natural gas distribution operations,

primarily due to a decrease in rate adjustment clause revenue related to low

income assistance programs ($26 million) and a decrease in sales to customers

due to a reduction in heating degree days ($6 million), partially offset by

an increase in AMR and PIR program revenues ($18 million).

Other operations and maintenance increased 18%, primarily reflecting:

• A $148 million increase due to the Dominion Questar Combination, including

$58 million of transaction and transition costs;

• A $98 million increase in charges related to future ash pond and landfill

closure costs at certain utility generation facilities;

• A $78 million decrease in gains from agreements to convey shale development

     rights underneath several natural gas storage fields;


•   Organizational design initiative costs ($64 million);

• A $50 million increase in storm damage and service restoration costs,

including $23 million for Hurricane Matthew;

• A $20 million increase in services performed for Atlantic Coast Pipeline.

These expenses are billed to Atlantic Coast Pipeline and do not significantly

impact net income; and

• A $16 million increase due to labor contract renegotiations as well as costs

resulting from a union workforce temporary work stoppage; partially offset by

• A $26 million decrease in bad debt expense at regulated natural gas

distribution operations primarily related to low income assistance programs.

     These bad debt expenses are recovered through rates and do not impact net
     income.

Depreciation, depletion and amortization increased 12%, primarily due to various expansion projects being placed into service.


Other income increased 28%, primarily due to an increase in earnings from equity
method investments ($55 million) and an increase in AFUDC associated with
rate-regulated projects ($12 million), partially offset by lower realized gains
(net of investment income) on nuclear decommissioning trust funds ($19 million).

Interest and related charges increased 12%, primarily due to higher long-term
debt interest expense resulting from debt issuances in 2016 ($134 million),
partially offset by an increase in capitalized interest associated with the Cove
Point Liquefaction Project ($45 million).

Income tax expensedecreased 28%, primarily due to higher renewable energy investment tax credits ($189 million) and the impact of a state legislative change ($14 million), partially offset by higher pre-tax income ($15 million).

2015 VS. 2014

Net revenue increased 10%, primarily reflecting:

• The absence of losses related to the repositioning of Dominion's producer

services business in the first quarter of 2014, reflecting the termination of

natural gas trading and certain energy marketing activities ($313 million);


•    A $159 million increase from electric utility operations, primarily
     reflecting:


  •   An increase from rate adjustment clauses ($225 million);


• An increase in sales to retail customers, primarily due to a net increase

in cooling degree days ($38 million); and

• A decrease in capacity related expenses ($33 million); partially offset by

• An $85 million write-off of deferred fuel costs associated with Virginia

legislation enacted in February 2015;

• A decrease in sales to customers due to the effect of changes in customer

usage and other factors ($24 million); and

• A decrease due to a charge based on the 2015 Biennial Review Order to

refund revenues to customers ($20 million).

• The absence of losses related to the retail electric energy marketing

business which was sold in the first quarter of 2014 ($129 million);

• A $77 million increase from merchant generation operations, primarily due to

increased generation output reflecting the absence of planned outages at

     certain merchant generation facilities ($83 million) and additional solar
     generating facili-






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Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

ties placed into service ($53 million), partially offset by lower realized

prices ($58 million);

• A $38 million increase from regulated natural gas distribution operations,

primarily due to an increase in rate adjustment clause revenue related to low

income assistance programs ($12 million), an increase in AMR and PIR program

revenues ($24 million) and various expansion projects placed into service

     ($22 million); partially offset by a decrease in gathering revenues ($9
     million); and

• A $30 million increase from regulated natural gas transmission operations,

primarily reflecting:

• A $61 million increase in gas transportation and storage activities,

        primarily due to the addition of DCG ($62 million), decreased fuel costs
        ($24 million) and various expansion projects placed into service ($24

million), partially offset by decreased regulated gas sales ($46 million);

and

• A $46 million net increase primarily due to services performed for Atlantic

Coast Pipeline and Blue Racer; partially offset by

• A $61 million decrease from NGL activities, primarily due to decreased

prices.

Other operations and maintenance decreased 6%, primarily reflecting:

• The absence of charges associated with Virginia legislation enacted in April

2014 relating to the development of a third nuclear unit located at North

Anna and offshore wind facilities ($370 million);

• An increase in gains from agreements to convey shale development rights

underneath several natural gas storage fields ($63 million);

• A $97 million decrease in planned outage costs primarily due to a decrease in

scheduled outage days at certain merchant generation facilities ($59 million)

and non-nuclearutility generation facilities ($38 million); and

• A $22 million decrease in charges related to future ash pond and landfill

closure costs at certain utility generation facilities.

These decreases were partially offset by:

• The absence of a gain on the sale of Dominion's electric retail energy

marketing business in March 2014 ($100 million), net of a $31 million

write-off of goodwill;

• An $80 million increase in certain electric transmission-related

expenditures. These expenses are primarily recovered through state and FERC

rates and do not impact net income;

• The absence of gains on the sale of assets to Blue Racer ($59 million);

• A $53 million increase in utility nuclear refueling outage costs primarily

     due to the amortization of outage costs that were previously deferred
     pursuant to Virginia legislation enacted in April 2014;

• A $46 million net increase due to services performed for Atlantic Coast

Pipeline and Blue Racer. These expenses are billed to these entities and do

not significantly impact net income; and

• A $22 million increase due to the acquisition of DCG.

Other income decreased 22%, primarily reflecting lower tax recoveries associated with contributions in aid of construction

($17 million), a decrease in interest income related to income taxes ($12 million), and lower net realized gains on nuclear decommissioning trust funds ($11 million).

Interest and related charges decreased 24%, primarily as a result of the absence of charges associated with Dominion's Liability Management Exercise in 2014.

Income tax expenseincreased 100%, primarily reflecting higher pre-tax income.

Outlook


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

Dominion's 2017 net income is expected to remain substantially consistent on a per share basis as compared to 2016.

Dominion's 2017 results are expected to be positively impacted by the following:

• Decreased charges related to future ash pond and landfill closure costs at

certain utility generation facilities;

• The inclusion of operations acquired from Dominion Questar for the entire

year;

• Decreased transaction and transition costs associated with the Dominion

     Questar Combination;


•   Growth in weather-normalized electric utility sales of approximately 1%;

• Construction and operation of growth projects in electric utility operations

     and associated rate adjustment clause revenue; and


•    Construction and operation of growth projects in gas transmission and
     distribution.

Dominion's 2017 results are expected to be negatively impacted by the following:

• Lower power prices and an additional planned refueling outage at Millstone;

Decreased Cove Point import contract revenues;


•   An increase in depreciation, depletion, and amortization;

• A higher effective tax rate, driven primarily by a decrease in investment tax

     credits; and


•   Share dilution.


Additionally, in 2017, Dominion expects to focus on meeting new and developing
environmental requirements, including making investments in utility-scale solar
generation, particularly in Virginia. In 2018, Dominion is expected to
experience an increase in net income on a per share basis as compared to 2017
primarily due to the Liquefaction Project being in service for the full year.





