# Table	of	Contents

# SECURITIES	AND	EXCHANGE	COMMISSION

(Mark	One)

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

# EXCHANGE	ACT	OF	1934

For	the	fiscal	year	ended	December	31,	2002

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

Commission	File	Number	1-8489

# DOMINION	RESOURCES,	INC.

(Exact	name	of	registrant	as	specified	in	its	charter)

Virginia

(State	or	other	jurisdiction of	incorporation	or	organization)

120	Tredegar	Street Richmond,	Virginia

(Address	of	principal	executive	offices)

(Registrant's	telephone	number)

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

Title	of	Each	Class

Common	stock,	no	par	value

9.5%	Equity	Income	Securities,	$50	par

8.4%	Trust	Preferred	Securities,	$25	par

(I.R.S.	Employer Identification	No.)

Name	of	Each	Exchange

on	Which	Registered

New	York	Stock	Exchange

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

Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during	the preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past	90 days.	Yes	x	No	¨

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

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

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

# DOCUMENT	INCORPORATED	BY	REFERENCE.

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

| Part	I |  |  |
| :--- | :--- | :--- |
| 1. | Business | 3 |
| 2. | Properties | 12 |
| 3. | Legal\tProceedings | 16 |
| 4. | Submission\tof\tMatters\tto\ta\tVote\tof\tSecurity\tHolders | 17 |
| Executive\tOfficers\tof\tthe\tRegistrant | Executive\tOfficers\tof\tthe\tRegistrant | 18 |
| Part\tII |  |  |
| 5. | Market\tfor\tthe\tRegistrant's\tCommon\tEquity\tand\tRelated\tStockholder\tMatters | 20 |
| 6. | Selected\tFinancial\tData | 20 |
| 7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 20 |
| 7A. | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 45 |
| 8. | Financial\tStatements\tand\tSupplementary\tData | 46 |
| 9. | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 93 |
| Part\tIII |  |  |
| 10. | Directors\tand\tExecutive\tOfficers\tof\tthe\tRegistrant | 94 |
| 11. | Executive\tCompensation | 94 |
| 12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement | 94 |
| 13. | Certain\tRelationships\tand\tRelated\tTransactions | 94 |
| 14. | Controls\tand\tProcedures | 94 |
| Part\tIV |  |  |
| 15. | Exhibits,\tFinancial\tStatement\tSchedules,\tand\tReports\tof\tForm\t8-K | 95 |
| Signatures\tand\tCertifications | Signatures\tand\tCertifications | 110 |

# Part	I

# The	Company

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

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

# Operating	Segments

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

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

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

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

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

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

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

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

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

# Business	Developments

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

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

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

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

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

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

# Seasonality

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

# Competition

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

# Electric	Industry

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

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

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

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

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

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

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

# Gas	Industry

# Dominion	Delivery

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

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

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

# Dominion	Energy

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

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

# Dominion	Exploration	&	Production

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

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

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

# Regulation

# General

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

# State	Regulation

# Electric

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

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

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

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

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

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

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

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

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

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

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

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

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

For	additional	information	on	deregulation	in	the	gas	industry	and	current	rate	matters,	see	Gas	Industry	in	Competition	and	Regulated	Gas	Distribution

# Operations	in	Future	Issues	and	Outlook	in	MD&A.

# Public	Utility	Holding	Company	Act	of	1935

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

# Federal	Energy	Regulatory	Commission

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

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

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

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

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

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

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

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

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

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

# Environmental	Matters

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

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

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

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

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

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

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

# Nuclear	Regulatory	Commission

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

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

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

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

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

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

# Interconnections

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

# Sources	of	Energy

# Sources	of	Energy—Electricity

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

# Dominion's	Power	Generation

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

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

(b) Excludes	50	percent	undivided	interest	owned	by	ODEC.

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

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

(e) Excludes	50	percent	undivided	interest	owned	by	Peoples	Energy.

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

(g) Includes	generating	units	which	Dominion	operates	under	leasing	arrangements.

# Power	Purchase	Contracts

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

# Fuel	for	Electric	Generation

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

# Nuclear	Fuel	Supply

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

# Fossil	Fuel	Supply

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

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

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

# Gas	Supply

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

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

# Gas	Storage—Transmission

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

# Gas	Production

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

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

# Item	2.				Properties

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

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

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

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

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

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

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

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

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

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

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

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

# Company-Owned	Proved	Gas	and	Oil	Reserves

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

|  | Proved<br>Developed | Total	Proved | Proved<br>Developed | Total	Proved | Proved<br>Developed | Total<br>Proved |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Proved\tgas\treserves\t(bcf) |  |  |  |  |  |  |
| United\tStates | 3,549 | 4,458 | 3,026 | 3,517 | 1,593 | 1,858 |
| Canada | 486 | 640 | 440 | 573 | 361 | 479 |
| Total\tproved\tgas\treserves | 4,035 | 5,098 | 3,466 | 4,090 | 1,954 | 2,337 |
| Proved\toil\treserves\t(000\tbbls) |  |  |  |  |  |  |
| United\tStates | 47,759 | 138,798 | 46,473 | 115,988 | 21,709\t\t51,072 | 21,709\t\t51,072 |
| Canada | 18,064 | 30,432 | 17,304 | 24,579 | 14,527\t\t24,270 | 14,527\t\t24,270 |
| Total\tproved\toil\treserves | 65,823 | 169,230 | 63,777 | 140,567 | 36,236\t\t75,342 | 36,236\t\t75,342 |
| Total\tproved\tgas\tand\toil\treserves\t(bcfe) | 4,430 | 6,113 | 3,850 | 4,933 | 2,172 | 2,789 |

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

# Quantities	of	Gas	and	Oil	Produced

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

|  | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Gas\tproduction\t(bcf) |  |  |  |
| United\tStates | 346 | 238 | 222 |
| Canada | 53 | 57 | 47 |
| Total\tgas\tproduction | 399 | 295 | 269 |
| Oil\tproduction\t(000\tbbls) |  |  |  |
| United\tStates | 8,653 | 6,134\t\t 6,436 | 6,134\t\t 6,436 |
| Canada | 1,072 | 1,529\t\t 1,258 | 1,529\t\t 1,258 |
| Total\toil\tproduction | 9,725 | 7,663\t\t 7,694 | 7,663\t\t 7,694 |
| Total\tgas\tand\toil\tproduction\t(bcfe) | 458 | 341 | 315 |

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

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

# Net	Wells	Drilled	in	the	Calendar	Year

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

|  | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Exploratory: |  |  |  |
| United\tStates |  |  |  |
| Productive | 12 | 17 | 5 |
| Dry | 12 | 15 | 9 |
| Total\tUnited\tStates | 24 | 32 | 14 |
| Canada |  |  |  |
| Productive | 1 | 2 | — |
| Dry | 1 | 1 | 1 |
| Total\tCanada | 2 | 3 | 1 |
| Total\texploratory | 26 | 35 | 15 |
| Development: |  |  |  |
| United\tStates |  |  |  |
| Productive | 774 | 372 | 253 |
| Dry | 38 | 3 | 2 |
| Total\tUnited\tStates | 812 | 375 | 255 |
| Canada |  |  |  |
| Productive | 61 | 93 | 71 |
| Dry | 11 | 15 | 9 |
| Total\tCanada | 72 | 108 | 80 |
| Total\tdevelopment | 884 | 483 | 335 |
| Total\twells\tdrilled | 910 | 518 | 350 |

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

# Acreage

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

|  | Developed	Acreage<br>Gross | Net | Undeveloped	Acreage<br>Gross | Net |
| :--- | :--- | :--- | :--- | :--- |
| United\tStates | 3,714,258 | 2,373,000 | 2,479,977 | 1,417,884 |
| Canada | 1,399,019 | 770,788 | 1,228,191 | 963,525 |
| Total | 5,113,277 | 3,143,788 | 3,708,168 | 2,381,409 |

# Productive	Wells

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

|  | Gross | Net |
| :--- | :--- | :--- |
| Gas\twells |  |  |
| United\tStates | 23,896 | 15,359 |
| Canada | 876 | 579 |
| Total\tgas\twells | 24,772 | 15,938 |
| Oil\twells |  |  |
| United\tStates | 305 | 222 |
| Canada | 352 | 172 |
| Total\toil\twells | 657 | 394 |

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

# Item	3. Legal	Proceedings

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

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

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

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

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

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

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

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

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

# Item	4. Submission	of	Matters	to	a	Vote	of	Security	Holders

None.

# Executive	Officers	of	the	Registrant

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

# Part	II

# Item	5. Market	for	the	Registrant's	Common	Equity	and	Related	Stockholder	Matters

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

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

# Item	6. 	 Selected	Financial	Data

| (millions,	except	per	share	amounts) | 2002 | 2001 | 2000 | 1999 | 1998 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue | $10,218 | $10,558 | $9,246 | $5,520 | $6,081 |
| Income\tbefore\textraordinary\titem\tand\tcumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple | 1,362 | 544 | 415 | 552 | 548 |
| Extraordinary\titem\t(net\tof\tincome\ttaxes\tof\t$197) |  |  |  | (255) |  |
| Cumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple\t(net\tof\tincome\ttaxes\tof\t$11) |  |  | 21 |  |  |
| Net\tincome | 1,362 | 544 | 436 | 297 | 548 |
| Earnings\tper\tcommon\tshare—basic | 4.85 | 2.17 | 1.85 | 1.55 | 2.81 |
| Earnings\tper\tcommon\tshare—diluted | 4.82 | 2.15 | 1.85 | 1.48 | 2.81 |
| Total\tassets | 37,909 | 34,369 | 29,297 | 17,782 | 17,549 |
| Long-term\tdebt,\tsubsidiary\tpreferred\tstock\tsubject\tto\tmandatory\tredemption\tand\tpreferred |  |  |  |  |  |
| securities\tof\tsubsidiary\ttrusts | 13,457 | 13,251 | 10,486 | 7,321 | 6,817 |
| Dividends\tpaid\tper\tshare | $2.58 | $2.58 | $2.58 | $2.58 | $2.58 |

# Item	7. Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations

# Introduction

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

# Risk	Factors	and	Cautionary	Statements	That	May	Affect	Future	Results

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

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

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

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

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

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

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

Capped	electric	rates	in	Virginia	may	be	insufficient	to	allow	full	recovery	of	stranded	and	other	costs.				Under	the	Virginia	Electric	Utility	Restructuring	Act,

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

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

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

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

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

# Management's	Discussion	and	Analysis	of	Financial	Condition

# and	Results	of	Operations,	Continued

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

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

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

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

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

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

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

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

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

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

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

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

Dominion	Exploration	&	Production's	operating	results	reflect	successful	discovery	of	and	production	from	natural	gas	and	oil	reserves,	as	well	as	changes	in	prices	of natural	gas	and	oil.	Dominion	Exploration	&	Production's	commodity	risk	is	managed	by	the	Dominion	Energy	Clearinghouse	(the	Clearinghouse)	by	using	derivative instruments,	such	as	forwards,	swaps,	and	options.

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

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

# Critical	Accounting	Policies

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

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

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

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

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

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

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

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

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

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

# Results	of	Operations

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

| (millions,	except<br>per	share	amounts) | Net	Income | EPS | Net<br>Income | EPS | Net	Income | EPS |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Dominion\tEnergy | $770 | $2.72 | $723 | $2.86 | $489 | $2.07 |
| Dominion\tDelivery | 455 | 1.61 | 366 | 1.45 | 339 | 1.43 |
| Dominion\tE&amp;P | 380 | 1.34 | 320 | 1.27 | 255 | 1.08 |
| Net\tincome\tcontribution—operating\tsegments | 1,605 | 5.67 | 1,409 | 5.58 | 1,083 | 4.58 |
| Corporate\tand\tOther | (243) | (0.85) | (865) | (3.43) | (647) | (2.73) |
| Total—Consolidated\tDominion | $1,362 | $4.82 | $544 | $2.15 | $436 | $1.85 |
| Consolidated\toperating\trevenue | $10,218 |  | $10,558 |  | $9,246 |  |
| Consolidated\toperating\texpense | $7,333 |  | $8,773 |  | $7,731 |  |

# Overview	of	Consolidated	Operating	Results—2002

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

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

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

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

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

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

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

| share	amounts) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Operating\trevenue | $5,940 | $6,144 | $4,894 |
| Operating\texpenses | 4,520 | 4,749 | 3,939 |
| Net\tincome\tcontribution | 770 | 723 | 489 |
| Earnings\tper\tshare\tcontribution | $2.72 | $2.86 | $2.07 |
| Electricity\tsupplied*\t(million\tmwhrs) | 101 | 95 | 83 |
| Gas\ttransmission\tthroughput\t(bcf) | 597 | 553 | 567 |

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

# Operating	Results—2002

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

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

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

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

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

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

Electric	fuel	and	energy	purchases	expense	increased	$94	million	which	included	an	increase	of	$66	million	associated	with	Dominion's	energy	marketing operations	that	are	not	subject	to	cost-based	rate	regulation	and	an	increase	of	$28	million	associated	with	utility	operations.	Substantially	all	of	the	increase	associated with	non-regulated	energy	marketing	operations	related	to	higher	volumes	purchased	during	the	year.	For	utility	operations,	energy	costs	increased	$66	million	for purchases	subject	to	rate	recovery,	partially	offset	by	a	$38	million	decrease	in	fuel	expenses	associated	with	lower	wholesale	marketing	of	utility	plant	generation. Purchased	gas	expense	decreased	$245	million	associated	with	Dominion's	field	services	and	retail	energy	marketing	operations.	This	decrease	reflected approximately	$162	million	associated	with	declining	prices	and	$83	million	associated	with	lower	purchased	volumes.

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

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

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

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

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

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

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

# Selected	Information—Energy	Trading	Activities

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

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

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

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

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

During	2002,	the	Clearinghouse	also	held	derivative	financial	contracts	to	manage	the	price	risk	of	certain	anticipated	sales	of	Dominion	Exploration	&

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

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

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

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

| Fair	Value | Less	Than	1	Year | 1-2	Years | 2-3	Years | 3-5	Years | In	Excess	of	5	Years | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Actively\tquoted^(1) | $8 | $15 | $13 |  |  | $36 |
| Other\texternal\tsources^(2) |  | 19 | 13 | $13 | $8 | 53 |
| Models\tand\tother\tvaluation\ttechniques^(3) | 19 | 15 | 14 | 10 | 23 | 81 |
| Total | $27 | $49 | $40 | $23 | $31 | $170 |

(1) Exchange-traded	and	over-the-counter	contracts.