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SEGMENT RESULTS OF OPERATIONS

Segment results include the impact of intersegment revenues and expenses, which
may result in intersegment profit or loss. Presented below is a summary of
contributions by Dominion's operating segments to net income attributable to
Dominion:



Year Ended December 31,                                 2016                               2015                               2014
                                          Net                                Net                                Net
                                       Income                             Income                             Income
                                 attributable        Diluted        attributable        Diluted        attributable        Diluted
                                  to Dominion            EPS         to Dominion            EPS         to Dominion            EPS
(millions, except EPS)
DVP                             $         484       $   0.78       $         490       $   0.82       $         502       $   0.86
Dominion Generation                     1,397           2.26               1,120           1.89               1,061           1.81
Dominion Energy                           726           1.18                 680           1.15                 717           1.23
Primary operating segments              2,607           4.22               2,290           3.86               2,280           3.90
Corporate and Other                      (484 )        (0.78 )              (391 )        (0.66 )              (970 )        (1.66 )
Consolidated                    $       2,123       $   3.44       $       1,899       $   3.20       $       1,310       $   2.24




DVP

Presented below are operating statistics related to DVP's operations:




Year Ended December 31,                               2016       % Change         2015      % Change         2014
Electricity delivered (million MWh)                   83.7              - %       83.9             - %       83.5
Degree days:
Cooling                                              1,830             (1 )      1,849            13        1,638
Heating                                              3,446              1        3,416           (10 )      3,793
Average electric distribution customer accounts
(thousands)(1)                                       2,549              1        2,525             1        2,500




(1) Period average.


Presented below, on an after-tax basis, are the key factors impacting DVP's net
income contribution:

2016 VS. 2015



                                                       Increase (Decrease)
                                                    Amount             EPS
           (millions, except EPS)
           Regulated electric sales:
           Weather                                $     (1 )      $      -
           Other                                         1               -
           FERC transmission equity return              41            0.07
           Storm damage and service restoration        (16 )         (0.03 )
           Depreciation and amortization               (10 )         (0.02 )
           AFUDC return                                 (8 )         (0.01 )
           Interest expense                             (5 )         (0.01 )
           Other                                        (8 )         (0.01 )
           Share dilution                                -           (0.03 )
           Change in net income contribution      $     (6 )      $  (0.04 )


2015 VS. 2014



                                                               Increase (Decrease)
                                                            Amount             EPS
  (millions, except EPS)
  Regulated electric sales:
  Weather                                                 $      5        $   0.01
  Other                                                         (4 )        

-

  FERC transmission equity return                               36          

0.06

Tax recoveries on contribution in aid of construction (10 )

(0.02 )

  Depreciation and amortization                                 (9 )        

(0.02 )

  Other operations and maintenance                             (12 )         (0.02 )
  AFUDC return                                                  (6 )         (0.01 )
  Interest expense                                              (5 )         (0.01 )
  Other                                                         (7 )         (0.01 )
  Share dilution                                                 -           (0.02 )
  Change in net income contribution                       $    (12 )      $  (0.04 )


Dominion Generation

Presented below are operating statistics related to Dominion Generation's operations:

Year Ended December 31, 2016 % Change 2015 % Change 2014

Electricity supplied

     (million MWh):
     Utility                      87.9              3 %       85.2             2 %       83.9
     Merchant                     28.9              7         26.9             8         25.0

Degree days (electric

utility service area):

     Cooling                     1,830             (1 )      1,849            13        1,638
     Heating                     3,446              1        3,416           (10 )      3,793

Presented below, on an after-tax basis, are the key factors impacting Dominion Generation's net income contribution:


2016 VS. 2015



                                                        Increase (Decrease)
                                                     Amount             EPS
         (millions, except EPS)
         Regulated electric sales:
         Weather                                   $      2        $      -
         Other                                           13            0.02
         Renewable energy investment tax credits        186            0.31
         Electric capacity                              137            0.23
         Merchant generation margin                     (34 )         (0.06 )
         Rate adjustment clause equity return            24            0.04
         Noncontrolling interest(1)                     (28 )         (0.05 )
         Depreciation and amortization                  (25 )         (0.04 )
         Other                                            2            0.01
         Share dilution                                   -           (0.09 )
         Change in net income contribution         $    277        $   0.37




(1) Represents noncontrolling interest related to merchant solar partnerships.


2015 VS. 2014



                                                       Increase (Decrease)
                                                    Amount             EPS
           (millions, except EPS)
           Merchant generation margin             $     53        $   0.09
           Regulated electric sales:
           Weather                                      19            0.03
           Other                                       (13 )         (0.02 )
           Rate adjustment clause equity return         20            0.03
           PJM ancillary services                      (15 )         (0.02 )
           Outage costs                                 26            0.05
           Depreciation and amortization               (32 )         (0.05 )
           Electric capacity                            20            0.03
           Other                                       (19 )         (0.03 )
           Share dilution                                -           (0.03 )
           Change in net income contribution      $     59        $   0.08






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Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued







Dominion Energy

Presented below are selected operating statistics related to Dominion Energy's
operations.



Year Ended December 31,                            2016         % Change         2015      % Change          2014
Gas distribution throughput (bcf)(1):
Sales                                                61              126 %         27           (16 )%         32
Transportation                                      537               14          470            33           353
Heating degree days (gas distribution service
area):
Eastern region                                    5,235               (8 )      5,666           (10 )       6,330
Western region(1)                                 1,876              100            -             -             -
Average gas distribution customer accounts
(thousands)(1)(2):
Sales                                             1,234 (3)          414          240            (2 )         244
Transportation                                    1,071                1        1,057             -         1,052
Average retail energy marketing customer
accounts (thousands)(2)                           1,376                6        1,296             1         1,283 (4)



(1) Includes Dominion Questar effective September 2016.

(2) Period average.

(3) Includes Dominion Questar customer accounts for the entire year.

(4) Excludes 511 thousand average retail electric energy marketing customer

accounts due to the sale of this business in March 2014.

Presented below, on an after-tax basis, are the key factors impacting Dominion Energy's net income contribution:


2016 VS. 2015



                                                        Increase (Decrease)
                                                     Amount             EPS
          (millions, except EPS)
          Gas distribution margin:
          Weather                                  $     (4 )      $  (0.01 )
          Rate adjustment clauses                        11            0.02
          Other                                           6            0.01
          Assignment of shale development rights        (48 )         (0.08 )
          Dominion Questar Combination                   78            0.13
          Other                                           3            0.01
          Share dilution                                  -           (0.05 )
          Change in net income contribution        $     46        $   0.03


2015 VS. 2014



                                                        Increase (Decrease)
                                                    Amount              EPS
          (millions, except EPS)
          Gas distribution margin:
          Weather                                  $    (5 )        $ (0.01 )
          Rate adjustment clauses                       16             0.03
          Other                                          9             0.02
          Assignment of shale development rights        33             0.06
          Depreciation and amortization                (12 )          (0.02 )
          Blue Racer                                   (39 )(1)       (0.07 )
          Noncontrolling interest(2)                   (13 )          (0.02 )
          Retail energy marketing operations           (11 )          (0.02 )
          Other                                        (15 )          (0.04 )
          Share dilution                                 -            (0.01 )
          Change in net income contribution        $   (37 )        $ (0.08 )



(1) Primarily represents absence of a gain from the sale of the Northern System.

(2) Represents the portion of earnings attributable to Dominion Midstream's

    public unitholders.