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

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

| (millions,	except	per	share	amounts) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Operating\trevenue | $2,552 | $2,963 | $2,826 |
| Operating\texpenses | 1,653 | 2,202 | 2,123 |
| Net\tincome\tcontribution | 455 | 366 | 339 |
| Earnings\tper\tshare\tcontribution | $1.61 | $1.45 | $1.43 |
| Electricity\tdelivered\t(million\tmwhrs) | 75 | 72 | 74 |
| Gas\tthroughput\t(mmcf) | 364 | 357 | 356 |

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

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

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

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

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

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

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

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

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

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

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

| (millions,	except	per	share	amounts) |  | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue | Operating\trevenue | $1,719 | $1,460 | $1,330 |
| Operating\texpenses |  | 1,111 | 934 | 920 |
| Net\tincome\tcontribution | Net\tincome\tcontribution | 380 | 320 | 255 |
| Earnings\tper\tshare\tcontribution |  | $1.34 | $1.27 | $1.08 |
| Gas\tproduction\t(bcf) | Gas\tproduction\t(bcf) | 385 | 283 | 258 |
| Oil\tproduction\t(million\tbbls) |  | 10 | 7 | 8 |
| Average\trealized\tprices\twith\thedging\tresults: | (1) |  |  |  |
| Gas\t(per\tmcf) | Gas\t(per\tmcf) | $3.40 | $3.80 | $3.07 |
| Oil\t(per\tbbl) | Oil\t(per\tbbl) | 23.28 | 23.42 | 22.26 |
| Average\tprices\twithout\thedging\tresults: |  |  |  |  |
| Gas\t(per\tmcf) | Gas\t(per\tmcf) | 3.03 | 3.87 | 3.70 |
| Oil\t(per\tbbl) |  | $24.44 | $23.53 | $23.98 |

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

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

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

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

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

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

# Corporate	and	Other

| (millions,	except	per	share	amounts) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Net\tloss | $(243) | $(865) | $(647) |
| Earnings\tper\tshare\timpact | $(0.85) | $(3.43) | $(2.73) |

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

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

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

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

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

n	a	$220	million	charge,	reported	in	operations	and	maintenance	expense,	related	to	the	termination	of	certain	long-term	power	purchase	contracts;	and n	a	$40	million	loss	on	the	sale	of	Saxon	Capital,	reported	in	other	operations	and	maintenance	expense.

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

# Liquidity	and	Capital	Resources

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

# Internal	Sources	of	Liquidity

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

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

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

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

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

n	effectiveness	of	Dominion's	risk	management	activities	and	underlying	assessment	of	market	conditions	and	related	factors,	including	energy	commodity	prices,

basis,	liquidity,	volatility,	counterparty	credit	risk,	availability	of	generation	and	transmission	capacity,	currency	exchange	rates	and	interest	rates;

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

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

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

# External	Sources	of	Liquidity

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

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

# Credit	Facilities	and	Short-Term	Debt

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

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

| (millions) | Facility	Limit | Outstanding<br>Commercial<br>Paper | Outstanding<br>Letters	of<br>Credit | Facility<br>Capacity<br>Remaining |
| :--- | :--- | :--- | :--- | :--- |
| 364-day\trevolving\tjoint\tcredit\tfacility | $1,250 |  |  |  |
| Three-year\trevolving\tjoint\tcredit\tfacility | 750 |  |  |  |
| (1) |  |  |  |  |
| Total\tjoint\tcredit\tfacilities | 2,000 | $1,193 | $106 | $701 |
| (2) |  |  |  |  |
| CNG\tcredit\tfacility | 500 |  | 500 |  |
| (3) |  |  |  |  |
| Cove\tPoint\tbridge\tfacility | 250 |  |  | 250 |
| Totals | $2,750 | $1,193 | $606 | $951 |

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

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

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

# Long-Term	Debt

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

| Type | Principal | Rate |  | Maturity |  |  | Company |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (millions) |  |  |  |  |  |  |  |
| Medium-term | $250 | 3.875% | 3.875% |  | 2004 | 2004 | Dominion\tResources |
| notes |  |  |  |  |  |  |  |
| Equity-linked\tdebt\tsecurities |  |  | \t% |  |  |  |  |
|  | 330 | 5.75 |  |  | 2008 |  | Dominion\tResources |
| Senior\tnotes | 1,620 | 5.125 | %– |  | 2009 | – | Dominion\tResources |
|  |  | 6.75 | % |  | 2032 |  |  |
| Senior\tnotes | \t\t\t650 | 5.375% | 5.375% |  | \t\t\t\t2007 | \t\t\t\t2007 | Virginia\tPower |
| Medium-term\tnotes^(1) | 83 | 5.72% | 5.72% |  | 2005 | 2005 | Dominion\tCanada\tFinance\tCompany |
| Bankers\tacceptances^(1) | 13 | 3.58% | 3.58% |  | 2003 | 2003 | Dominion\tExploration\tCanada\tLtd. |

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

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

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

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

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

# Trust	Preferred	Securities

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

# Preferred	Stock

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

# Common	Stock

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

# Amounts	Available	under	Shelf	Registrations

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

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

# Credit	Ratings

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

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

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

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

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

# Debt	Covenants

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

n	the	timely	payment	of	principal	and	interest;

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

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

n	payment	of	taxes,	maintaining	insurance;

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

restrictions	on	disposition	of	substantial	assets;

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

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

n	limitations	on	liens.

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

# Investing	Activities

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

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

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

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

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

# Cash	Requirements	for	Planned	Capital	Expenditures

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

# Off-Balance	Sheet	Arrangements

# Leasing	Arrangements

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

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

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

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

# Securitizations	of	Mortgages	and	Loans

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

# Dominion	Fiber	Ventures,	LLC

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

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

# Contractual	Obligations

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

|  |  |  | Less |  |  | More |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | than\t1 | 1-3 | 3-5 | than\t5 |
| Contractual\tObligations | Contractual\tObligations | Total | year | years | years | years |
| (millions) |  |  |  |  |  |  |
| Long-term\tdebt |  | $14,205 | $2,125 | $2,259 | $2,766 | $7,055 |
| Trust\tpreferred\tsecurities | Trust\tpreferred\tsecurities | 1,400 |  |  |  | 1,400 |
| Lease\tobligations | (1) | 478 | 94 | 176 | 129 | 79 |
| Power\tpurchase\tcontracts | Power\tpurchase\tcontracts | 8,606 | 687 | 1,315 | 1,232 | 5,372 |
| Fuel\tand\tother\tcommitments | Fuel\tand\tother\tcommitments | 1,844 | 645 | 686 | 365 | 148 |
| Total | Total | $26,533 | $3,551 | $4,436 | $4,492 | $14,054 |

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

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

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

# Future	Issues	and	Outlook

# Regulated	Electric	Operations

Electric	Deregulation	Legislation

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

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

Additionally,	the	Virginia	Restructuring	Act	provides	that	after	the	end	of	the	capped	rate	period,	any	default	service	provided	by	Dominion	will	be	based	upon competitive	market	prices	for	electric	generation	services.	The	Virginia	Commission	has	opened	a	proceeding	to	determine	the	components	of	default	service	in	Virginia. North	Carolina—The	North	Carolina	General	Assembly	has	been	exploring	the	future	of	electric	service	in	North	Carolina,	the	development	of	a	competitive wholesale	market	and	retail	competition.	However,	to	date,	there	has	been	no	significant	activity.

Virginia	Commission	Report	on	the	Status	of	Competition	in	Virginia

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

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

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

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

# Separation	of	Generation	and	Delivery	Operations	in	Virginia

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

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

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

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

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

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

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

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

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

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

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

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

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

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

# FERC	Standard	Market	Design	Proposal

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

# Wholesale	Competition

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

# Rate	Matters—Electric

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

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

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

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

# Regulated	Gas	Distribution	Operations

# Gas	Deregulation	Legislation

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

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

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

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

# Rate	Matters—Gas	Distribution

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

# Interstate	Gas	Transmission	Operations

# FERC	Policy	Developments

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

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

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

# Rate	Matters—Gas	Transmission

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

# Merchant	Generation	Operations

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

# Exploration	and	Production	Operations

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

# Pipeline	Operations

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

# Telecommunications	Operations

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

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

# Environmental	Protection	and	Monitoring	Expenditures

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

# Clean	Air	Act	Compliance

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

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

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

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

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

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

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

# Global	Climate	Change

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

# Accounting	Matters

The	FASB	has	issued	several	new	standards	that	will	affect	Dominion	beginning	in	2003.	These	include:	SFAS	No.	143,	Accounting	for	Asset	Retirement	Obligations;

Interpretation	No.	45,	Guarantor's	Accounting	and	Disclosure	Requirements	for	Guarantees,	Including	Indirect	Guarantees	of	Indebtedness	of	Others—An Interpretation	of	FASB	Statements	No.	5,	57	and	107;	and	Interpretation	No.	46,	Consolidation	of	Variable	Interest	Entities.	In	addition,	the	EITF	rescinded	EITF	Issue No.	98-10.	See	Note	4	to	the	Consolidated	Financial	Statements	for	further	discussion	of	the	impact	of	adopting	these	new	accounting	standards	and	information	about other	standard-setting	activities.

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

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

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

n	Expected	Six	Sigma	cost	savings;

n	Potential	decrease	in	regulated	electric	sales,	as	compared	to	2002,	assuming	Dominion's	utility	service	territories	experience	a	return	to	normal	weather	in	2003,

partially	offset	by	continued	growth	in	electric	utility	customers;

n	Expiration	of	production	tax	credits;

n	Lower	pension	benefit	credits;	and

n	Increased	losses	from	telecommunications	operations.

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

# Other	Matters

Pension	Costs

As	discussed	in	Note	26	to	the	Consolidated	Financial	Statements,	Dominion	maintains	qualified	noncontributory	defined	benefit	retirement	plans.	Generally,

Dominion's	funding	policy	is	to	contribute	annually	an	amount	that	is	in	accordance	with	the	provisions	of	the	Employment	Retirement	Income	Security	Act	of	1974.

Investment	experience	and	market	conditions,	including	interest	rates,	impact	the	measurement	of	these	benefit	obligations	and	the	cost	of	providing	such	benefits.

Accordingly,	assumptions	for	discount	rates	and	the	expected	long-term	rate	of	return	on	investments	are	important	considerations	under	SFAS	No.	87,	Employers' Accounting	for	Pensions.	However,	since	the	objective	of	SFAS	No.	87	is	to	recognize	the	cost	of	providing	benefits	over	employees'	service	period,	it	permits	the delayed	recognition	of	certain	elements	of	retirement	plan	results.

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

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

# Workforce	Reductions

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

# Expiration	of	Section	29	Tax	Credits

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

# Nuclear	Relicensing

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

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

# Nuclear	Insurance

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

# Effect	of	Changes	in	Commodity	Prices

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

# Future	Acquisitions

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

# Market	Rate	Sensitive	Instruments	and	Risk	Management

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

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

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

# Commodity	Price	Risk—Trading	Activities

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

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

# Commodity	Price	Risk—Non-Trading	Activities

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

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

# Interest	Rate	Risk

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

# Foreign	Exchange	Risk

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

# Investment	Price	Risk

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

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

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

# Risk	Management	Policies

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

# Item	7A. Quantitative	and	Qualitative	Disclosures	About	Market	Risk

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

# 	 Financial	Statements	and	Supplementary	Data

# Index

| Report	of	Management's	Responsibilities | 47 |
| :--- | :--- |
| Independent\tAuditors'\tReport | 48 |
| Consolidated\tStatements\tof\tIncome\tfor\tthe\tyears\tended\tDecember\t31,\t2002,\t2001\tand\t2000 | 49 |
| Consolidated\tBalance\tSheets\tat\tDecember\t31,\t2002\tand\t2001 | 50 |
| Consolidated\tStatements\tof\tCommon\tShareholders'\tEquity\tat\tDecember\t31,\t2002,\t2001\tand\t2000 | 52 |
| Consolidated\tStatements\tof\tComprehensive\tIncome\tfor\tthe\tyears\tended\tDecember\t31,\t2002,\t2001\tand\t2000 | 53 |
| Consolidated\tStatements\tof\tCash\tFlows\tfor\tthe\tyears\tended\tDecember\t31,\t2002,\t2001\tand\t2000 | 54 |
| Notes\tto\tConsolidated\tFinancial\tStatements | 55 |

# REPORT	OF	MANAGEMENT'S	RESPONSIBILITIES

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

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

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

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

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

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

Thos.	E.	Capps

Chairman,	President	and	Chief	Executive	Officer

Thomas	N.	Chewning Executive	Vice	President	and Chief	Financial	Officer

Steven	A.	Rogers Vice	President,	Controller	and Principal	Accounting	Officer

# INDEPENDENT	AUDITORS'	REPORT

To	the	Shareholders	and	Board	of	Directors	of

# Richmond,	Virginia

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

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

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

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

(February	19,	2003	as	to	the	last	two	paragraphs	of	the	Lease Commitments	section	of	Note	27	and	February	21,	2003	as	to the	last	three	paragraphs	of	Note	30)

# Consolidated	Statements	of	Income

| (millions,	except	per	share	amounts) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Operating\tRevenue | $10,218 | $ 10,558 | $ 9,246 |
| Operating\tExpenses |  |  |  |
| Electric\tfuel\tand\tenergy\tpurchases,\tnet | 1,447 | 1,369 | 1,106 |
| Purchased\telectric\tcapacity | 691 | 680 | 741 |
| Purchased\tgas,\tnet | 1,159 | 1,822 | 1,453 |
| Liquids,\tpipeline\tcapacity\tand\tother\tpurchases | 159 | 219 | 299 |
| Restructuring\tand\tother\tacquisition-related\tcosts | (8) | 105 | 460 |
| Other\toperations\tand\tmaintenance | 2,198 | 2,938 | 2,011 |
| Depreciation,\tdepletion\tand\tamortization | 1,258 | 1,245 | 1,176 |
| Other\ttaxes | 429 | 395 | 485 |
| Total\toperating\texpenses | 7,333 | 8,773 | 7,731 |
| Income\tfrom\toperations | 2,885 | 1,785 | 1,515 |
| Other\tincome | 103 | 126 | 109 |
| Interest\tand\trelated\tcharges: |  |  |  |
| Interest\texpense | 826 | 899 | 958 |
| Subsidiary\tpreferred\tdividends\tand\tdistributions\tof\tsubsidiary\ttrusts | 119 | 98 | 66 |
| Total\tinterest\tand\trelated\tcharges | 945 | 997 | 1,024 |
| Income\tbefore\tincome\ttaxes\tand\tminority\tinterests | 2,043 | 914 | 600 |
| Income\ttaxes | 681 | 370 | 183 |
| Minority\tinterests |  |  | 2 |
| Income\tbefore\tcumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple | 1,362 | 544 | 415 |
| Cumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple\t(net\tof\tincome\ttaxes\tof\t$11) |  |  | 21 |
| Net\tIncome | $1,362 | $544 | $436 |
| Earnings\tPer\tCommon\tShare—Basic: |  |  |  |
| Income\tbefore\tcumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple | $4.85 | $2.17 | $1.76 |
| Cumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple |  |  | 0.09 |
| Net\tincome | $4.85 | $2.17 | $1.85 |
| Earnings\tPer\tCommon\tShare—Diluted: |  |  |  |
| Income\tbefore\tcumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple | $4.82 | $2.15 | $1.76 |
| Cumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple |  |  | 0.09 |
| Net\tincome | $4.82 | $2.15 | $1.85 |
| Dividends\tpaid\tper\tcommon\tshare | $2.58 | $2.58 | $2.58 |