Corporate and Other

Presented below are the Corporate and Other segment's after-tax results:




Year Ended December 31,                                 2016            2015            2014
(millions, except EPS amounts)
Specific items attributable to operating
segments                                             $  (180 )       $  (136 )       $  (544 )
Specific items attributable to Corporate and
Other segment                                            (44 )            (5 )          (149 )
Total specific items                                    (224 )          (141 )          (693 )
Other corporate operations                              (260 )          (250 )          (277 )
Total net expense                                    $  (484 )       $  (391 )       $  (970 )
EPS impact                                           $ (0.78 )       $ (0.66 )       $ (1.66 )


TOTAL SPECIFIC ITEMS

Corporate and Other includes specific items attributable to Dominion's primary
operating segments that are not included in profit measures evaluated by
executive management in assessing the segments' performance or in allocating
resources. See Note 25 to the Consolidated Financial Statements for discussion
of these items in more detail. Corporate and other also includes specific items
attributable to the Corporate and Other segment. In 2016, this primarily
included $53 million of after-tax transaction and transition costs associated
with the Dominion Questar Combination. In 2014, this primarily included
$174 million of after-tax charges associated with Dominion's Liability
Management Exercise.

VIRGINIA POWER





RESULTS OFOPERATIONS

Presented below is a summary of Virginia Power's consolidated results:




       Year Ended December 31,      2016      $ Change        2015      $ Change      2014
       (millions)
       Net Income                $ 1,218     $     131     $ 1,087     $     229     $ 858


Overview

2016 VS. 2015

Net income increased 12%, primarily due to the new PJM capacity performance
market effective June 2016, an increase in rate adjustment clause revenue and
the absence of a write-off of deferred fuel costs associated with the Virginia
legislation enacted in February 2015. These increases were partially offset by
charges related to future ash pond and landfill closure costs at certain utility
generation facilities.

2015 VS. 2014

Net income increased 27%, primarily due to the absence of charges associated
with Virginia legislation enacted in April 2014 relating to the development of a
third nuclear unit located at North Anna and offshore wind facilities.





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Analysis of Consolidated Operations

Presented below are selected amounts related to Virginia Power's results of operations:




Year Ended December 31,               2016         $ Change           2015         $ Change           2014

(millions)

Operating Revenue                  $ 7,588       $      (34 )      $ 7,622       $       43        $ 7,579
Electric fuel and other
energy-related purchases             1,973             (347 )        2,320              (86 )        2,406
Purchased electric capacity             99             (231 )          330              (30 )          360
Net Revenue                          5,516              544          4,972              159          4,813
Other operations and
maintenance                          1,857              223          1,634             (282 )        1,916
Depreciation and amortization        1,025               72            953               38            915
Other taxes                            284               20            264                6            258
Other income                            56              (12 )           68              (25 )           93
Interest and related charges           461               18            443               32            411
Income tax expense                     727               68            659              111            548

An analysis of Virginia Power's results of operations follows:

2016 VS. 2015

Net revenue increased 11%, primarily reflecting:

• A $225 million electric capacity benefit, primarily due to the new PJM

capacity performance market effective June 2016 ($155 million) and the

expiration of non-utilitygenerator contracts in 2015 ($58 million);

• An increase from rate adjustment clauses ($183 million); and

• The absence of an $85 million write-off of deferred fuel costs associated

with Virginia legislation enacted in February 2015.

Other operations and maintenance increased 14%, primarily reflecting:

• A $98 million increase in charges related to future ash pond and landfill

closure costs at certain utility generation facilities;

• A $50 million increase in storm damage and service restoration costs,

     including $23 million for Hurricane Matthew;


•    A $37 million increase in salaries, wages and benefits and general
     administrative expenses; and


•   Organizational design initiative costs ($32 million).

Income tax expense increased 10%, primarily reflecting higher pre-tax income.

2015 VS. 2014

Net revenue increased 3%, primarily reflecting:

• An increase from rate adjustment clauses ($225 million);

• An increase in sales to retail customers, primarily due to a net increase in

cooling degree days ($38 million); and

• A decrease in capacity related expenses ($33 million); partially offset by

• An $85 million write-off of deferred fuel costs associated with Virginia

legislation enacted in February 2015;

• A decrease in sales to customers due to the effect of changes in customer

usage and other factors ($24 million); and

• A decrease due to a charge based on the 2015 Biennial Review Order to refund

revenues to customers ($20 million).

Other operations and maintenance decreased 15%, primarily reflecting:

• The absence of $370 million in charges associated with Virginia legislation

enacted in April 2014 relating to the development of a third nuclear unit

located at North Anna and offshore wind facilities; and

• A $38 million decrease in planned outage costs primarily due to a decrease in

scheduled outage days at certain non-nuclear utility generation facilities.

These decreases were partially offset by:

• An $80 million increase in certain electric transmission-related

expenditures. These expenses are primarily recovered through state and FERC

rates and do not impact net income; and

• A $53 million increase in utility nuclear refueling outage costs primarily

due to the amortization of outage costs that were previously deferred

pursuant to Virginia legislation enacted in April 2014.

Other income decreased 27%, primarily reflecting lower tax recoveries associated with contributions in aid of construction.

Income tax expense increased 20%, primarily reflecting higher pre-tax income.


DOMINION GAS





RESULTS OFOPERATIONS

Presented below is a summary of Dominion Gas' consolidated results:



        Year Ended December 31,    2016      $ Change       2015      $ Change       2014
        (millions)
        Net Income                $ 392     $     (65 )    $ 457     $     (55 )    $ 512


Overview

2016 VS. 2015

Net income decreased 14%, primarily due a decrease in gains from agreements to convey shale development rights underneath several natural gas storage fields.

2015 VS. 2014


Net income decreased 11%, primarily due to the absence of gains on the indirect
sale of assets to Blue Racer, a decrease in income from NGL activities and
higher interest expense, partially offset by increased gains from agreements to
convey shale development rights underneath several natural gas storage fields.





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Analysis of Consolidated Operations


Presented below are selected amounts related to Dominion Gas' results of
operations:



Year Ended December 31,           2016           $ Change             2015            $ Change             2014
(millions)
Operating Revenue              $ 1,638          $     (78 )        $ 1,716          $     (182 )        $ 1,898
Purchased gas                      109                (24 )            133                (182 )            315
Other energy-related
purchases                           12                 (9 )             21                 (19 )             40
Net Revenue                      1,517                (45 )          1,562                  19            1,543
Other operations and
maintenance                        474                 84              390                  52              338
Depreciation and
amortization                       204                (13 )            217                  20              197
Other taxes                        170                  4              166                   9              157
Earnings from equity
method investee                     21                 (2 )             23                   2               21
Other income                        11                 10                1                  -                 1
Interest and related
charges                             94                 21               73                  46               27
Income tax expense                 215                (68 )            283                 (51 )            334

An analysis of Dominion Gas' results of operations follows:

2016 VS. 2015

Net revenue decreased 3%, primarily reflecting:

• A $34 million decrease from regulated natural gas transmission operations,

primarily reflecting:

• A $36 million decrease in gas transportation and storage activities,

primarily due to decreased demand charges ($28 million), increased fuel

costs ($13 million), contract rate changes ($11 million) and decreased

revenue from gathering and extraction services ($8 million), partially

        offset by increased regulated gas sales ($16 million) and expansion
        projects placed in service ($9 million); and

• An $18 million decrease from NGL activities, due to decreased prices ($16

million) and volumes ($2 million); partially offset by

• A $21 million increase in services performed for Atlantic Coast Pipeline;

and

• A $12 million decrease from regulated natural gas distribution operations,

primarily reflecting:


   •    A decrease in rate adjustment clause revenue related to low income
        assistance programs ($26 million); and

• A $9 million decrease in other revenue primarily due to a decrease in

        pooling and metering activities ($3 million), a decrease in Blue Racer
        management fees ($3 million) and a decrease in gathering activities ($2
        million); partially offset by


  •   An $18 million increase in AMR and PIR program revenues; and


  •   An $8 million increase in off-system sales.

Other operations and maintenance increased 22%, primarily reflecting:

• A $78 million decrease in gains from agreements to convey shale development

rights underneath several natural gas storage fields; and

• A $20 million increase in services performed for Atlantic Coast Pipeline.

These expenses are billed to Atlantic Coast Pipeline and do not significantly

     impact net income; partially offset by


•    A $26 million decrease in bad debt expense at regulated natural gas

distribution operations primarily related to low income assistance programs.

     These bad debt expenses are recovered through rates and do not impact net
     income.

Other income increased $10 million, primarily due to a gain on the sale of 0.65% of the noncontrolling partnership interest in Iroquois ($5 million) and an increase in AFUDC associated with rate-regulated projects ($5 million).


Interest and related charges increased 29%, primarily due to higher interest
expense resulting from the issuances of senior notes in November 2015 and the
second quarter of 2016 ($28 million), partially offset by an increase in
deferred rate adjustment clause interest expense ($7 million).

Income tax expense decreased 24% primarily reflecting lower pre-tax income.

2015 VS. 2014

Net revenue increased 1%, primarily reflecting:

• A $43 million increase from regulated natural gas distribution operations,

primarily due to an increase in AMR and PIR program revenues ($24 million)

and various expansion projects placed into service ($22 million); partially

offset by

• A $27 million decrease from regulated natural gas transmission operations,

     primarily reflecting:



• A $62 million decrease from NGL activities, primarily due to decreased

prices; partially offset by

• A $2 million increase in gas transportation and storage activities,

primarily due to decreased fuel costs ($24 million) and various expansion

projects placed into service ($24 million), partially offset by decreased

regulated gas sales ($46 million); and

• A $33 million net increase in other revenue primarily due to services

performed for Atlantic Coast Pipeline and Blue Racer ($47 million),

partially offset by a decrease in non-regulated gas sales ($8 million) and

decreased farm-out revenues ($6 million).

Other operations and maintenance increased 15%, primarily reflecting:

• A $47 million net increase due to services performed for Atlantic Coast

Pipeline and Blue Racer. These expenses are billed to these entities and do

not significantly impact net income; and

• The absence of gains on the sale of assets to Blue Racer ($59 million);

partially offset by

• An increase in gains from agreements to convey shale development rights

underneath several natural gas storage fields ($63 million).

Depreciation and amortization increased 10% primarily due to various expansion projects placed into service.

Interest and related charges increased $46 million, primarily due to higher long-term debt interest expense resulting from debt issuances in December 2014.

Income tax expense decreased 15% primarily reflecting lower pre-tax income.





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LIQUIDITY AND CAPITAL RESOURCES


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

At December 31, 2016, Dominion had $2.3 billion of unused capacity under its
credit facilities. See additional discussion below under Credit Facilities and
Short-Term Debt.

A summary of Dominion's cash flows is presented below:



Year Ended December 31,                                        2016          2015          2014
(millions)
Cash and cash equivalents at beginning of year            $     607      $    318      $    316
Cash flows provided by (used in):
Operating activities                                          4,127         4,475         3,439
Investing activities                                        (10,703 )      (6,503 )      (5,181 )
Financing activities                                          6,230         2,317         1,744
Net increase (decrease) in cash and cash equivalents           (346 )         289             2
Cash and cash equivalents at end of year                  $     261      $    607      $    318


Operating Cash Flows

Net cash provided by Dominion's operating activities decreased $348 million,
primarily due to higher operations and maintenance expenses, derivative
activities, and increased payments for income taxes and interest. The decrease
was partially offset with the benefit from the new PJM capacity performance
market and higher deferred fuel cost recoveries and revenues from rate
adjustment clauses in its Virginia jurisdiction.

Dominion believes that its operations provide a stable source of cash flow to
contribute to planned levels of capital expenditures and maintain or grow the
dividend on common shares. In December 2016, Dominion's Board of Directors
established an annual dividend rate for 2017 of $3.02 per share of common stock,
a 7.9% increase over the 2016 rate. Dividends are subject to declaration by the
Board of Directors. In January 2017, Dominion's Board of Directors declared
dividends payable in March 2017 of 75.5 cents per share of common stock.

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

CREDIT RISK

Dominion's exposure to potential concentrations of credit risk results primarily
from its energy marketing and price risk management activities. Presented below
is a summary of Dominion's credit exposure as of December 31, 2016 for these
activities. Gross credit exposure for each counterparty is calculated as
outstanding receivables plus any unrealized on- or off-balance sheet exposure,
taking into account contractual netting rights.



                                                   Gross                            Net
                                                  Credit          Credit         Credit
                                                Exposure      Collateral       Exposure
   (millions)
   Investment grade(1)                        $       36     $         -     $       36
   Non-investmentgrade(2)                              9               -              9
   No external ratings:
   Internally rated-investment grade(3)               16               -    

16

   Internally rated-non-investment grade(4)           37               -             37
   Total                                      $       98     $         -     $       98



(1) Designations as investment grade are based upon minimum credit ratings

assigned by Moody's and Standard & Poor's. The five largest counterparty

exposures, combined, for this category represented approximately 27% of the

total net credit exposure.

(2) The five largest counterparty exposures, combined, for this category

represented approximately 10% of the total net credit exposure.

(3) The five largest counterparty exposures, combined, for this category

represented approximately 15% of the total net credit exposure.

(4) The five largest counterparty exposures, combined, for this category

represented approximately 16% of the total net credit exposure.

Investing Cash Flows

Net cash used in Dominion's investing activities increased $4.2 billion, primarily due to the Dominion Questar Combination and higher capital expenditures, partially offset by the absence of Dominion's acquisition of DCG in 2015 and the acquisition of fewer solar development projects in 2016.

Financing Cash Flows and Liquidity


Dominion relies on capital markets as significant sources of funding for capital
requirements not satisfied by cash provided by its operations. As discussed in
Credit Ratings, Dominion's ability to borrow funds or issue securities and the
return demanded by investors are affected by credit ratings. In addition, the
raising of external capital is subject to certain regulatory requirements,
including registration with the SEC for certain issuances.

Dominion currently meets the definition of a well-known seasoned issuer under
SEC rules governing the registration, communications and offering processes
under the Securities Act of 1933. The rules provide for a streamlined shelf
registration process to provide registrants with timely access to capital. This
allows Dominion to use automatic shelf registration statements to register any
offering of securities, other than those for exchange offers or business
combination transactions.