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

# Consolidated	Balance	Sheets

| (millions) | 2002 | 2001 |
| :--- | :--- | :--- |
| ASSETS |  |  |
| Current\tAssets |  |  |
| Cash\tand\tcash\tequivalents | $291 | $486 |
| Customer\taccounts\treceivable\t(net\tof\tallowance\tof\t$63\tand\t$76) | 2,568 | 1,770 |
| Other\taccounts\treceivable | 486 | 226 |
| Inventories: |  |  |
| Materials\tand\tsupplies | 269 | 245 |
| Fossil\tfuel | 137 | 150 |
| Gas\tstored—current\tportion | 231 | 182 |
| Investment\tsecurities—trading |  | 244 |
| Derivative\tand\tenergy\ttrading\tassets | 1,365 | 1,311 |
| Margin\tdeposit\tassets | 149 | 30 |
| Prepayments | 347 | 384 |
| Escrow\taccount\tfor\tdebt\trefunding | 500 |  |
| Other | 482 | 375 |
| Total\tcurrent\tassets | 6,825 | 5,403 |
| Investments |  |  |
| Available\tfor\tsale\tsecurities | 564 | 393 |
| Nuclear\tdecommissioning\ttrust\tfunds | 1,599 | 1,697 |
| Other | 1,011 | 1,070 |
| Total\tinvestments | 3,174 | 3,160 |
| Property,\tPlant\tand\tEquipment,\tNet |  |  |
| Property,\tplant\tand\tequipment | 32,631 | 29,797 |
| Less\taccumulated\tdepreciation,\tdepletion\tand\tamortization | (12,374) | (11,433) |
| Total\tproperty,\tplant\tand\tequipment,\tnet | 20,257 | 18,364 |
| Deferred\tCharges\tand\tOther\tAssets |  |  |
| Goodwill,\tnet | 4,301 | 4,210 |
| Intangible\tassets,\tnet | 313 | 317 |
| Regulatory\tassets,\tnet | 580 | 574 |
| Prepaid\tpension\tcost | 1,710 | 1,511 |
| Derivative\tand\tenergy\ttrading\tassets | 482 | 545 |
| Other | 267 | 285 |
| Total\tdeferred\tcharges\tand\tother\tassets | 7,653 | 7,442 |
| Total\tassets | $37,909 | $34,369 |

# Consolidated	Balance	Sheets	(Continued)

| (millions) |  | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| LIABILITIES\tAND\tSHAREHOLDERS'\tEQUITY |  |  |  |
| Current\tLiabilities |  |  |  |
| Securities\tdue\twithin\tone\tyear | Securities\tdue\twithin\tone\tyear | $2,125 | $1,354 |
| Short-term\tdebt |  | 1,193 | 1,859 |
| Accounts\tpayable,\ttrade | Accounts\tpayable,\ttrade | 2,310 | 1,776 |
| Accrued\tinterest,\tpayroll\tand\ttaxes |  | 606 | 564 |
| Derivative\tand\tenergy\ttrading\tliabilities | Derivative\tand\tenergy\ttrading\tliabilities | 1,609 | 1,086 |
| Other |  | 600 | 839 |
| Total\tcurrent\tliabilities | Total\tcurrent\tliabilities | 8,443 | 7,478 |
| Long-Term\tDebt |  |  |  |
| Long-term\tdebt |  | 11,968 | 11,797 |
| Notes\tpayable—affiliates | Notes\tpayable—affiliates | 92 | 322 |
| Total\tlong-term\tdebt | Total\tlong-term\tdebt | 12,060 | 12,119 |
| Deferred\tCredits\tand\tOther\tLiabilities |  |  |  |
| Deferred\tincome\ttaxes |  | 4,099 | 3,812 |
| Deferred\tinvestment\ttax\tcredits | Deferred\tinvestment\ttax\tcredits | 110 | 128 |
| Derivative\tand\tenergy\ttrading\tliabilities |  | 690 | 322 |
| Other |  | 640 | 626 |
| Total\tdeferred\tcredits\tand\tother\tliabilities | Total\tdeferred\tcredits\tand\tother\tliabilities | 5,539 | 4,888 |
| Total\tliabilities | Total\tliabilities | 26,042 | 24,485 |
| Commitments\tand\tContingencies\t(see\tNote\t27) |  |  |  |
| Company\tObligated\tMandatorily\tRedeemable\tPreferred\tSecurities\tof\tSubsidiary\tTrusts | (1) | 1,397 | 1,132 |
| Subsidiary\tPreferred\tStock\tNot\tSubject\tTo\tMandatory\tRedemption | Subsidiary\tPreferred\tStock\tNot\tSubject\tTo\tMandatory\tRedemption | 257 | 384 |
| Common\tShareholders'\tEquity |  |  |  |
| Common\tstock—no\tpar(2) |  | 9,051 | 7,129 |
| Other\tpaid-in\tcapital | Other\tpaid-in\tcapital | 47 | 28 |
| Accumulated\tother\tcomprehensive\tincome\t(loss) |  | (446) | 289 |
| Retained\tearnings | Retained\tearnings | 1,561 | 922 |
| Total\tcommon\tshareholders'\tequity | Total\tcommon\tshareholders'\tequity | 10,213 | 8,368 |
| Total\tliabilities\tand\tshareholders'\tequity | Total\tliabilities\tand\tshareholders'\tequity | $ 37,909 | $34,369 |

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

(2) 500	million	shares	authorized;	308	million	shares	and	265	million	shares	outstanding	at	December	31,	2002	and	2001,	respectively.

# Consolidated	Statements	of	Common	Shareholders'	Equity

| (millions) | Common	Stock<br>Shares | Amount | Other<br>Paid-In<br>Capital | Accumulated<br>Other<br>Comprehensive<br>Income	(Loss) | Retained<br>Earnings | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tJanuary\t1,\t2000 | 186 | $3,561 | $16 | $(15) | $1,212 | $4,774 |
| Issuance\tof\tstock—CNG\tacquisition | 87 | 3,527 |  |  |  | 3,527 |
| Issuance\tof\tstock—public\toffering | 6 | 354 |  |  |  | 354 |
| Issuance\tof\tstock—employee,\texecutive\tloan\tand\tdirect\tstock\tpurchase\tplans | 4 | 195 |  |  |  | 195 |
| Stock\tawards\tand\tstock\toptions\texercised\t(net\tof\tchange\tin\tunearned\tcompensation) |  | 4 |  |  |  | 4 |
| Stock\trepurchase\tand\tretirement | (37) | (1,641) |  |  |  | (1,641) |
| Accrued\tcontract\tpayments—equity-linked\tsecurities |  | (21) |  |  |  | (21) |
| Comprehensive\tincome |  |  |  | (8) | 436 | 428 |
| Dividends\tand\tother\tadjustments |  |  |  |  | (620) | (620) |
| Balance\tat\tDecember\t31,\t2000 | 246 | 5,979 | 16 | (23) | 1,028 | 7,000 |
| Issuance\tof\tstock\tand\tstock\toptions—Louis\tDreyfus\tacquisition | 14 | 894 |  |  |  | 894 |
| Issuance\tof\tstock—employee\tand\tdirect\tstock\tpurchase\tplans | 3 | 185 |  |  |  | 185 |
| Stock\tawards\tand\tstock\toptions\texercised\t(net\tof\tchange\tin\tunearned\tcompensation) | 2 | 79 |  |  |  | 79 |
| Tax\tbenefit\tfrom\tstock\toptions\texercised |  |  | 12 |  |  | 12 |
| Comprehensive\tincome |  |  |  | 312 | 544 | 856 |
| Dividends\tand\tother\tadjustments |  | (8) |  |  | (650) | (658) |
| Balance\tat\tDecember\t31,\t2001 | 265 | 7,129 | 28 | 289 | 922 | 8,368 |
| Issuance\tof\tstock—public\toffering | 38 | 1,712 |  |  |  | 1,712 |
| Issuance\tof\tstock—employee\tand\tdirect\tstock\tpurchase\tplans | 3 | 199 |  |  |  | 199 |
| Stock\tawards\tand\tstock\toptions\texercised\t(net\tof\tchange\tin\tunearned\tcompensation) | 3 | 113 |  |  |  | 113 |
| Stock\trepurchase\tand\tretirement | (1) | (66) |  |  |  | (66) |
| Accrued\tcontract\tpayments—equity-linked\tsecurities |  | (36) |  |  |  | (36) |
| Tax\tbenefit\tfrom\tstock\toptions\texercised |  |  | 21 |  |  | 21 |
| Comprehensive\tincome |  |  |  | (735) | 1,362 | 627 |
| Dividends\tand\tother\tadjustments |  |  | (2) |  | (723) | (725) |
| Balance\tat\tDecember\t31,\t2002 | 308 | $9,051 | $47 | $(446) | $1,561 | $10,213 |

# Consolidated	Statements	of	Comprehensive	Income

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $1,362 | $544 | $436 |
| Other\tcomprehensive\tincome,\tnet\tof\ttaxes: |  |  |  |
| Net\tdeferred\tgains\t(losses)\ton\tderivatives—hedging\tactivities,\tnet\tof\ttax\t(expense)\tbenefit\tof\t$345\tand\t$(263) | (663) | 465 |  |
| Unrealized\tgains\t(losses)\ton\tinvestment\tsecurities,\tnet\tof\ttax\t(expense)\tbenefit\tof\t$41,\t$(10)\tand\t$(6) | (68) | 11 | 9 |
| Foreign\tcurrency\ttranslation\tadjustments | 6 | (9) | (4) |
| Minimum\tpension\tliability\tadjustment,\tnet\tof\ttax\t(expense)\tbenefit\tof\t$1,\t$(3)\tand\t$8 | (2) | 4 | (16) |
| Cumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple,\tnet\tof\ttax\tbenefit\tof\t$106 |  | (183) |  |
| Amounts\treclassified\tto\tnet\tincome: |  |  |  |
| Realized\t(gains)\tlosses\ton\tinvestment\tsecurities,\tnet\tof\ttax\texpense\t(benefit)\tof\t$6\tand\t$(2) |  | (8) | 3 |
| Net\t(gains)\tlosses\ton\tderivatives—hedging\tactivities,\tnet\tof\ttax\texpense\t(benefit)\tof\t$4\tand\t$(19) | (8) | 32 |  |
| Other\tcomprehensive\tincome\t(loss) | (735) | 312 | (8) |
| Comprehensive\tincome | $627 | $856 | $428 |

# Consolidated	Statements	of	Cash	Flows

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Operating\tActivities |  |  |  |
| Net\tincome | $1,362 | $544 | $436 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tfrom\toperating\tactivities: |  |  |  |
| Cumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple,\tnet\tof\tincome\ttaxes |  |  | (21) |
| DCI\timpairment\tlosses | 13 | 281 | 291 |
| Net\tunrealized\tgains\ton\tenergy\ttrading\tcontracts | (5) | (140) | (25) |
| Depreciation,\tdepletion\tand\tamortization | 1,379 | 1,322 | 1,268 |
| Deferred\tincome\ttaxes\tand\tinvestment\ttax\tcredits,\tnet | 714 | 201 | (92) |
| Changes\tin: |  |  |  |
| Accounts\treceivable | (814) | 414 | (953) |
| Inventories | (55) | (170) | (62) |
| Deferred\tfuel\tand\tpurchased\tgas\tcosts,\tnet | (143) | 293 | (250) |
| Prepaid\tpension\tcost | (198) | (122) | (68) |
| Purchase\tand\torigination\tof\tmortgages |  | (1,528) | (4,281) |
| Proceeds\tfrom\tsale\tand\tprincipal\tcollections\tof\tmortgages |  | 993 | 4,295 |
| Accounts\tpayable,\ttrade | 527 | (25) | 626 |
| Accrued\tinterest,\tpayroll\tand\ttaxes | 58 | (111) | 173 |
| Margin\tdeposit\tassets\tand\tliabilities | (186) | 346 | (244) |
| Other\titems,\tnet | (204) | 105 | 239 |
| Net\tcash\tprovided\tby\toperating\tactivities | 2,448 | 2,403 | 1,332 |
| Investing\tActivities |  |  |  |
| Plant\tconstruction\tand\tother\tproperty\tadditions | (1,339) | (1,224) | (1,385) |
| Purchases\tof\tgas\tand\toil\tproperties,\tprospects\tand\tequipment | (1,489) | (944) | (353) |
| Loan\toriginations |  |  | (2,911) |
| Repayment\tof\tloan\toriginations | 19 | 283 | 4,255 |
| Proceeds\tfrom\tsale\tof\tbusinesses |  | 141 | 836 |
| Acquisition\tof\tbusinesses | (410) | (2,215) | (2,779) |
| Proceeds\tfrom\tsale\tof\tsecurities | 54 | 30 | 137 |
| Purchase\tof\tsecurities |  | (104) | (235) |
| Escrow\tdeposit\tfor\tdebt\trefunding | (500) |  |  |
| Other | (295) | (160) | (162) |
| Net\tcash\tused\tin\tinvesting\tactivities | (3,960) | (4,193) | (2,597) |
| Financing\tActivities |  |  |  |
| Issuance\tof\tcommon\tstock | 2,020 | 245 | 532 |
| Repurchase\tof\tcommon\tstock | (66) |  | (1,641) |
| Issuance\tof\tpreferred\tsecurities\tof\tsubsidiary\ttrusts | 400 | 747 |  |
| Repayment\tof\tpreferred\tsecurities\tof\tsubsidiary\ttrusts | (135) |  |  |
| Issuance\tof\tlong-term\tdebt\tand\tpreferred\tstock | 2,434 | 7,365 | 8,108 |
| Repayment\tof\tlong-term\tdebt\tand\tpreferred\tstock | (1,904) | (4,193) | (6,813) |
| Issuance\t(repayment)\tof\tshort-term\tdebt,\tnet | (666) | (1,620) | 1,820 |
| Common\tdividend\tpayments | (723) | (649) | (615) |
| Other | (43) | 21 | (46) |
| Net\tcash\tprovided\tby\tfinancing\tactivities | 1,317 | 1,916 | 1,345 |
| (Decrease)\tincrease\tin\tcash\tand\tcash\tequivalents | (195) | 126 | 80 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tperiod | 486 | 360 | 280 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tperiod | $291 | $486 | $360 |
| Supplemental\tcash\tflow\tinformation: |  |  |  |
| Cash\tpaid\t(received)\tduring\tthe\tyear\tfor: |  |  |  |
| Interest\tand\trelated\tcharges,\texcluding\tcapitalized\tamounts | $912 | $952 | $1,054 |
| Income\ttaxes | (8) | 284 | 240 |
| Noncash\ttransactions\tfrom\tinvesting\tand\tfinancing\tactivities: |  |  |  |
| Exchange\tof\tdebt\tsecurities | 567 |  |  |
| Stock\tand\tstock\toption\tissuance—Louis\tDreyfus\tacquisition |  | 894 |  |
| Note\treceived\tin\tsale\tof\tbusiness |  | 25 |  |
| Stock\tissuance—CNG\tacquisition |  |  | 3,527 |

# Notes	to	Consolidated	Financial	Statements

# 1.				Nature	of	Operations

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

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

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

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

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

# 2.				Significant	Accounting	Policies

Dominion	makes	certain	estimates	and	assumptions	in	preparing	its	Consolidated	Financial	Statements	in	accordance	with	accounting	principles	generally	accepted	in the	United	States	of	America	(generally	accepted	accounting	principles).	These	estimates	and	assumptions	affect	the	reported	amounts	of	assets	and	liabilities,	the disclosure	of	contingent	assets	and	liabilities	at	the	date	of	the	financial	statements	and	the	reported	amounts	of	revenues	and	expenses	for	the	periods	presented.	Actual results	may	differ	from	those	estimates.

The	Consolidated	Financial	Statements	represent	Dominion's	accounts	after	the	elimination	of	intercompany	transactions.	Dominion	follows	the	equity	method	of accounting	for	investments	with	less	than	a	50	percent	interest	in	partnerships	and	corporate	joint	ventures	when	Dominion	is	able	to	influence	the	financial	and operating	policies	of	the	investee.	For	all	other	investments,	the	cost	method	is	applied.

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

# Use	of	Fair	Value	Measurements

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

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

# Notes	to	Consolidated	Financial	Statements—(Continued)

# Operating	Revenue

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

# Electric	Fuel,	Purchased	Energy	and	Purchased	Gas—Deferred	Costs

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

# Income	Taxes

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

# Stock-based	Compensation

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

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

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

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Net\tincome—as\treported | $1,362 | $544 | $436 |
| Add:\tactual\tstock-based\tcompensation\texpense, |  |  |  |
| (1) |  |  |  |
| net\tof\ttax | 5 | 18 | 6 |
| Deduct:\tpro\tforma\tstock-based\tcompensation\texpense,\tnet\tof\ttax | (52) | (49) | (12) |
| Net\tincome—pro\tforma | $1,315 | $513 | $430 |
| Basic\tEPS—as\treported | $4.85 | $2.17 | $1.85 |
| Basic\tEPS—pro\tforma | 4.68 | 2.05 | 1.82 |
| Diluted\tEPS—as\treported | 4.82 | 2.15 | 1.85 |
| Diluted\tEPS—pro\tforma | 4.65 | 2.03 | 1.82 |

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

# Cash	and	Cash	Equivalents

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

# Margin	Deposit	Assets	and	Liabilities

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

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

# Property,	Plant	and	Equipment

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

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

Depreciation	of	property,	plant	and	equipment	is	computed	on	the	straight-line	method	based	on	projected	service	lives.	Dominion's	depreciation	rates	on property,	plant	and	equipment	for	2002,	2001	and	2000	are	as	follows:	generation	–	2.34	percent,	2.78	percent,	2.79	percent,	respectively;	transmission	–	2.26	percent, 2.58	percent,	2.59	percent,	respectively;	distribution	–	3.27	percent,	3.43	percent,	3.48	percent,	respectively;	storage	–	2.47	percent,	2.57	percent,	2.61	percent,

respectively;	gas	gathering	and	processing	–	2.31	percent,	2.19	percent,	2.62	percent,	respectively;	and	general	and	other	–	5.74	percent,	4.94	percent,	5.18	percent,

respectively.	Amortization	of	nuclear	fuel	used	in	electric	generation	is	provided	on	a	unit-of-production	basis	sufficient	to	fully	amortize,	over	the	estimated	service	life, the	cost	of	the	fuel	plus	permanent	storage	and	disposal	costs.

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

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

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

# Impairment	of	Long-Lived	and	Intangible	Assets

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

# Investment	Securities

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

# Loans	Receivable,	Net

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

# Securitizations	by	Financial	Services	Businesses

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

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

# Derivative	Instruments

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

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

# Goodwill,	Net

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

# Regulatory	Assets	and	Liabilities

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

# Amortization	of	Debt	Issuance	Costs

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

# 3.				Accounting	Change	for	Pension	Costs

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

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

# 4.				Recently	Issued	Accounting	Standards

Asset	Retirement	Obligations

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

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

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

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

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

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

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

Dominion's	accumulated	depreciation,	depletion	and	amortization	included	$596	million,	representing	the	estimated	future	cost	of	such	removal	activities.

# Energy	Trading	Contracts

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

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

# Accounting	for	Guarantees

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

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

# Consolidation	of	Variable	Interest	Entities

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

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

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

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

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

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

Other

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

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

# 5.				Acquisitions

Cove	Point	LNG	Limited	Partnership

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

# Mirant	State	Line	Ventures,	Inc.

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

# Louis	Dreyfus	Natural	Gas	Corp.

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

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

# Millstone	Power	Station

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

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

# 6.				Divestitures

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

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

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

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

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Regulated\tSales |  |  |  |
| Electric | $4,856 | $4,619 | $4,492 |
| Gas | 876 | 1,409 | 1,374 |
| Nonregulated\tSales |  |  |  |
| Electric | 1,017 | 1,022 | 318 |
| Gas | 778 | 1,073 | 671 |
| Gas\ttransportation\tand\tstorage | 705 | 702 | 486 |
| Gas\tand\toil\tproduction | 1,334 | 1,057 | 857 |
| Other | 652 | 676 | 1,048 |
| Total\toperating\trevenue | $10,218 | $10,558 | $9,246 |

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

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

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

Nonregulated	electric	sales	consist	primarily	of	sales	of	electricity	from	utility,	independent	power	production	and	merchant	nuclear	plant	resources	at	market-

based	rates	and	net	operating	revenue	from	electric	trading	activities.

Nonregulated	gas	sales	consist	primarily	of	sales	of	natural	gas	at	market-based	rates,	brokered	gas	sales	and	net	operating	revenue	from	gas	trading	activities.

Natural	gas	sold	includes	gas	produced	by	Dominion	as	well	as	purchased	gas.

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

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

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

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

# 8.				Restructuring	and	Acquisition-Related	Activities

# 2001	Restructuring	Costs

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

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

eliminated	and	a	reduction	for	differences	between	actual	and	estimated	base	salaries	and	years	of	service	for	those	employees	actually	terminated	under	the	plan. Restructuring	and	related	costs	for	the	year	ended	December	31,	2001	were	as	follows:

| Severance	and	related	costs | $42 |
| :--- | :--- |
| Nonqualified\tplan\tbenefits,\tsettlement\tand\tother\tcosts | 46 |
| Lease\ttermination\tand\trestructuring | 13 |
| Other | 4 |
| Total\trestructuring\tcosts | $105 |

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

| (millions) | Severance	Liability | Lease	Liability |
| :--- | :--- | :--- |
| Balance\tat\tDecember\t31,\t2001 | $42 | $10 |
| Amounts\tpaid | (24) | (1) |
| Revision\tof\testimate | (8) |  |
| Balance\tat\tDecember\t31,\t2002 | $10 | $9 |

# 2000	Restructuring	and	Acquisition-Related	Activities

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

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

| Severance	and	related	costs | $70 |
| :--- | :--- |
| Commodity\tcontract\tlosses | 55 |
| Information\ttechnology\trelated\tcosts | 35 |
| Lease\ttermination\tand\trestructuring | 14 |
| DCI\texit\tstrategies\t(see\tNote\t9) | 172 |
| ERP\tbenefit\tcosts\t(see\tNote\t26) | 114 |
| Curtailment\tgains\t(see\tNote\t26) | (26) |
| Other | 26 |
| Total | $460 |

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

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

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

# 9.				Impairment	Losses—DCI	Operations

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

and	are	included	in	other	operations	and	maintenance	expenses.	See	Notes	6,	8	and	13.	These	charges,	after-tax,	reduced	2000	net	income	by	$186	million.	The	2002,

2001	and	2000	impairments	are	reflected	in	the	Corporate	and	Other	operating	segment.	See	Note	32.

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

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Retained\tinterests\tfrom\tmortgage\tsecuritizations | $11 | $21 | $106 |
| Retained\tinterests\tfrom\tCLO/CDO\tsecuritizations |  | 81 |  |
| Loans\treceivable |  | 94 | 36 |
| Venture\tcapital\tand\tother\tequity\tinvestments | 13 | 64 | 46 |
| Investment\tin\tFirst\tSource\tFinancial\tLLP |  |  | 49 |
| Real-estate\tprojects\tand\tother |  | 21 | 54 |
| Total | $24 | $281 | $291 |

# Retained	Interests—Mortgage,	CLO	and	CDO	Securitizations

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

# Loans	and	Other	Investments

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

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

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| U.S. | $2,018 | $816 | $552 |
| Non-U.S. | 25 | 98 | 48 |
| Total | $2,043 | $914 | $600 |

Details	of	income	tax	expense	were	as	follows:

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Current |  |  |  |
| Federal | $(46) | $104 | $255 |
| State | 13 | 62 | 20 |
| Non-U.S. |  | 3 |  |
| Total\tcurrent | (33) | 169 | 275 |
| Deferred |  |  |  |
| Federal | 654 | 151 | (111) |
| State | 65 | 24 | 16 |
| Non-U.S. | 13 | 45 | 22 |
| Total\tdeferred | 732 | 220 | (73) |
| Amortization\tof\tdeferred\tinvestment\ttax\tcredits—net | (18) | (19) | (19) |
| Total\tincome\ttax\texpense | $681 | $370 | $183 |

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

| U.S.	statutory	rate | 35.0% | 35.0% | 35.0% |
| :--- | :--- | :--- | :--- |
| Increases\t(reductions)\tresulting\tfrom: |  |  |  |
| Utility\tplant\tdifferences | (0.1) | 0.5 | 0.8 |
| Preferred\tdividends | 0.3 | 0.9 | 2.1 |
| Amortization\tof\tinvestment\ttax\tcredits | (0.7) | (1.7) | (2.3) |
| Nonconventional\tfuel\tcredit | (1.8) | (4.6) | (7.1) |
| Other\tbenefits\tand\ttaxes\trelated\tto\tforeign\toperations | 0.2 | 3.0 | (2.7) |
| State\ttaxes,\tnet\tof\tfederal\tbenefit | 2.5 | 5.9 | 4.3 |
| Goodwill\tamortization |  | 3.3 | 4.4 |
| Employee\tpension\tand\tother\tbenefits | (0.6) | (1.4) | (1.4) |
| Employee\tstock\townership\tplan\tdeduction | (0.8) |  |  |
| Other,\tnet | (0.7) | (0.5) | (2.6) |
| Effective\ttax\trate | 33.3% | 40.4% | 30.5% |

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

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

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

| Other	comprehensive	income | $246 |  |
| :--- | :--- | :--- |
| Deferred\tinvestment\ttax\tcredits | 37 | $43 |
| Other | 18 | 122 |
| Total\tdeferred\tincome\ttax\tassets | 301 | 165 |
| Deferred\tincome\ttax\tliabilities: |  |  |
| Depreciation\tmethod\tand\tplant\tbasis\tdifferences | 2,007 | 1,911 |
| Income\ttaxes\trecoverable\tthrough\tfuture\trates | 15 | 19 |
| Partnership\tbasis\tdifferences | 184 | 113 |
| Investee\tearnings\treported\tin\tdifferent\ttax\tperiods | 149 | 143 |
| Postretirement\tand\tpension\tbenefits | 517 | 464 |
| Intangible\tdrilling\tcosts | 723 | 520 |
| Geological,\tgeophysical\tand\tother\texploration\tdifferences | 196 | 170 |
| Deferred\tstate\tincome\ttaxes | 222 | 221 |
| Other\tcomprehensive\tincome |  | 182 |
| Other | 298 | 113 |
| Total\tdeferred\tincome\ttax\tliabilities | 4,311 | 3,856 |
| (1) |  |  |
| Total\tnet\tdeferred\tincome\ttax\tliabilities | $4,010 | $3,691 |

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

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

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

| (millions,	except	per	share	amounts) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Basic |  |  |  |
| Income\tbefore\tcumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple | $1,362 | $544 | $415 |
| Average\tshares\tof\tcommon\tstock\toutstanding—basic | 281.0 | 250.2 | 235.2 |
| Basic\tEPS | $4.85 | $2.17 | $1.76 |
| Diluted |  |  |  |
| Income\tbefore\tcumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple | $1,362 | $544 | $415 |
| Average\tshares\tof\tcommon\tstock\toutstanding | 281.0 | 250.2 | 235.2 |
| Net\teffect\tof\tdilutive\tstock\toptions^(1) | 1.6 | 2.3 | 0.7 |
| Average\tshares\tof\tcommon\tstock\toutstanding—diluted | 282.6 | 252.5 | 235.9 |
| Diluted\tEPS | $4.82 | $2.15 | $1.76 |
| Average\tanti-dilutive\tshares\texcluded\tfrom\tthe\tEPS\tcalculation | 11.0 | 3.0 | 4.0 |

(1) Represents	the	effect	of	"in-the-money"	stock	options	on	the	calculation	of	average	outstanding	shares	of	common	stock.

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

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

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

# 13.				Securitization	of	Financial	Assets

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

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

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

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

| (millions) | Strips—<br>Mortgage	Loans^(1) | Servicing<br>Rights	Mortgage	Loans | Retained	Interest—<br>CLO | Retained	Interest—<br>CDO |
| :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tJanuary\t1,\t2000 | $347 | $39 |  | $58 |
| Retained\tfrom\tsecuritization | 99 | 18 | $76 | 30 |
| Amortization | (16) | (7) |  |  |
| Cash\treceived | (51) |  |  | (4) |
| Gain\ton\ttrading\tsecurities | 25 |  |  |  |
| Fair\tvalue\tadjustment | (102) | (5) |  | (1) |
| Balance\tat\tDecember\t31,\t2000 | 302 | 45 | 76 | 83 |
| Retained\tfrom\tsecuritization | 33 |  | 196 |  |
| Amortization | (9) |  |  |  |
| Cash\treceived | (55) |  |  | (6) |
| Gain\ton\ttrading\tsecurities | 19 |  |  |  |
| Servicing\trights\tsold^(2) |  | (45) |  |  |
| Fair\tvalue\tadjustment | (21) |  | (67) | (14) |
| Balance\tat\tDecember\t31,\t2001 | 269 | — | 205 | 63 |
| Amortization | (5) |  |  |  |
| Cash\treceived | (49) |  |  | (2) |
| Loss\ton\tsecurities | (19) |  |  |  |
| Fair\tvalue\tadjustment | (11) |  |  |  |
| Balance\tat\tDecember\t31,\t2002 | $185 | — | $205 | $61 |

(1) Includes	prepayment	penalties.