Net cash provided by Dominion's financing activities increased $3.9 billion,
primarily reflecting higher net debt issuances and higher issuances of common
stock and Dominion Midstream common and convertible preferred units in
connection with the Dominion Questar Combination.





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Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

LIABILITY MANAGEMENT

During 2014, Dominion elected to redeem certain debt and preferred securities
prior to their stated maturities. Proceeds from the issuance of lower-cost
senior and enhanced junior subordinated notes were used to fund the redemption
payments. See Note 17 to the Consolidated Financial Statements for descriptions
of these redemptions.

From time to time, Dominion may reduce its outstanding debt and level of
interest expense through redemption of debt securities prior to maturity and
repurchases in the open market, in privately negotiated transactions, through
tender offers or otherwise.

CREDITFACILITIES AND SHORT-TERM DEBT


Dominion uses short-term debt to fund working capital requirements and as a
bridge to long-term debt financings. The levels of borrowing may vary
significantly during the course of the year, depending upon the timing and
amount of cash requirements not satisfied by cash from operations. In January
2016, Dominion expanded its short-term funding resources through a $1.0 billion
increase to one of its joint revolving credit facility limits. In addition,
Dominion utilizes cash and letters of credit to fund collateral requirements.
Collateral requirements are impacted by commodity prices, hedging levels,
Dominion's credit ratings and the credit quality of its counterparties.

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

Dominion's commercial paper and letters of credit outstanding, as well as capacity available under credit facilities, were as follows:




                                                    Outstanding              Outstanding             Facility
                                Facility             Commercial               Letters of             Capacity
December 31, 2016                  Limit                  Paper                   Credit            Available
(millions)
Joint revolving credit
facility(1)(2)                $    5,000          $       3,155            $           -          $     1,845
Joint revolving credit
facility(1)                          500                      -                       85                  415
Total                         $    5,500          $       3,155 (3)        $          85          $     2,260



(1) In May 2016, the maturity dates for these facilities were extended from April

2019 to April 2020. These credit facilities can be used to support bank

borrowings and the issuance of commercial paper, as well as to support up to

a combined $2.0 billion of letters of credit.

(2) In January 2016, this facility limit was increased from $4.0 billion to

$5.0 billion.

(3) The weighted-average interest rate of the outstanding commercial paper

supported by Dominion's credit facilities was 1.05% at December 31, 2016.

Dominion Questar's revolving multi-year and 364-day credit facilities with limits of $500 million and $250 million, respectively, were terminated in October 2016.

SHORT-TERM NOTES


In November 2015, Dominion issued $400 million of private placement short-term
notes that matured in May 2016 and bore interest at a variable rate. In December
2015, Dominion issued an additional $200 million of the variable rate short-term
notes that matured in May 2016. The proceeds were used for general corporate
purposes.

In February 2016, Dominion purchased and cancelled $100 million of the variable
rate short-term notes that would have otherwise matured in May 2016 using the
proceeds from the February 2016 issuance of senior notes that mature in 2018.

In September 2016, Dominion borrowed $1.2 billion under a term loan agreement
that bore interest at a variable rate. The net proceeds were used to finance the
Dominion Questar Combination. In December 2016, the loan was repaid with cash
received from Dominion Midstream in connection with the contribution of Questar
Pipeline. The loan would have otherwise matured in September 2017. See Note 3 to
the Consolidated Financial Statements for more information.

LONG-TERM DEBT

During 2016, Dominion issued the following long-term public debt:




       Type                                   Principal       Rate        Maturity
                                            (millions)
       Senior notes                         $       500       1.60 %          2019
       Senior notes                                 400       2.00 %          2021
       Remarketable subordinated notes              700       2.00 %          2021
       Remarketable subordinated notes              700       2.00 %          2024
       Senior notes                                 400       2.85 %          2026
       Senior notes                                 400       2.95 %          2026
       Senior notes                                 750       3.15 %          2026
       Senior notes                                 500       4.00 %          2046
       Enhanced junior subordinated notes           800       5.25 %          2076
       Total notes issued                   $     5,150

During 2016, Dominion also issued the following long-term private debt:

• In February 2016, Dominion issued $500 million of 2.125% senior notes in a

private placement. The notes mature in 2018. The proceeds were used to repay

or repurchase short-term debt, including commercial paper and short-term

notes, and for general corporate purposes.

• In May 2016, Dominion Gas issued $150 million of private placement 3.8%

senior notes that mature in 2031. The proceeds were used for general

corporate purposes. In June 2016, Dominion Gas issued $250 million of private

placement 2.875% senior notes that mature in 2023. The proceeds were used for

general corporate purposes and to repay short-term debt, including commercial

paper. Also in June 2016, Dominion Gas issued € 250 million of private

placement 1.45% senior notes that mature in 2026. The notes were recorded at

$280 million at issuance and included in long-term debt in the Consolidated

     Balance Sheets at $263 million at December 31,






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2016. The proceeds were used for general corporate purposes and to repay

short-term debt, including commercial paper.

• In September 2016, Dominion issued $300 million of private placement 1.50%

senior notes that mature in 2018. The proceeds were used for general

corporate purposes and to repay short-term debt, including commercial paper.

• In December 2016, Questar Gas issued $50 million of 3.62% private placement

senior notes, and $50 million of 3.67% private placement senior notes, that

mature in 2046 and 2051, respectively. The proceeds were used for general

corporate purposes.

• In December 2016, Dominion issued $250 million of private placement 1.875%

senior notes that mature in 2018. The proceeds were used for general

corporate purposes and to repay short-term debt, including commercial paper.

During 2016, Dominion also remarketed the following long-term debt:

• In March 2016 and May 2016, Dominion successfully remarketed the $550 million

2013 Series A 1.07% RSNs due 2021 and the $550 million 2013 Series B 1.18%

RSNs due 2019, respectively, pursuant to the terms of the related 2013 Equity

Units. In connection with the remarketings, the interest rates on the Series

A and Series B junior subordinated notes were reset to 4.104% and 2.962%,

respectively. Dominion did not receive any proceeds from the remarketings.

See Note 17 to the Consolidated Financial Statements for more information.

• In December 2016, Virginia Power remarketed the $37 million Industrial

Development Authority of the Town of Louisa, Virginia Pollution Control

Refunding Revenue Bonds, Series 2008 C, which mature in 2035 and bear

interest at a coupon rate of 1.85% until May 2019 after which they will bear

interest at a market rate to be determined at that time. Previously, the

bonds bore interest at a coupon rate of .70%. This remarketing was accounted

for as a debt extinguishment with the previous investors.

During 2016, Dominion also borrowed the following under term loan agreements:

• In December 2016, Dominion Midstream borrowed $300 million under a term loan

agreement that matures in December 2019 and bears interest at a variable

rate. The net proceeds were used to finance a portion of the acquisition of

Questar Pipeline from Dominion. See Note 3 to the Consolidated Financial

     Statements for more information.


•    In December 2016, SBL Holdco borrowed $405 million under a term loan

agreement that bears interest at a variable rate. The term loan amortizes

over an 18-year period and matures in December 2023. The debt is nonrecourse

to Dominion and is secured by SBL Holdco's interest in certain merchant solar

facilities. See Note 15 to the Consolidated Financial Statements for more

information. The proceeds were used for general corporate purposes.

During 2016, Dominion repaid $1.8 billion of short-term notes and repaid and repurchased $1.6 billion of long-term debt.