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

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

| (millions,	except	percentages) | Retained<br>Interest—	Mortgage<br>Loans | Retained<br>Interest—<br>CLO | Retained<br>Interest—<br>CDO |
| :--- | :--- | :--- | :--- |
| Carrying\tamount/fair\tvalue | $182 | $205 | $61 |
| Weighted-average\tlife\t(in\tyears) | 3.54 | 1.87 | 3.69 |
| Prepayment\tspeed\tassumption\t(annual\trate) | (1) | N/A | N/A |
| Impact\ton\tfair\tvalue\tof\t10%\tadverse\tchange | $(12) | N/A | N/A |
| Impact\ton\tfair\tvalue\tof\t20%\tadverse\tchange | (23) | N/A | N/A |
| Expected\tcredit\tlosses\t(annual\trate) | 3.6% | 4%^(2) | 2%^(3) |
| Impact\ton\tfair\tvalue\tof\t10%\tadverse\tchange | $(7) | $(6) | $(3) |
| Impact\ton\tfair\tvalue\tof\t20%\tadverse\tchange | (14) | (10) | (7) |
| Residual\tcash\tflows\tdiscount\trate\t(annual) | 17% | 10% | 16.9% |
| Impact\ton\tfair\tvalue\tof\t10%\tadverse\tchange | $(6) | $(10) | $(4) |
| Impact\ton\tfair\tvalue\tof\t20%\tadverse\tchange | (11) | (15) | (8) |
| Interest\trates\ton\tvariable\tand\tadjustable\tcontracts | (4) | N/A | N/A |
| Impact\ton\tfair\tvalue\tof\t10%\tadverse\tchange | $(2) | N/A | N/A |
| Impact\ton\tfair\tvalue\tof\t20%\tadverse\tchange | (4) | N/A | N/A |

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

(2) Defaults	occur	at	the	beginning	of	each	period.	They	are	applied	on	constant	percentage	to	the	period's	beginning	collateral	balance.

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

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

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

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

| (millions) | Fair<br>Value | Total<br>Unrealized<br>Gains<br>Included<br>in	AOCI | Total<br>Unrealized<br>Losses<br>Included<br>In	AOCI |
| :--- | :--- | :--- | :--- |
| 2002 |  |  |  |
| Equity\tsecurities | $489 | $1 | $118 |
| Debt\tsecurities | 758 | 14 | 14 |
| Total | $1,247 | $15 | $132 |
| 2001 |  |  |  |
| Equity\tsecurities | $551 | $11 | $4 |
| Debt\tsecurities | 684 | 1 | 16 |
| Total | $1,235 | $12 | $20 |

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

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

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

# 15.			Derivative	Instruments,	Hedge	Accounting	and	Energy	Trading	Activities

Adoption	of	SFAS	No.	133

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

# Risk	Management	Policy

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

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

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

# Accounting	Policy

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

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

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

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

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

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

# Derivatives	and	Hedge	Accounting	Results

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

| (millions) | 2002 | 2001 |
| :--- | :--- | :--- |
| Ineffectiveness: |  |  |
| Fair\tvalue\thedges | $2 | $(1) |
| Cash\tflow\thedges | (31) | 3 |
| Total\tineffectiveness | $(29) | $2 |
| Change\tin\toptions'\ttime\tvalue: |  |  |
| Fair\tvalue\thedges | $(1) |  |
| Cash\tflow\thedges | (1) | $(47) |
| Total\tchange\tin\toptions'\ttime\tvalue | $(2) | $(47) |

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

| (millions) | Accumulated	Other<br>Comprehensive	Income<br>(Loss)<br>After	Tax | Portion	Expected	to	be	Reclassified<br>to	Earnings	during	the	Next	12<br>Months | Maximum	Term |
| :--- | :--- | :--- | :--- |
| Commodities | $(356) | $(156) | 62\tmonths |
| Interest\tRate | (14) | (4) | 282\tmonths |
| Foreign\tCurrency | 14 | 4 | 59\tmonths |
| Total | $(356) | $(156) |  |

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

# Energy	Trading	Activities

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

| (millions) | Gains | Losses | Total |
| :--- | :--- | :--- | :--- |
| 2002 |  |  |  |
| Contract\tsettlements | $10,340 | $(10,310) | $30 |
| Unrealized\tgains\tand\tlosses | 1,447 | (1,402) | 45 |
| Operating\trevenue | $11,787 | $(11,712) | $75 |
| 2001 |  |  |  |
| Contract\tsettlements | $5,208 | $(5,209) | $(1) |
| Unrealized\tgains\tand\tlosses | 1,378 | (1,238) | 140 |
| Operating\trevenue | $6,586 | $(6,447) | $139 |
| 2000 |  |  |  |
| Contract\tsettlements | $2,773 | $(2,692) | $81 |
| Unrealized\tgains\tand\tlosses | 1,236 | (1,211) | 25 |
| Operating\trevenue | $4,009 | $(3,903) | $106 |

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

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

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

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

# 16.				Nuclear	Operations

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

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

# Accounting	for	Decommissioning

Utility	Nuclear	Plants—In	accordance	with	the	accounting	policy	recognized	by	regulatory	authorities	having	jurisdiction	over	its	electric	utility	operations,	Dominion recognizes	an	expense	for	the	future	cost	of	decommissioning	in	amounts	equal	to	amounts	collected	from	ratepayers	and	earnings	on	trust	investments	dedicated	to funding	the	decommissioning	of	Dominion's	utility	nuclear	plants.	On	the	Consolidated	Balance	Sheets,	the	external	trusts	are	reported	at	fair	value	with	the accumulated	provision	for	decommissioning	included	in	accumulated	depreciation.	Net	realized	and	unrealized	earnings	on	the	trust	investments,	as	well	as	an	offsetting expense	to	increase	the	accumulated	provision	for	decommissioning,	are	recorded	as	a	component	of	other	income	(loss)	as	permitted	by	regulatory	authorities. The	balance	of	investments	held	in	external	trusts	for	Surry	and	North	Anna	decommissioning	as	well	as	the	accumulated	provision	for	decommissioning	at December	31,	2002	and	2001,	was	$838	million	and	$858	million,	respectively.

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

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

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

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

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

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

# Expected	Costs	for	Decommissioning

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

| NRC	license	expiration	year | 2012 | 2013 | 2018 | 2020 | (1) | 2015 | 2025 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Current\tcost\testimate\t(2002\tdollars) | $375 | $368 | $391 | $363 | $552 | $522 | $554 | $3,125 |
| Funds\tin\texternal\ttrusts\tat\tDecember\t31,\t2002 | 235 | 230 | 192 | 181 | 262 | 252 | 247 | 1,599 |
| 2002\tcontribu- |  |  |  |  |  |  |  |  |
| tions\tto\texternal\ttrusts | 11 | 11 | 7 | 7 |  |  |  | 36 |

(1) Unit	1	ceased	operations	in	1998	before	Dominion's	acquisition	of	Millstone.

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

# Insurance

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

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

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

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

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

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

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

| (millions) | 2002 | 2001 |
| :--- | :--- | :--- |
| Utility |  |  |
| Generation | $8,497 | $8,415 |
| Transmission | 3,283 | 3,165 |
| Distribution | 7,347 | 7,024 |
| Storage | 781 | 755 |
| Plant\tunder\tconstruction | 972 | 585 |
| Nuclear\tfuel | 740 | 757 |
| Gas\tgathering\tand\tprocessing | 341 | 285 |
| General | 830 | 876 |
| Total\tutility | $22,791 | $21,862 |
| Nonutility |  |  |
| Exploration\tand\tproduction\tproperties: |  |  |
| Proved | $6,265 | $4,707 |
| Unproved | 1,440 | 1,508 |
| Merchant\tgeneration\tproperties—nuclear | 921 | 968 |
| Nuclear\tfuel | 146 | 107 |
| Merchant\tgeneration\tproperties—other | 629 | 361 |
| Other—including\tplant\tunder\tconstruction | 439 | 284 |
| Total\tnonutility | 9,840 | 7,935 |
| Total\tproperty,\tplant\tand\tequipment | $32,631 | $29,797 |

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

| (millions) | Total | 2002 | 2001 | Years	Prior |
| :--- | :--- | :--- | :--- | :--- |
| Property\tacquisition\tcosts | $903 | $103 | $740 | $60 |
| Exploration\tcosts | 138 | 59 | 42 | 37 |
| Capitalized\tinterest | 82 | 63 | 17 | 2 |
| Total | $1,123 | $225 | $799 | $99 |

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

| (Per	mcf	equivalent) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| United\tStates\tcost\tcenter | $1.13 | $1.13 | $1.13 |
| Canadian\tcost\tcenter | 0.85 | 0.78 | 0.92 |
| Dominion's\tproportionate\tshare\tof\tjointly-owned\tutility\tplants\tat\tDecember\t31,\t2002\tfollows: |  |  |  |
|  | Bath\tCounty | North |  |
|  | Pumped | Anna | Clover |
|  | Storage | Power | Power |
| (millions,\texcept\tpercentages) | Station | Station | Station |
| Ownership\tinterest | 60.0% | 88.4% | 50.0% |
| Plant\tin\tservice | $1,028 | $1,861 | $534 |
| Accumulated\tdepreciation | 342 | 1,176 | 93 |
| Nuclear\tfuel |  | 341 |  |
| Accumulated\tamortization |  |  |  |
| of\tnuclear\tfuel |  | 309 |  |
| Construction\twork\tin\tprogress | 4 | 82 | 12 |

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

# 18.				Goodwill	and	Intangible	Assets

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

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

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

| Reported	net	income | $544 | $2.17 | $2.15 |
| :--- | :--- | :--- | :--- |
| Add:\tGoodwill\tamortization | 95 | 0.38 | 0.38 |
| Adjusted\tnet\tincome | $639 | $2.55 | $2.53 |
| 2000 |  |  |  |
| As\tReported: |  |  |  |
| Income\tbefore\tcumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple | $415 | $1.76 | $1.76 |
| Net\tincome | $436 | $1.85 | $1.85 |
| Add:\tGoodwill\tamortization | 83 | 0.35 | 0.35 |
| As\tAdjusted: |  |  |  |
| Income\tbefore\tcumulative\teffect\tof\ta\tchange\tin\taccounting\tprinciple | $498 | $2.11 | $2.11 |
| Net\tincome | $519 | $2.20 | $2.20 |

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

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

| (millions) | Dominion	Energy | Dominion	Delivery | Dominion	E&amp;P | Corporate	and	Other | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tDecember\t31,\t2001 | $1,975 | $1,344 | $858 | $33 | $4,210 |
| Acquisition\tof\tCove\tPoint | 75 |  |  |  | 75 |
| DCI\timpairment\tloss |  |  |  | (13) | (13) |
| Louis\tDreyfus\tpurchase\taccounting\tadjustment |  |  | 24 |  | 24 |
| Other | 7 |  | (3) | 1 | 5 |
| Balance\tat\tDecember\t31,\t2002 | $2,057 | $1,344 | $879 | $21 | $4,301 |

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

| (millions) | Gross<br>Carrying<br>Amount | Accumulated<br>Amortization |
| :--- | :--- | :--- |
| Software\tand\tsoftware\tlicenses | $464 | $200 |
| Other | 68 | 19 |
| Total | $532 | $219 |

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

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

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

| (millions) | 2002 | 2001 |
| :--- | :--- | :--- |
| Unrecovered\tgas\tcosts | $32 | $9 |
| Regulatory\tassets,\tnet:\nOther\tpostretirement\tbenefit\tcosts^(1) | 106 | 115 |
| (2) |  |  |
| Income\ttaxes\trecoverable\tthrough\tfuture\trates | 203 | 179 |
| Deferred\tcost\tof\tfuel\tused\tin\telectric\tgeneration | 133 | 119 |
| Cost\tof\tdecommissioning\tDOE\turanium |  |  |
| enrichment\tfacilities^(3) | 34 | 42 |
| Customer\tbad\tdebts^(4) | 56 | 80 |
| Other | 48 | 39 |
| Regulatory\tassets,\tnet | 580 | 574 |
| Total\tregulatory\tassets | $612 | $583 |
| Regulatory\tliabilities |  |  |
| Amounts\tpayable\tto\tcustomers | 13 | 91 |
| Estimated\trate\tcontingencies\tand\trefunds^(5) | 21 | 43 |
| Total\tregulatory\tliabilities | $34 | $134 |

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

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

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

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

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

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

# 20.				Short-Term	Debt	and	Credit	Agreements

Joint	Credit	Facilities

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

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

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

# CNG	Credit	Facility

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

# Cove	Point	Bridge	Facility

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

Long-term	debt	consists	of	the	following:

| Dominion	Resources,	Inc.: |  | (millions) | (millions) |
| :--- | :--- | :--- | :--- |
| Senior\tand\tmedium-term\tnotes |  |  |  |
| Variable\trates,\tdue\t2002\tto\t2003 | 2.49% | $100 | $350 |
| 3.875%\tto\t8.125%,\tdue\t2003\tto\t2032^(1) | 6.63% | 4,920 | 3,250 |
| Equity-linked\tsenior\tnotes,\t5.75%\tto\t8.05%,\tdue\t2006\tto\t2008 | 7.03% | 743 | 413 |
| Consolidated\tNatural\tGas\tCompany: |  |  |  |
| Senior\tnotes |  |  |  |
| 5.375%\tto\t7.375%,\tdue\t2003\tto\t2027 | 6.48% | 3,150 | 3,150 |
| 6.875%,\tdue\t2026^(2) |  | 150 | 150 |
| Senior\tsubordinated\tdebt,\t9.25%\tdue\t2004 |  | 88 | 94 |
| Virginia\tElectric\tand\tPower\tCompany: |  |  |  |
| (3) | 7.56% | 1,666 | 2,121 |
| Senior\tand\tmedium-term\tnotes |  |  |  |
| Variable\trates,\tdue\t2002\tto\t2003 | 2.37% | 120 | 340 |
| 5.375%\tto\t9.60%,\tdue\t2002\tto\t2038 | 5.95% | 1,785 | 1,195 |
| Tax-exempt\tfinancings^(4)\n: |  |  |  |
| Variable\trates,\tdue\t2008\tto\t2027 | 1.60% | 197 | 489 |
| 3.15%\tto\t5.875%,\tdue\t2007\tto\t2031^(5) | 4.99% | 402 | 110 |
| Other\tSubsidiaries: |  |  |  |
| (6) |  |  |  |
| Medium-term\tnotes,\t5.72%\tto\t6.1%,\tdue\t2005\tto\t2006 | 5.94% | 199 | 117 |
| (6) |  |  |  |
| Revolving\tlines\tof\tcredit,\tvariable\trates,\tdue\t2002\tto\t2004 | 3.16% | 163 | 241 |
| Bank\tterm\tnote,\tvariable\trate,\tdue\t2002 |  |  | 675 |
| Nonrecourse\tdebt: |  |  |  |
| Variable\trates,\tdue\t2004\tto\t2006 | 2.11% | 40 | 40 |
| 7.0%\tto\t12.5%,\tdue\t2002\tto\t2020 | 8.08% | 342 | 353 |
|  |  | 14,065 | 13,088 |
| Fair\tvalue\thedge\tvaluation\t(see\tNote\t15) |  | 75 | 43 |
| Amounts\tdue\twithin\tone\tyear |  | (2,077) | (1,309) |
| (7) |  |  |  |
| Unamortized\tdiscount\tand\tpremium,\tnet |  | (95) | (25) |
|  |  | 11,968 | 11,797 |
| Notes\tpayable—affiliates\t(see\tNote\t30): |  |  |  |
| 6.0%,\tdue\t2005 |  | 126 | 175 |
| Variable\trates,\tdue\t2006 |  | 14 | 192 |
|  |  | 140 | 367 |
| Amounts\tdue\twithin\tone\tyear |  | (48) | (45) |
|  |  | 92 | 322 |
| Total\tlong-term\tdebt |  | $ 12,060 | $ 12,119 |

(1) $250	million	of	the	7.82%	remarketable	notes	due	September	15,	2014	will	be	either	mandatorily	purchased	and	remarketed	by	the	remarketing	agent	or	mandatorily	redeemed	by	Dominion	on September	15,	2004.