In January 2017, Dominion issued $400 million of 1.875% senior notes and $400 million of 2.75% senior notes that mature in 2019 and 2022, respectively.

ISSUANCE OF COMMON STOCKAND OTHER EQUITY SECURITIES

Dominion maintains Dominion Direct® and a number of employee savings plans through which contributions may be


invested in Dominion's common stock. These shares may either be newly issued or
purchased on the open market with proceeds contributed to these plans. In
January 2014, Dominion began purchasing its common stock on the open market for
these plans. In April 2014, Dominion began issuing new common shares for these
direct stock purchase plans.

During 2016, Dominion issued 4.2 million shares of common stock totaling
$314 million through employee savings plans, direct stock purchase and dividend
reinvestment plans and other employee and director benefit plans. Dominion
received cash proceeds of $295 million from the issuance of 4.0 million of such
shares through Dominion Direct® and employee savings plans.

In both April 2016 and July 2016, Dominion issued 8.5 million shares under the
related stock purchase contract entered into as part of Dominion's 2013 Equity
Units and received $1.1 billion of total proceeds. Additionally, Dominion
completed a market issuance of equity in April 2016 of 10.2 million shares and
received proceeds of $756 million through a registered underwritten public
offering. A portion of the net proceeds was used to finance the Dominion Questar
Combination. See Note 3 to the Consolidated Financial Statements for more
information.

During 2017, Dominion plans to issue shares for employee savings plans, direct
stock purchase and dividend reinvestment plans and stock purchase contracts. See
Note 17 to the Consolidated Financial Statements for a description of common
stock to be issued by Dominion for stock purchase contracts.

During the fourth quarter of 2016, Dominion Midstream received $482 million of
proceeds from the issuance of common units and $490 million of proceeds from the
issuance of convertible preferred units. The net proceeds were primarily used to
finance a portion of the acquisition of Questar Pipeline from Dominion. See Note
3 to the Consolidated Financial Statements for more information.

REPURCHASE OF COMMON STOCK


Dominion did not repurchase any shares in 2016 and does not plan to repurchase
shares during 2017, except for shares tendered by employees to satisfy tax
withholding obligations on vested restricted stock, which does not count against
its stock repurchase authorization.

PURCHASEOF DOMINION MIDSTREAM UNITS


In September 2015, Dominion initiated a program to purchase from the market up
to $50 million of common units representing limited partner interests in
Dominion Midstream, which expired in September 2016. Dominion purchased
approximately 658,000 common units for $17 million and 887,000 common units for
$25 million for the years ended December 31, 2016 and 2015, respectively.

ACQUISITION OFDOMINION QUESTAR


In accordance with the terms of the Dominion Questar Combination, at closing,
each share of issued and outstanding Dominion Questar common stock was converted
into the right to receive $25.00 per share in cash. The total consideration was
$4.4 billion based on 175.5 million shares of Dominion Questar outstanding at
closing. Dominion also acquired Dominion Questar's outstanding debt of
approximately $1.5 billion. Dominion financed the Dominion Questar Combination
through the: (1) August 2016 issuance of $1.4 billion of 2016 Equity Units,
(2) August





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Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

2016 issuance of $1.3 billion of senior notes, (3) September 2016 borrowing of
$1.2 billion under a term loan agreement, which was repaid with cash received
from Dominion Midstream in connection with the contribution of Questar Pipeline
and (4) $500 million of the proceeds from the April 2016 issuance of 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. Dominion believes that its
current credit ratings provide sufficient access to the capital markets.
However, disruptions in the banking and capital markets not specifically related
to Dominion may affect its ability to access these funding sources or cause an
increase in the return required by investors. Dominion's credit ratings affect
its liquidity, cost of borrowing under credit facilities and collateral posting
requirements under commodity contracts, as well as the rates at which it is able
to offer its debt securities.

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

In February 2016, Standard & Poor's lowered the following ratings for Dominion:
issuer to BBB+ from A-, senior unsecured debt securities to BBB from BBB+ and
junior/remarketable subordinated debt securities to BBB- from BBB. In addition,
Standard & Poor's affirmed Dominion's commercial paper rating of A-2 and revised
its outlook to stable from negative.

In March 2016, Fitch and Standard & Poor's changed the rating for Dominion's
junior subordinated debt securities to account for its inability to defer
interest payments on the remarketed 2013 Series A RSNs. Subsequently, junior
subordinated debt securities without an interest deferral feature are rated one
notch higher by Fitch and Standard & Poor's (BBB) than junior subordinated debt
securities with an interest deferral feature (BBB-). See Note 17 to the
Consolidated Financial Statements for a description of the remarketed notes.

Credit ratings as of February 23, 2017 follow:



                                              Fitch       Moody's       Standard & Poor's
Dominion
Issuer                                         BBB+          Baa2                    BBB+
Senior unsecured debt securities               BBB+          Baa2           

BBB

Junior subordinated notes(1)                    BBB          Baa3           

BBB

Enhanced junior subordinated notes(2) BBB- Baa3

BBB-

Junior/ remarketable subordinated notes(2) BBB- Baa3

         BBB-
Commercial paper                                 F2           P-2                     A-2



(1) Securities do not have an interest deferral feature.

(2) Securities have an interest deferral feature.

As of February 23, 2017, Fitch, Moody's, and Standard & Poor's maintained a stable outlook for their respective ratings of Dominion.


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

Debt Covenants


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

Some of the typical covenants include:

• The timely payment of principal and interest;

• Information requirements, including submitting financial reports filed with

     the SEC and information about changes in Dominion's credit ratings to
     lenders;

• Performance obligations, audits/inspections, continuation of the basic nature

     of business, restrictions on certain matters related to merger or
     consolidation and restrictions on disposition of all or substantially all
     assets;

• Compliance with collateral minimums or requirements related to mortgage

     bonds; and


•   Limitations on liens.


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

As of December 31, 2016, the calculated total debt to total capital ratio, pursuant to the terms of the agreements, was as follows:



             Company     Maximum Allowed Ratio(1)        Actual Ratio(2)
             Dominion                          70 %                  61%



(1) Pursuant to a waiver received in April 2016 and in connection with the

closing of the Dominion Questar Combination, the 65% maximum debt to total

capital ratio in Dominion's credit agreements has, with respect to Dominion

only, been temporarily increased to 70% until the end of the fiscal quarter

ending June 30, 2017.

(2) Indebtedness as defined by the bank agreements excludes certain junior

subordinated and remarketable subordinated notes reflected as long-term debt

    as well as AOCI reflected as equity in the Consolidated Balance Sheets.






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If Dominion or any of its material subsidiaries fails to make payment on various
debt obligations in excess of $100 million, the lenders could require the
defaulting company, if it is a borrower under Dominion's credit facilities, to
accelerate its repayment of any outstanding borrowings and the lenders could
terminate their commitments, if any, to lend funds to that company under the
credit facilities. In addition, if the defaulting company is Virginia Power,
Dominion's obligations to repay any outstanding borrowing under the credit
facilities could also be accelerated and the lenders' commitments to Dominion
could terminate.

Dominion executed RCCs in connection with its issuance of the following hybrid securities:

June 2006 hybrids;


•   September 2006 hybrids; and


•   June 2009 hybrids.