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

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

(4) Certain	pollution	control	equipment	at	Virginia	Power's	generating	facilities	has	been	pledged	to	support	these	financings.

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

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

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

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

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

| 2003 | 2004 | 2005 | 2006 | 2007 | Thereafter | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| $2,125 | $1,290 | $969 | $1,675 | $1,091 | $7,055 | $14,205 |

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

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

# Equity—Linked	Securities

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

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

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

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

| Date	of<br>Issuance | Units	Issued | Total	Net<br>Proceeds | Long-<br>term<br>Debt | Senior	Notes<br>Annual	Interest<br>Rate | Stock	Purchase<br>Contract	Annual<br>Rate | Total<br>Equity<br>Charge | Stock	Purchase<br>Settlement	Date | Maturity	of	Senior<br>Notes |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (millions,\texcept\tpercentages) |  |  |  |  |
| 2000 | 8.3 | $400.1 | $412.5 | 8.05% | 1.45% | $20.7 | 11/04 | 11/06 |
| 2002 | 6.6 | $320.1 | $330.0 | 5.75% | 3.00% | $36.3 | 5/06 | 5/08 |

# 22. Company	Obligated	Mandatorily	Redeemable	Preferred	Securities	of	Subsidiary	Trusts

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

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

| Date	Established | Capital	Trusts | Units | Rate | Trust<br>Preferred<br>Securities<br>Amount | Common<br>Securities<br>Amount |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | (thousands) |  | (millions) |  |
| December |  |  |  |  |  |
|  | (1) |  |  |  |  |
| 1997 | Dominion\tResources\tCapital\tTrust\tI | 250 | 7.83% | $250 | $8 |
| January |  |  |  |  |  |
|  | (2) |  |  |  |  |
| 2001 | Dominion\tResources\tCapital\tTrust\tII | 12,000 | 8.4% | 300 | 9 |
| January |  |  |  |  |  |
|  | (3) |  |  |  |  |
| 2001 | Dominion\tResources\tCapital\tTrust\tIII | 250 | 8.4% | 250 | 8 |
| October |  |  |  |  |  |
|  | (4) |  |  |  |  |
| 2001 | Dominion\tCNG\tCapital\tTrust\tI | 8,000 | 7.8% | 200 | 6 |
| August |  |  |  |  |  |
|  | (5) |  |  |  |  |
| 2002 | Virginia\tPower\tCapital\tTrust\tII | 16,000 | 7.375% | 400 | 12 |

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

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

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

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

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

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

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

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

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

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

| Dividend | Issued	and	Outstanding	Shares | Entitled	Per	Share	Upon	Liquidation |
| :--- | :--- | :--- |
|  | (thousands) |  |
| $5.00 | 107 | $112.50 |
| \t\t4.04 | 13 | $102.27 |
| \t\t4.20 | 15 | $102.50 |
| \t\t4.12 | 32 | $103.73 |
| \t\t4.80 | 73 | $101.00 |
| \t\t7.05 | 500 | $105.00(1) |
| \t\t6.98 | 600 | $105.00(2) |
| Flex\tMMP\t12/02, |  |  |
| \t\t\t\tSeries\tA | 1,250 | $100.00 |
| Total | 2,590 |  |

# 24.				Shareholders'	Equity

Issuance	of	Common	Stock

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

# Repurchases	of	Common	Stock

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

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

# Shares	Reserved	for	Issuance

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

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

# Accumulated	Other	Comprehensive	Income

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

| (millions) | 2002 | 2001 |
| :--- | :--- | :--- |
| Net\tunrealized\tgains\t(losses)\ton\tderivatives | $(356) | $315 |
| Net\tunrealized\tlosses\ton\tinvestment\tsecurities | (72) | (4) |
| Minimum\tpension\tliability\tadjustment | (14) | (12) |
| Foreign\tcurrency\ttranslation\tadjustments | (4) | (10) |
| Total\taccumulated\tother\tcomprehensive\tincome\t(loss) | $(446) | $289 |

# Stock-Based	Awards

The	following	table	provides	a	summary	of	changes	in	amounts	of	Dominion	stock	options	outstanding	as	of	and	for	the	years	ended	December	31,	2002,	2001	and 2000.	Generally,	the	exercise	price	of	Dominion	employee	stock	options	equals	the	market	price	of	Dominion	common	stock	on	the	date	of	grant.

|  |  | Stock	Options | Weighted-<br>average	Exercise	Price | Weighted-<br>average	Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
|  |  | (thousands) |  |  |
| Outstanding\tat\tJanuary\t1,\t2000 | Outstanding\tat\tJanuary\t1,\t2000 | 7,147 | $41.37 |  |
| Granted—2000 |  | 5,389 | $43.87 | $6.86 |
| Exercised,\tcancelled\tand\tforfeited | Exercised,\tcancelled\tand\tforfeited | (2,205) | $40.07 |  |
| Outstanding\tat\tDecember\t31,\t2000 | Outstanding\tat\tDecember\t31,\t2000 | 10,331 | $41.77 |  |
| Exercisable\tat\tDecember\t31,\t2000 | Exercisable\tat\tDecember\t31,\t2000 | 6,967 | $41.51 |  |
| Granted—2001 | (1) |  |  |  |
| Exercise\tprice\t&lt;\tmarket\tprice\ton\tgrant\tdate | Exercise\tprice\t&lt;\tmarket\tprice\ton\tgrant\tdate | 480 | $33.21 | $23.69 |
| Exercise\tprice\t=\tmarket\tprice\ton\tgrant\tdate | Exercise\tprice\t=\tmarket\tprice\ton\tgrant\tdate | 11,471 | $61.20 | $11.24 |
| Exercise\tprice\t&gt;\tmarket\tprice\ton\tgrant\tdate | Exercise\tprice\t&gt;\tmarket\tprice\ton\tgrant\tdate | 194 | $62.27 | $9.43 |
| Exercised,\tcancelled\tand\tforfeited | Exercised,\tcancelled\tand\tforfeited | (1,484) | $41.23 |  |
| Outstanding\tat\tDecember\t31,\t2001 | Outstanding\tat\tDecember\t31,\t2001 | 20,992 | $52.90 |  |
| Exercisable\tat\tDecember\t31,\t2001 | Exercisable\tat\tDecember\t31,\t2001 | 7,955 | $42.68 |  |
| Granted—2002 | Granted—2002 | 3,122 | 62.28 | $10.91 |
| Exercised,\tcancelled\tand\tforfeited | Exercised,\tcancelled\tand\tforfeited | (3,057) | $44.54 |  |
| Outstanding\tat\tDecember\t31,\t2002 | Outstanding\tat\tDecember\t31,\t2002 | 21,057 | $55.49 |  |
| Exercisable\tat\tDecember\t31,\t2002 | Exercisable\tat\tDecember\t31,\t2002 | 8,586 | $47.95 |  |

(1) In	connection	with	the	acquisition	of	Louis	Dreyfus,	employee	stock	options	of	Louis	Dreyfus	were	converted	into	employee	stock	options	of	Dominion.	Based	on	the	conversion	formula, certain	converted	stock	options	had	exercise	prices	that	either	exceeded	or	were	less	than	the	market	price	of	Dominion	common	stock	on	the	date	of	grant.	The	fair	value	of	all	converted stock	options	was	included	in	the	purchase	price	of	Louis	Dreyfus.	See	Note	5.

The	fair	value	of	the	options	was	estimated	on	the	dates	of	grant	using	the	Black-Scholes	option	pricing	model	with	the	following	weighed-average	assumptions	for 2002,	2001	and	2000,	respectively:	expected	dividend	yield	of	4.17	percent,	4.22	percent	and	5.22	percent;	expected	volatility	of	22.67	percent,	22.19	percent	and	21.54 percent;	contractual	life	of	10	years	(all	periods);	risk	free	interest	rate	of	4.38	percent,	5.15	percent	and	5.18	percent;	and	expected	lives	of	six	years	(all	periods).

The	following	table	provides	certain	information	about	stock	options	outstanding	as	of	December	31,	2002:

|  | (thousands) | (years) |  | (thousands) |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| $\t0-$19.99 | 2 | 6.0 | $19.10 | 2 | $19.10 |
| $20-$30.99 | 53 | 5.8 | $25.00 | 53 | $25.00 |
| $31-$40.99 | 75 | 7.0 | $39.25 | 75 | $39.25 |
| $41-$50.99 | 6,782 | 6.6 | $43.02 | 5,905 | $42.26 |
| $51-$60.99 | 9,411 | 6.1 | $59.88 | 1,673 | $59.76 |
| $61-$69 | 4,734 | 8.4 | $65.24 | 878 | $65.94 |
| Total | 21,057 | 6.8 | $55.49 | 8,586 | $47.95 |

# 25.				Dividend	Restrictions

The	1935	Act	and	related	regulations	issued	by	the	SEC	impose	restrictions	on	the	transfer	and	receipt	of	funds	by	a	registered	holding	company	from	its	subsidiaries, including	a	general	prohibition	against	loans	or	advances	being	made	by	the	subsidiaries	to	benefit	the	registered	holding	company.	Under	the	1935	Act,	registered holding	companies	and	their	subsidiaries	may	pay	dividends	only	from	retained	earnings,	unless	the	SEC	specifically	authorizes	payments	from	other	capital	accounts. Dominion	received	dividends	from	its	subsidiaries	of	$945	million,	$806	million	and	$1.3	billion	in	2002,	2001	and	2000,	respectively.	At	December	31,	2002, Dominion's	consolidated	subsidiaries	had	approximately	$8.4	billion	in	capital	accounts	other	than	retained	earnings,	representing	capital	stock,	additional	paid	in capital	and	accumulated	other	comprehensive	income.	Dominion	Resources,	Inc.	had	approximately	$8.7	billion	in	capital	accounts	other	than	retained	earnings	at December	31,	2002.	Generally,	such	amounts	are	not	available	for	the	payment	of	dividends	by	affected	subsidiaries,	or	by	Dominion	itself,	without	specific authorization	by	the	SEC.	In	response	to	a

Dominion	request,	the	SEC	granted	relief	in	2000,	authorizing	payment	of	dividends	by	CNG	from	other	capital	accounts	to	Dominion	in	amounts	up	to	$1.6	billion, representing	CNG's	retained	earnings	prior	to	Dominion's	acquisition	of	CNG.	Furthermore,	Dominion	has	submitted	a	similar	request	to	the	SEC	in	2002,	seeking relief	from	this	restriction	in	regard	to	its	subsidiary,	into	which	Louis	Dreyfus	was	merged.	The	application	requests	relief	up	to	approximately	$303	million,

representing	Louis	Dreyfus'	retained	earnings	prior	to	Dominion's	acquisition	of	Louis	Dreyfus.	Dominion's	ability	to	pay	dividends	on	its	common	stock	at	declared rates	was	not	impacted	by	the	restrictions	discussed	above	during	2002,	2001	and	2000.

The	Virginia	Commission	may	prohibit	any	public	service	company,	including	Virginia	Power,	from	declaring	or	paying	a	dividend	to	an	affiliate,	if	found	not	to be	in	the	public	interest.	At	December	31,	2002,	the	Virginia	Commission	had	not	restricted	the	payment	of	dividends	by	Virginia	Power.

Certain	agreements	associated	with	Dominion's	credit	facilities	contain	restrictions	on	the	ratio	of	debt	to	total	capitalization.	These	limitations	did	not	restrict Dominion's	ability	to	pay	dividends	or	receive	dividends	from	its	subsidiaries	at	December	31,	2002.

See	Note	22	for	a	description	of	potential	restrictions	on	dividend	payments	by	Dominion	and	certain	subsidiaries	in	connection	with	the	deferral	of	distribution payments	on	trust	preferred	securities.

# 26.				Employee	Benefit	Plans

Dominion	and	its	subsidiaries	provide	certain	benefits	to	eligible	active	employees,	retirees	and	qualifying	dependents.	Under	the	terms	of	its	benefit	plans,	Dominion and	its	subsidiaries	reserve	the	right	to	change,	modify	or	terminate	the	plans.	From	time	to	time	in	the	past,	benefits	have	changed,	and	some	of	these	changes	have reduced	benefits.

Dominion	maintains	qualified	noncontributory	defined	benefit	retirement	plans	covering	virtually	all	employees.	Retirement	benefits	are	based	primarily	on	years of	service,	age	and	compensation.	Dominion's	funding	policy	is	to	generally	contribute	annually	an	amount	that	is	in	accordance	with	the	provisions	of	the	Employment Retirement	Income	Security	Act	of	1974.	The	pension	program	also	provides	benefits	to	certain	retired	executives	under	company-sponsored	nonqualified	employee benefit	plans.	Certain	of	these	nonqualified	plans	are	funded	through	contributions	to	a	grantor	trust.

Dominion	provides	retiree	health	care	and	life	insurance	benefits	with	annual	premiums	based	on	several	factors	such	as	age,	retirement	date	and	years	of	service. In	2001,	Dominion	eliminated	certain	senior	management	positions.	Dominion	paid	these	individuals	special	termination	benefits	and	accelerated	the	payment	of benefits	under	Dominion's	nonqualified	pension	plans.	Dominion	recognized	special	termination	benefits	expense	of	$15	million,	a	loss	of	$7	million	related	to	the settlement	of	the	related	non-qualified	pension	obligation	and	a	curtailment	loss	of	$2	million.

In	2000,	Dominion	offered	an	early	retirement	program	(ERP).	The	ERP	provided	up	to	three	additional	years	of	age	and	three	additional	years	of	employee	service for	benefit	formula	purposes,	subject	to	age	and	service	maximums	under	Dominion	and	its	subsidiaries'	postretirement	medical	and	pension	plans.	Certain	employees who	satisfied	certain	minimum	age	and	years	of	service	requirements	were	eligible	under	the	ERP.	The	effect	of	the	ERP	on	Dominion's	pension	and	postretirement benefit	expenses	was	$81	million	and	$33	million,	respectively.	These	expenses	were	offset,	in	part,	by	curtailment	gains	of	approximately	$20	million	and	$6	million from	pension	plans	and	other	postretirement	benefit	plans,	respectively,	attributable	to	reductions	in	expected	future	years	of	service	as	a	result	of	ERP	participation	and involuntary	employee	terminations.

In	addition,	effective	January	1,	2000,	Dominion	adopted	a	change	in	the	method	of	calculating	the	market-related	value	of	pension	plan	assets.	The	change	was reported	as	a	change	in	accounting	principle.	See	Note	3.

The	following	tables	summarize	the	changes	in	Dominion's	pension	and	other	postretirement	benefit	plan	obligations	and	plan	assets	and	a	statement	of	the	plans' funded	status:

| Year	ended	December	31, | 2002 | 2001 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- |
| (millions) |  |  |  |  |
| Expected\tbenefit\tobligation\tat\tbeginning\tof\tyear | $2,593 | $2,304 | $996 | $799 |
| Acquired\tbusinesses | 1 | 66 | 3 | 21 |
| Actual\tbenefit\tobligation\tat\tbeginning\tof\tyear | 2,594 | 2,370 | 999 | 820 |
| Service\tcost | 77 | 71 | 44 | 39 |
| Interest\tcost | 177 | 173 | 68 | 63 |
| Benefits\tpaid | (148) | (153) | (58) | (51) |
| Actuarial\tloss\tduring\tthe\tyear | 89 | 114 | 84 | 107 |
| Change\tin\tbenefit\tobligation |  | (5) |  |  |
| Special\ttermination\tbenefits |  | 15 |  |  |
| Plan\tamendments | 12 | 8 | (18) | 18 |
| Expected\tbenefit\tobligation\tat\tend\tof\tyear | 2,801 | 2,593 | 1,119 | 996 |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | 3,352 | 3,557 | 446 | 417 |
| Actual\treturn\ton\tplan\tassets | (241) | (91) | (31) | (11) |
| Contributions | 111 | 39 | 60 | 65 |
| Benefits\tpaid\tfrom\tplan\tassets | (148) | (153) | (32) | (25) |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | 3,074 | 3,352 | 443 | 446 |
| Funded\tstatus | 273 | 759 | (676) | (550) |
| Unrecognized\tnet\tactuarial\tloss | 1,374 | 698 | 308 | 164 |
| Unrecognized\tprior\tservice\tcost | 14 | 3 | 4 | 11 |
| Unrecognized\tnet\ttransition\t(asset)\tobligation | (1) | (5) | 93 | 115 |
| Prepaid\t(accrued)\tbenefit\tcost | $1,660 | $1,455 | $(271) | $(260) |
| Amounts\trecognized\tin\tthe\tconsolidated\tbalance\tsheets\tat\tDecember\t31: |  |  |  |  |
| Prepaid\tpension\tcost | $1,710 | $1,511 |  |  |
| Accrued\tbenefit\tliability | (84) | (89) | $(271) | $(260) |
| Intangible\tasset | 10 | 12 |  |  |
| Accumulated\tother\tcomprehensive\tloss | 24 | 21 |  |  |
| Net\tamount\trecognized | $1,660 | $1,455 | $(271) | $(260) |

Dominion	has	nonqualified	pension	and	supplemental	pension	plans	which	do	not	have	"plan	assets"	as	defined	by	generally	accepted	accounting	principles.	The total	projected	benefit	obligation	for	these	plans	was	$97	million	and	$103	million	at	December	31,	2002	and	2001,	respectively,	and	is	included	in	the	table	above.	The total	accumulated	benefit	obligation	for	these	plans	was	$88	million	and	$94	million	at	December	31,	2002	and	2001,	respectively.	The	additional	minimum	liability recognized	relating	to	these	plans	was	$34	million	and	$33	million	at	December	31,	2002	and	2001,	respectively.

The	components	of	the	provision	for	net	periodic	benefit	cost	were	as	follows:

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Pension\tBenefits |  |  |  |
| Service\tcost | $77 | $71 | $65 |
| Interest\tcost | 177 | 173 | 161 |
| Expected\treturn\ton\tplan\tassets | (349) | (331) | (298) |
| Recognized\tloss | 2 | 3 | 6 |
| Amortization\tof\tprior\tservice\tcost | 1 | 2 | 3 |
| Amortization\tof\ttransition\tobligation | (4) | (4) | (4) |
| Curtailment\tgains |  |  | (20) |
| ERP\tbenefit\tcosts |  |  | 81 |
| Settlement\tloss |  | 7 |  |
| Special\ttermination\tbenefits |  | 15 |  |
| Curtailment\tloss |  | 2 |  |
| Net\tperiodic\tbenefit\tcredit | $(96) | $(62) | $(6) |
| Other\tPostretirement\tBenefits |  |  |  |
| Service\tcost | $44 | $40 | $30 |
| Interest\tcost | 68 | 63 | 52 |
| Expected\treturn\ton\tplan\tassets | (34) | (32) | (31) |
| Amortization\tof\tprior\tservice\tcost | 1 | (1) |  |
| Amortization\tof\ttransition\tobligation | 11 | 10 | 13 |
| Amortization\tof\tunrecognized\tnet\tloss | 5 |  |  |
| Curtailment\tgains |  |  | (6) |
| ERP\tbenefit\tcosts |  |  | 33 |
| Net\tamortization\tand\tdeferral |  |  | (2) |
| Net\tperiodic\tbenefit\tcost | $95 | $80 | $89 |

Significant	assumptions	used	in	determining	net	periodic	cost,	the	projected	benefit	obligation	and	postretirement	benefit	obligations	were:

| Discount	rates | 6.75% | 7.25% | 6.75% | 7.25% |
| :--- | :--- | :--- | :--- | :--- |
| Expected\treturn\ton\tplan\tassets^(1) | 9.50% | 9.50% | 7.82% | 7.88% |
| Rate\tof\tincrease\tfor\tcompensation | 4.70% | 4.60% | 4.70% | 4.60% |
| Medical\tcost\ttrend\trate |  |  | 9.00% | 9.00% |

Dominion	has	adopted	8.75	percent	for	pension	benefits	in	2003.

Assumed	health	care	cost	trend	rates	have	a	significant	effect	on	the	amounts	reported	for	the	health	care	plans.	A	one-percentage-point	change	in	assumed	health care	cost	trend	rates	would	have	the	following	effects:

# Other	Postretirement	Benefits

In	addition,	Dominion	sponsors	defined	contribution		thrift-type	savings	plans.	During	2002,	2001	and	2000,	Dominion	recognized	$26	million,	$27	million	and $30	million,	respectively,	as	contributions	to	these	plans.

Certain	regulatory	authorities	have	held	that	amounts	recovered	in	utility	customers'	rates	for	other	postretirement	benefits,	in	excess	of	benefits	actually	paid during	the	year,	must	be	deposited	in	trust	funds	dedicated	for	the	sole	purpose	of	paying	such	benefits.	Accordingly,	certain	subsidiaries	fund	postretirement	benefit costs	through	Voluntary	Employees'	Beneficiary	Associations.	The	remaining	subsidiaries	do	not	prefund	postretirement	benefit	costs	but	instead	pay	claims	as presented.

# 27.				Commitments	and	Contingencies

As	the	result	of	issues	generated	in	the	ordinary	course	of	business,	Dominion	and	its	subsidiaries	are	involved	in	legal,	tax	and	regulatory	proceedings	before	various courts,	regulatory	commissions	and	governmental	agencies,	some	of	which	involve	substantial	amounts	of	money.	Management	believes	that	the	final	disposition	of these	proceedings	will	not	have	a	material	adverse	effect	on	its	financial	position,	liquidity	or	results	of	operations.

Dominion	has	made	substantial	commitments	in	connection	with	its	capital	expenditures	program.	Cash	requirements	for	those	expenditures	are	estimated	to	total approximately	$2.4	billion,	$2.2	billion	and	$2.1	for	2003,	2004	and	2005	respectively.	Purchases	of	nuclear	fuel	are	included	in	Fuel	Purchase	Commitments	below. Dominion	expects	that	these	expenditures	will	be	met	through	a	combination	of	sales	of	securities	and	short-term	borrowings	to	the	extent	not	funded	by	cash	flows	from operations.

Dominion	has	entered	into	contracts	for	long-term	purchases	of	capacity	and	energy	from	other	utilities,	qualifying	facilities	and	independent	power	producers.	As	of December	31,	2002,	Dominion	had	42	non-utility	purchase	contracts	with	a	combined	dependable	summer	capacity	of	3,758	megawatts.	The	table	below	reflects Dominion's	minimum	commitments	as	of	December	31,	2002	under	these	contracts.

| (millions) | Capacity | Other |
| :--- | :--- | :--- |
| 2003 | $643 | $44 |
| 2004 | 635 | 29 |
| 2005 | 629 | 22 |
| 2006 | 614 | 18 |
| 2007 | 589 | 11 |
| Later\tyears | 5,259 | 113 |
| Total | 8,369 | 237 |
| Present\tvalue\tof\tthe\ttotal | $4,836 | $140 |

Capacity	and	other	purchases	under	these	contracts	totaled	$691	million,	$680	million	and	$740	million	for	2002,	2001	and	2000,	respectively.

In	2001,	Dominion	completed	the	purchase	of	three	generating	facilities	and	the	termination	of	seven	long-term	power	purchase	contracts	with	non-utility generators.	Dominion	recorded	an	after-tax	charge	of	$136	million	in	connection	with	the	purchase	and	termination	of	long-term	power	purchase	contracts.	Cash payments	related	to	the	purchase	of	three	generating	facilities	totaled	$207	million.	The	allocation	of	the	purchase	price	was	assigned	to	the	assets	and	liabilities	acquired based	upon	estimated	fair	values	as	of	the	date	of	acquisition.	Substantially	all	of	the	value	was	attributed	to	the	power	purchase	contracts	which	were	terminated	and resulted	in	a	charge	included	in	operation	and	maintenance	expense.

# Fuel	Purchase	Commitments

Dominion	enters	into	long-term	purchase	commitments	for	fuel	used	in	electric	generation	and	natural	gas	for	purposes	other	than	trading.	Estimated	payments	under these	commitments	for	the	next	five	years	are	as	follows:	2003—$599	million;	2004—$311	million;	2005—$253	million;	2006—$205	million;	2007—$89	million;	and years	beyond	2007—$215	million.	These	purchase	commitments	include	those	required	for	regulated	operations.	Dominion	recovers	the	costs	of	those	purchases through	regulated	rates.	The	natural	gas	purchase	commitments	of	Dominion's	field	services	operations	are	also	included,	net	of	related	sales	commitments.	In	addition, Dominion	has	committed	to	purchase	certain	volumes	of	natural	gas	at	market	index	prices	determined	in	the	period	the	natural	gas	is	delivered.	These	transactions	have been	designated	as	normal	purchases	and	sales	under	SFAS	No.	133.

# Natural	Gas	Pipeline	and	Storage	Capacity	Commitments

Dominion	enters	into	long-term	commitments	for	the	purchase	of	natural	gas	pipeline	and	storage	capacity	for	purposes	other	than	trading.	Estimated	payments	under these	commitments	for	the	next	five	years	are	as	follows:	2003—$34	million;	2004—$23	million;	2005—$13	million.	There	were	no	significant	commitments	beyond 2005.

# Production	Handling	and	Firm	Transportation	Commitments

In	connection	with	its	gas	and	oil	production	operations,	Dominion	has	entered	into	certain	transportation	and	production	handling	agreements	with	minimum commitments	expected	to	be	paid	in	the	following	years:	2003—$23	million;	2004—$57	million;	2005—$56	million;	2006—$53	million;	2007—$44	million;	and	years after	2007—$68	million.

# Lease	Commitments

Dominion	leases	various	facilities,	vehicles,	aircraft	and	equipment	under	both	operating	and	capital	leases.	Future	minimum	lease	payments	under	operating	and	capital leases	that	have	initial	or	remaining	lease	terms	in	excess	of	one	year	as	of	December	31,	2002	are	as	follows:	2003—$94	million;	2004—$94	million;	2005—$82 million;	2006—$67	million;	2007—$62	million;	and	years	beyond	2007—$79	million.	Rental	expense	included	in	other	operations	and	maintenance	expense	was	$84 million,	$75	million	and	$107	million	for	2002,	2001,	and	2000,	respectively.

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

The	projects	are	accounted	for	as	operating	leases	for	financial	accounting	purposes.	Accordingly,	neither	the	project	assets	nor	related	obligations	are	reported	on Dominion's	Consolidated	Balance	Sheets.

The	future	minimum	lease	payments	described	above	include	annual	minimum	lease	payments	under	these	leases	for	assets	currently	in	use	total	approximately	$38 million.	Projects	being	developed	under	leasing	arrangements	are	scheduled	for	completion	in	2003	and	2004.	Annual	lease	payments	for	these	projects	are	estimated	to be	$7	million	for	2003	and	$79	million	by	2005.	See	Note	4.

# Energy	Trading

Subsidiaries	of	Dominion	enter	into	purchases	and	sales	of	commodity-based	contracts	in	the	energy-related	markets,	including	natural	gas,	electricity	and	oil.	These agreements	may	cover	current	and	future	periods.	The	volume	of	these	transactions	varies	from	day	to	day,	based	on	market	conditions.	See	Note	15	for	a	discussion	of Dominion's	energy	trading	activities	and	risk	management	policies.

Dominion	is	subject	to	costs	resulting	from	a	steadily	increasing	number	of	federal,	state	and	local	laws	and	regulations	designed	to	protect	human	health	and	the environment.	These	laws	and	regulations	can	result	in	increased	capital,	operating	and	other	costs	as	a	result	of	compliance,	remediation,	containment	and	monitoring obligations.

Historically,	Dominion	recovered	such	costs	arising	from	regulated	electric	operations	through	utility	rates.	However,	to	the	extent	environmental	costs	are	incurred in	connection	with	operations	regulated	by	the	Virginia	State	Corporation	Commission	during	the	period	ending	June	30,	2007,	in	excess	of	the	level	currently	included in	Virginia	jurisdictional	rates,	Dominion's	results	of	operations	will	decrease.	After	that	date,	Dominion	may	seek	recovery	through	rates	of	only	those	environmental costs	related	to	transmission	and	distribution	operations.

Superfund	Sites—In	1987,	the	Environmental	Protection	Agency	(EPA)	identified	Dominion	and	a	number	of	other	entities	as	Potentially	Responsible	Parties (PRPs)	at	two	Superfund	sites	located	in	Kentucky	and	Pennsylvania.	Current	cost	studies	estimate	total	remediation	costs	for	the	sites	to	range	from	$98	million	to	$152 million.	Dominion's	proportionate	share	of	the	total	cost	is	expected	to	be	in	the	range	of	$2	million	to	$3	million,	based	on	allocation	formulas	and	the	volume	of	waste shipped	to	the	sites.	The	majority	of	remediation	activities	at	the	Kentucky	site	are	complete	and	remediation	design	is	ongoing	for	the	Pennsylvania	site.	Dominion	has accrued	a	reserve	of	$2	million	to	meet	its	obligations	at	these	two	sites.	Although	each	PRP	can	be	held

jointly,	severally	and	strictly	liable	for	all	costs,	Dominion	has	determined	that	it	is	probable	that	the	PRPs	will	fully	pay	their	share	of	the	costs	based	on	a	financial assessment	of	the	PRPs	involved	at	these	sites.	Dominion	generally	seeks	to	recover	its	costs	associated	with	environmental	remediation	from	third	party	insurers.	At December	31,	2002,	any	pending	or	possible	claims	were	not	recognized	as	an	asset	or	offset	against	such	obligations.