In October 2014, Dominion redeemed all of the June 2009 hybrids. The redemption was conducted in compliance with the RCC. See Note 17 to the Consolidated Financial Statements for additional information, including terms of the RCCs.

At December 31, 2016, the termination dates and covered debt under the RCCs associated with Dominion's hybrids were as follows:



                                            RCC
                                    Termination      Designated Covered Debt
          Hybrid                           Date                    Under RCC
          June 2006 hybrids           6/30/2036       September 2006 hybrids
          September 2006 hybrids      9/30/2036            June 2006 

hybrids



Dominion monitors these debt covenants on a regular basis in order to ensure
that events of default will not occur. As of December 31, 2016, there have been
no events of default under Dominion's debt covenants.

Dividend Restrictions


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, 2016.

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

Future Cash Payments for Contractual Obligations and Planned Capital Expenditures

CONTRACTUAL OBLIGATIONS


Dominion is party to numerous contracts and arrangements obligating it to make
cash payments in future years. These contracts include financing arrangements
such as debt agreements and leases, as well as contracts for the purchase of
goods and services and financial derivatives. Presented below is a table
summarizing cash payments that may result from contracts to which Dominion is a
party as of December 31, 2016. For purchase obligations and

other liabilities, amounts are based upon contract terms, including fixed and
minimum quantities to be purchased at fixed or market-based prices. Actual cash
payments will be based upon actual quantities purchased and prices paid and will
likely differ from amounts presented below. The table excludes all amounts
classified as current liabilities in the Consolidated Balance Sheets, other than
current maturities of long-term debt, interest payable and certain derivative
instruments. The majority of Dominion's current liabilities will be paid in cash
in 2017.



                                                    2018-         2020-           2022 and
                                      2017           2019          2021         thereafter          Total
(millions)
Long-term debt(1)                  $ 1,711       $  6,666       $ 3,888       $     19,927       $ 32,192
Interest payments(2)                 1,339          2,349         1,902             14,596         20,186
Leases(3)                               72            127            71                238            508
Purchase obligations(4):
Purchased electric capacity
for utility operations                 149            153            98                  -            400
Fuel commitments for utility
operations                           1,300          1,163           386              1,487          4,336
Fuel commitments for
nonregulated operations                122            114           124                131            491
Pipeline transportation and
storage                                305            495           380              1,253          2,433
Other(5)                               648            179            43                 14            884
Other long-term
liabilities(6):
Other contractual
obligations(7)                          77            188            28                 24            317
Total cash payments                $ 5,723       $ 11,434       $ 6,920       $     37,670       $ 61,747



(1) Based on stated maturity dates rather than the earlier redemption dates that

could be elected by instrument holders.

(2) Includes interest payments over the terms of the debt and payments on related

    stock purchase contracts. Interest is calculated using the applicable
    interest rate or forward interest rate curve at December 31, 2016 and
    outstanding principal for each instrument with the terms ending at each
    instrument's stated maturity. See Note 17 to the Consolidated Financial

Statements. Does not reflect Dominion's ability to defer interest and stock

purchase contract payments on certain junior subordinated notes or RSNs and

equity units, initially in the form of Corporate Units.

(3) Primarily consists of operating leases.

(4) Amounts exclude open purchase orders for services that are provided on

demand, the timing of which cannot be determined.

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

(6) Excludes regulatory liabilities, AROs and employee benefit plan obligations,

which are not contractually fixed as to timing and amount. See Notes 12, 14

and 21 to the Consolidated Financial Statements. Due to uncertainty about the

timing and amounts that will ultimately be paid, $48 million of income taxes

payable associated with unrecognized tax benefits are excluded. Deferred

income taxes are also excluded since cash payments are based primarily on

taxable income for each discrete fiscal year. See Note 5 to the Consolidated

Financial Statements.

(7) Includes interest rate and foreign currency swap agreements.

PLANNEDCAPITAL EXPENDITURES


Dominion's planned capital expenditures are expected to total approximately
$5.8 billion, $5.0 billion and $5.2 billion in 2017, 2018 and 2019,
respectively. Dominion's planned expenditures are expected to include
construction and expansion of electric generation and natural gas transmission
and storage facilities, construction improvements and expansion of electric
transmission and distribution assets, purchases of nuclear fuel, maintenance and
the construction of the Liquefaction Project and Dominion's portion of the
Atlantic Coast Pipeline.





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Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

Dominion expects to fund its capital expenditures with cash from operations and
a combination of securities issuances and short-term borrowings. Planned capital
expenditures include capital projects that are subject to approval by regulators
and the Board of Directors.

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


These estimates are based on a capital expenditures plan reviewed and endorsed
by Dominion's Board of Directors in late 2016 and are subject to continuing
review and adjustment and actual capital expenditures may vary from these
estimates. Dominion may also choose to postpone or cancel certain planned
capital expenditures in order to mitigate the need for future debt financings
and equity issuances.

Use of Off-Balance Sheet Arrangements

LEASING ARRANGEMENT


In July 2016, Dominion signed an agreement with a lessor to construct and lease
a new corporate office property in Richmond, Virginia. The lessor is providing
equity and has obtained financing commitments from debt investors, totaling $365
million, to fund the estimated project costs. The project is expected to be
completed by mid-2019. Dominion has been appointed to act as the construction
agent for the lessor, during which time Dominion will request cash draws from
the lessor and debt investors to fund all project costs, which totaled
$46 million as of December 31, 2016. If the project is terminated under certain
events of default, Dominion could be required to pay up to 89.9% of the then
funded amount. For specific full recourse events, Dominion could be required to
pay up to 100% of the then funded amount.

The five-year lease term will commence once construction is substantially
complete and the facility is able to be occupied. At the end of the initial
lease term, Dominion can (i) extend the term of the lease for an additional five
years, subject to the approval of the participants, at current market terms,
(ii) purchase the property for an amount equal to the project costs or,
(iii) subject to certain terms and conditions, sell the property to a third
party using commercially reasonable efforts to obtain the highest cash purchase
price for the property. If the project is sold and the proceeds from the sale
are insufficient to repay the investors for the project costs, Dominion may be
required to make a payment to the lessor, up to 87% of project costs, for the
difference between the project costs and sale proceeds.

The respective transactions have been structured so that Dominion is not
considered the owner during construction for financial accounting purposes and,
therefore, will not reflect the construction activity in its consolidated
financial statements. The financial accounting treatment of the lease agreement
will be impacted by the new accounting standard issued in February 2016. See
Note 2 to the Consolidated Financial Statements for additional information.
Dominion will be considered the owner of the leased property for tax purposes,
and as a result, will be entitled to tax deductions for depreciation and
interest expense.

GUARANTEES

Dominion primarily enters into guarantee arrangements on behalf of its consolidated subsidiaries. These arrangements are not sub-


ject to the provisions of FASB guidance that dictate a guarantor's accounting
and disclosure requirements for guarantees, including indirect guarantees of
indebtedness of others. See Note 22 to the Consolidated Financial Statements for
additional information, which information is incorporated herein by reference.




FUTURE ISSUESAND OTHER MATTERS

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


Environmental Matters

Dominion 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.

ENVIRONMENTAL PROTECTIONAND MONITORING EXPENDITURES


Dominion incurred $394 million, $298 million and $313 million of expenses
(including accretion and depreciation) during 2016, 2015, and 2014 respectively,
in connection with environmental protection and monitoring activities, including
charges related to future ash pond and landfill closure costs, and expects these
expenses to be approximately $190 million and $185 million in 2017 and 2018,
respectively. In addition, capital expenditures related to environmental
controls were $191 million, $94 million, and $101 million for 2016, 2015 and
2014, respectively. These expenditures are expected to be approximately $185
million and $115 million for 2017 and 2018, respectively.

FUTUREENVIRONMENTAL REGULATIONS

Air


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

In August 2015, the EPA issued final carbon standards for existing fossil fuel
power plants. Known as the Clean Power Plan, the rule uses a set of measures for
reducing emissions from existing sources that includes efficiency improvements
at coal plants, displacing coal-fired generation with increased utilization of
natural gas combined cycle units and expanding renewable resources. The new rule
requires states to impose standards of performance limits for existing fossil
fuel-fired electric generating units or equivalent statewide intensity-based or
mass-based CO2 binding goals or limits. States are required to submit final
plans identifying how they will comply with the rule by September 2018. The EPA
also issued a proposed federal plan and model trading rule that states can adopt
or that would be put in place if, in response to the final guidelines, a state
either does not submit a state plan or its plan is not approved by the EPA.
Virginia Power's most recent integrated resources plan filed in April 2016
includes four





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alternative plans that represent plausible compliance strategies with the rule
as proposed, and which include additional coal unit retirements and additional
low or zero-carbon resources. The final rule has been challenged in the U.S.
Court of Appeals for the D.C. Circuit. In February 2016, the U.S. Supreme Court
issued a stay of the Clean Power Plan until the disposition of the petitions
challenging the rule now before the Court of Appeals, and, if such petitions are
filed in the future, before the U.S. Supreme Court. Dominion does not know
whether these legal challenges will impact the submittal deadlines for the state
implementation plans. In June 2016, the Governor of Virginia signed an executive
order directing the Virginia Natural Resources Secretary to convene a workgroup
charged with recommending concrete steps to reduce carbon pollution which
include the Clean Power Plan as an option. Unless the rule survives the court
challenges and until the state plans are developed and the EPA approves the
plans, Dominion cannot predict the potential financial statement impacts but
believes the potential expenditures to comply could be material.

In December 2012, the EPA issued a final rule that set a more stringent annual
air quality standard for fine particulate matter. The EPA issued final
attainment/nonattainment designations in January 2015. Until states develop
their implementation plans, Dominion cannot determine whether or how facilities
located in areas designated nonattainment for the standard will be impacted, but
does not expect such impacts to be material.

The EPA has finalized rules establishing a new 1-hour NAAQS for NO2 and a new
1-hour NAAQS for SO2, which could require additional NOX and SO2 controls in
certain areas where Dominion operates. Until the states have developed
implementation plans for these standards, the impact on Dominion's facilities
that emit NOX and SO2 is uncertain. Additionally, the impact of permit limits
for implementing NAAQS on Dominion's facilities is uncertain at this time.

Climate Change


In December 2015, the Paris Agreement was formally adopted under the United
Nations Framework Convention on Climate Change. The accord establishes a
universal framework for addressing GHG emissions involving actions by all
nations through the concept of nationally determined contributions in which each
nation defines the GHG commitment it can make and sets in place a process for
increasing those commitments every five years. It also contains a global goal of
holding the increase in the global average temperature to well below 2 degrees
Celsius above pre-industrial levels and to pursue efforts to limit the
temperature increase to 1.5 degrees Celsius above pre-industrial levels and to
aim to reach global peaking of GHG emissions as soon as possible.

A key element of the initial U.S. nationally determined contributions of
achieving a 26% to 28% reduction below 2005 levels by 2025 is the implementation
of the Clean Power Plan, which establishes interim emission reduction targets
for fossil fuel-fired electric generating units over the period 2022 through
2029 with final targets to be achieved by 2030. The EPA estimates that the Clean
Power Plan will result in a nationwide reduction in CO2 emissions from fossil
fuel-fired electric generating units of 32% from 2005 levels by 2030.

In March 2016, as part of its Climate Action Plan, the EPA began development of regulations for reducing methane emissions


from existing sources in the oil and natural gas sectors. In November 2016, the
EPA issued an Information Collection Request to collect information on existing
sources upstream of local distribution companies in this sector. Depending on
the results of this Information Collection Request, the EPA may propose new
regulations on existing sources. Dominion cannot currently estimate the
potential impacts on results of operations, financial condition and/or cash
flows related to this matter.

PHMSA Regulation


The most recent reauthorization of PHMSA included new provisions on historical
records research, maximum-allowed operating pressure validation, use of
automated or remote-controlled valves on new or replaced lines, increased civil
penalties and evaluation of expanding integrity management beyond
high-consequence areas. PHMSA has not yet issued new rulemaking on most of these
items.

Legal Matters

Collective Bargaining Agreement


In April 2016, the labor contract between Dominion and Local 69 expired. In
August 2016, the parties reached a tentative agreement for a new labor contract,
however, the agreement was not submitted to members of Local 69 for approval. In
September 2016, following a temporary lock out of union members, Local 69 agreed
to not strike at DTI and Hope at least through April 1, 2017. In exchange, DTI
and Hope agreed to recall the union members to work and not lock them out during
that period. Contract negotiations resumed in October 2016 and are continuing.
Local 69 represents approximately 760 DTI employees in West Virginia, New York,
Pennsylvania, Ohio and Virginia and approximately 150 Hope employees in West
Virginia.

Dodd-Frank Act

The Dodd-Frank Act was enacted into law in July 2010 in an effort to improve
regulation of financial markets. The CEA, as amended by Title VII of the
Dodd-Frank Act, requires certain over-the counter derivatives, or swaps, to be
cleared through a derivatives clearing organization and, if the swap is subject
to a clearing requirement, to be executed on a designated contract market or
swap execution facility. Non-financial entities that use swaps to hedge or
mitigate commercial risk, often referred to as end users, may elect the end-user
exception to the CEA's clearing requirements. Dominion has elected to exempt its
swaps from the CEA's clearing requirements. The CFTC may continue to adopt final
rules and implement provisions of the Dodd-Frank Act through its ongoing
rulemaking process, including rules regarding margin requirements for
non-cleared swaps. If, as a result of the rulemaking process, Dominion's
derivative activities are not exempted from clearing, exchange trading or margin
requirements, it could be subject to higher costs due to decreased market
liquidity or increased margin payments. In addition, Dominion's swap dealer
counterparties may attempt to pass-through additional trading costs in
connection with the implementation of, and compliance with, Title VII of the
Dodd-Frank Act. Due to the evolving rulemaking process, Dominion is currently
unable to assess the potential impact of the Dodd-Frank Act's derivative-related
provisions on its financial condition, results of operations or cash flows.





                                       57




--------------------------------------------------------------------------------

Table of Contents

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

© Edgar Online, source Glimpses

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Sales 2017 13 145 M
EBIT 2017 4 583 M
Net income 2017 2 350 M
Debt 2017 34 015 M
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Average target price 76,9 $
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Thomas F. Farrell Chairman, President & Chief Executive Officer
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