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

In	2002,	the	EPA	issued	a	Section	114	request	for	information	about	whether	Morgantown	Energy	Associates'	(MEA)	facility	in	Morgantown,	West	Virginia	is	in compliance	with	environmental	requirements.	EPA	made	a	site	visit	and	at	that	time	received	the	requested	information.	In	September	2002,	MEA	received	a	copy	of EPA's	inspection	report	summarizing	the	facts	surrounding	the	visit.	MEA	is	prepared	to	resolve	follow-up	questions	from	EPA.	MEA	is	a	50	percent-owned investment	accounted	for	by	Dominion	under	the	equity	method.

Other—Before	being	acquired	by	Dominion,	Louis	Dreyfus	was	one	of	numerous	defendants	in	several	lawsuits	pending	in	the	Texas	93rd	Judicial	District	Court	in Hildago	County,	Texas.	The	lawsuit	alleges	that	gas	wells	and	related	pipeline	facilities	operated	by	Louis	Dreyfus	and	facilities	operated	by	other	defendants	caused	an underground	hydrocarbon	plume	in	McAllen,	Texas.	The	plaintiffs	claim	that	they	have	suffered	damages,	including	property	damage	and	lost	profits,	as	a	result	of	the plume.	Although	the	results	of	litigation	are	inherently	unpredictable,	Dominion	does	not	expect	the	ultimate	outcome	of	the	case	to	have	a	material	adverse	impact	on its	results	of	operations,	cash	flows	or	financial	position.

# Spent	Nuclear	Fuel

Under	provisions	of	the	Nuclear	Waste	Policy	Act	of	1982,	Dominion	has	entered	into	contracts	with	the	DOE	for	the	disposal	of	spent	nuclear	fuel.	The	DOE	failed	to begin	accepting	the	spent	nuclear	fuel	on	January	31,	1998,	the	date	provided	by	the	Nuclear	Waste	Policy	Act	and	by	Dominion's	contract	with	the	DOE.	Dominion	will continue	to	safely	manage	its	spent	fuel	until	accepted	by	the	DOE.

# Retrospective	Premium	Assessments

Under	several	of	Dominion's	nuclear	insurance	policies,	Dominion	is	subject	to	retrospective	premium	assessments	in	any	policy	year	in	which	losses	exceed	the	funds available	to	these	insurance	companies.	For	additional	information,	see	Note	16.

Guarantees,	Letters	of	Credit	and	Surety	Bonds

As	discussed	in	Note	4,	FIN	No.	45	requires	disclosures	related	to	the	issuance	of	certain	types	of	guarantees,	beginning	with	financial	statements	for	the	year	ended December	31,	2002.	For	purposes	of	consolidated	financial	statements,	guarantees	issued	by	a	parent	on	behalf	of	its	consolidated	subsidiary,	guarantees	issued	by	a consolidated	subsidiary	on	behalf	of	its	parent	or	guarantees	issued	by	a	consolidated	subsidiary	on	behalf	of	a	sister	consolidated	subsidiary	are	not	subject	to	the	FIN No.	45's	disclosure	requirements.

Nevertheless,	Dominion	is	providing	the	following	information	about	the	guarantees	that	it	and	certain	of	its	subsidiaries	may	issue	in	the	ordinary	course	of business	to	provide	financial	or	performance	assurance	to	third	parties	on	behalf	of	certain	subsidiaries.	These	agreements	include	guarantees,	stand-by	letters	of	credit and	surety	bonds.	The	amounts	subject	to	certain	of	these	agreements	vary	depending	on	the	covered	contracts	actually	outstanding	at	any	particular

point	in	time.	Guarantees	and	stand-by	letters	of	credit	are	used,	when	necessary,	to	support	or	enhance	a	subsidiary's	stand-alone	creditworthiness.	Accordingly, Dominion	and	certain	subsidiaries	have	entered	into	guarantees	and	stand-by	letters	of	credit	so	that	third	parties	would	be	willing	to	enter	into	contracts	with	the subsidiaries	and	to	extend	sufficient	credit	to	facilitate	the	subsidiaries'	accomplishment	of	intended	commercial	purposes.	In	such	instances,	guarantees	may	be	used	to limit	exposures	resulting	from	subsidiary	business	activities	to	pre-defined	amounts.	While	the	majority	of	these	guarantees	do	not	have	a	termination	date,	Dominion may	choose	at	any	time	to	limit	the	applicability	of	such	guarantees	to	future	transactions.

To	the	extent	a	liability	subject	to	a	guarantee	has	been	incurred	by	a	consolidated	subsidiary,	that	liability	is	included	in	Dominion's	Consolidated	Financial Statements.	Dominion	believes	it	unlikely	that	it	would	be	required	to	perform	or	otherwise	incur	any	losses	associated	with	guarantees	of	its	subsidiaries'	obligations. On	behalf	of	consolidated	subsidiaries,	as	of	December	31,	2002,	Dominion	and	its	subsidiaries	had	issued	$5.2	billion	of	guarantees;	purchased	$117	million	of	surety bonds;	and	authorized	the	issuance	of	standby	letters	of	credit	by	financial	institutions	of	$606	million.

Only	in	those	limited	instances	where	Dominion	or	certain	subsidiaries	enter	into	a	guarantee	on	behalf	of	a	party	that	is	not	consolidated	in	the	preparation	of Dominion's	Consolidated	Financial	Statements	would	performance	under	the	agreement	result	in	the	recognition	of	additional	liabilities	in	Dominion's	Consolidated Financial	Statements.	As	of	December	31,	2002,	Dominion	has	guaranteed	$70	million	related	to	officers'	borrowings	under	executive	stock	loan	programs,	for	which individual	officers	are	personally	liable	for	repayment.	Substantially	all	of	this	guarantee	is	scheduled	to	expire	in	2005.

Dominion	has	also	guaranteed	$32	million	for	obligations	of	certain	equity	method	investments	-	Dominion	Telecom,	Inc.,	MEA	and	Elwood	Energy.

# Indemnifications

In	addition,	as	part	of	commercial	contract	negotiations	in	the	normal	course	of	business,	Dominion	may	sometimes	agree	to	make	payments	to	compensate	or	indemnify other	parties	for	possible	future	unfavorable	financial	consequences	resulting	from	specified	events.	The	specified	events	may	involve	an	adverse	judgment	in	a	lawsuit or	the	imposition	of	additional	taxes	due	to	a	change	in	tax	law	or	interpretation	of	the	tax	law.	Dominion	is	unable	to	develop	an	estimate	of	the	maximum	potential amount	of	future	payments	under	these	contracts	because	events	that	would	obligate	Dominion	have	not	yet	occurred	or,	if	any	such	event	has	occurred,	Dominion	has not	been	notified	of	its	occurrence.	However,	at	December	31,	2002,	management	believes	future	payments,	if	any,	that	could	ultimately	become	payable	under	these contract	provisions,	would	not	have	a	material	impact	on	its	results	of	operations,	cash	flows	or	financial	position.

# Stranded	Costs

Under	the	Virginia	Restructuring	Act,	the	generation	portion	of	Dominion's	Virginia	jurisdictional	operations	is	no	longer	subject	to	cost-based	regulation,	effective January	1,	2002.	Dominion's	base	rates	(excluding	fuel	costs	and	certain	other	allowable	adjustments)	will	remain	capped	until	July	2007,	unless	terminated	sooner	or otherwise	modified	consistent	with	the	Virginia	Restructuring	Act.	Under	the	Act,	Dominion	may	request	a	termination	of	the	capped	rates	at	any	time	after	January	1, 2004,	and	the	Virginia	State	Corporation	Commission	may	grant	Dominion's	request	to	terminate	the	capped	rates,	if	it	finds	that	a	competitive	generation	services market	exists	in	Dominion's	service	area.	Dominion	believes	capped	electric	retail	rates	and,	where	applicable,	wires	charges	provided	under	the	Virginia	Restructuring Act	provide	an	opportunity	to	recover	a	portion	of	its	potentially	stranded	costs,	depending	on	market	prices	of	electricity	and	other	factors.	Stranded	costs	are	those costs	incurred	or	commitments	made	by	utilities	under	cost-based	regulation	that	may	not	be	reasonably	expected	to	be	recovered	in	a	competitive	market.

Even	in	the	capped	rate	environment,	Dominion	remains	exposed	to	numerous	risks,	including,	among	others,	exposure	to	potentially	stranded	costs,	future environmental	compliance	requirements,	changes	in	tax	laws,	inflation	and	increased	capital	costs.	At	December	31,	2002,	Dominion's	exposure	to	potentially	stranded costs	included:	long-term	power	purchase	contracts	that	could	ultimately	be	determined	to	be	above	market	(see	Power	Purchase	Contracts	above);	generating	plants that	could	possibly	become	uneconomic	in	a	deregulated	environment;	and	unfunded	obligations	for	nuclear	plant	decommissioning	and	postretirement	benefits	not	yet recognized	in	the	financial	statements.	See	Notes	16	and	26.

# 28.				Fair	Value	of	Financial	Instruments

Substantially	all	of	Dominion's	financial	instruments	are	recorded	at	fair	value,	with	the	exception	of	the	instruments	described	below.	Fair	value	amounts	have	been determined	using	available	market	information	and	valuation	methodologies	considered	appropriate	by	management.	Dominion	reports	the	following	financial instruments	based	on	historical	cost	rather	than	fair	value.

The	financial	instruments'	carrying	amounts	and	fair	values	as	of	December	31,	2002	and	2001	were	as	follows:

| (millions) | Carrying<br>Amount | Estimated<br>Fair	Value | Carrying<br>Amount | Estimated<br>Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| Long-term\tdebt^(1) | $14,185 | $14,990 | $13,473 | $13,725 |
| Preferred\tsecurities\tof\tsubsidiary\ttrusts^(2)(3) | 1,397 | 1,441 | 1,132 | 1,154 |

(1) Fair	value	is	estimated	using	market	prices,	where	available;	otherwise,	interest	rates,	currently	available	for	issuance	of	debt	with	similar	terms	and	remaining	maturities,	are	used.	The carrying	amount	of	debt	issues	with	short-term	maturities	and	variable	rates	repriced	at	current	market	rates	is	a	reasonable	estimate	of	fair	value.

(2) Fair	value	is	based	on	market	quotations.

(3) The	2002	carrying	value	of	$1,397	million	represents	principal	outstanding	of	$1,400	million,	less	an	unamortized	discount	of	$3	million,	and	the	2001	carrying	value	of	$1,132	million represents	principal	outstanding	of	$1,135	million,	less	an	unamortized	discount	of	$3	million.

# 29.				Concentration	of	Credit	Risk

Credit	risk	is	the	risk	of	financial	loss	to	Dominion	if	counterparties	fail	to	perform	their	contractual	obligations.	Dominion	engages	in	transactions	for	the	purchase	and sale	of	products	and	services	with	major	companies	in	the	energy	industry	and	with	commercial	and	residential	energy	consumers.	These	transactions	principally	occur in	the	Northeast,	Midwest	and	Mid-Atlantic	regions	of	the	United	States.	Management	does	not	believe	that	this	geographic	concentration	contributes	significantly	to Dominion's	overall	exposure	to	credit	risk.	Credit	risk	associated	with	trade	accounts	receivable	from	energy	consumers	is	limited	due	to	the	large	number	of	customers. Dominion	maintains	credit	policies	with	respect	to	its	counterparties	that	management	believes	minimize	overall	credit	risk.	Where	appropriate,	such	policies include	the	evaluation	of	a	prospective	counterparty's	financial	condition,	collateral	requirements	and	the	use	of	standardized	agreements	that	facilitate	the	netting	of cash	flows	associated	with	a	single	counterparty.	Dominion	also	monitors	the	financial	condition	of	existing	counterparties	on	an	ongoing	basis.	Dominion	maintains	a provision	for	credit	losses	based	upon	factors	surrounding	the	credit	risk	of	its	customers,	historical	trends	and	other	information.	Management	believes,	based	on Dominion's	credit	policies	and	its	December	31,	2002	provision	for	credit	losses,	that	it	is	unlikely	that	a	material	adverse	effect	on	its	financial	position,	results	of operations	or	cash	flows	would	occur	as	a	result	of	counterparty	nonperformance.

Dominion	calculates	its	gross	credit	exposure	for	each	counterparty	as	the	unrealized	fair	value	of	derivative	and	energy	trading	contracts	plus	any	outstanding receivables	(net	of	payables,	where	netting	agreements	exist),	prior	to	the	application	of	collateral.	In	the	calculation	of	net	credit	exposure,	Dominion's	gross	exposure	is reduced	by	collateral	made	available	by	counterparties,	including	letters	of	credit	and	cash	received	by	Dominion	and	held	as	margin	deposits.	Presented	below	is	a summary	of	Dominion's	gross	and	net	credit	exposure	as	of	December	31,	2002.	The	amounts	presented	exclude	accounts	receivable	for	retail	electric	and	gas	sales	and services,	regulated	transmission	services	and	Dominion's	provision	for	credit	losses.

| (millions) | Credit	Exposure	before	Credit	Collateral | Credit	Collateral | Net	Credit	Exposure |
| :--- | :--- | :--- | :--- |
| (1) |  |  |  |
| Investment\tgrade | $486 | $31 | $455 |
| (2) |  |  |  |
| Non-investment\tgrade\nNo\texternal\tratings: | 100 | 24 | 76 |
| (3) |  |  |  |
| Internal\trated—investment\tgrade | 206 |  | 206 |
| (4) |  |  |  |
| Internal\trated—non-investment\tgrade | 143 |  | 143 |
| Total | $935 | $55 | $880 |

(1) This	category	includes	counterparties	with	minimum	credit	ratings	of	Baa3	assigned	by	Moody's	Investor	Service	(Moody's)	and	BBB-	assigned	by	Standard	&	Poor's	Rating	Group,	a	division of	the	McGraw-Hill	Companies,	Inc.	(Standard	&	Poor's).	The	five	largest	counterparty	exposures,	combined,	for	this	category	represented	approximately	13	percent	of	the	total	gross	credit exposure.

(2) This	category	includes	counterparties	with	credit	ratings	that	are	below	investment	grade.	The	five	largest	counterparty	exposures,	combined,	for	this	category	represented	approximately	6 percent	of	the	total	gross	credit	exposure.

(3) This	category	includes	counterparties	that	have	not	been	rated	by	Moody's	or	Standard	&	Poor's,	but	are	considered	investment	grade	based	on	Dominion's	evaluation	of	the	counterparty's creditworthiness.	The	five	largest	counterparty	exposures,	combined,	for	this	category	represented	approximately	18	percent	of	the	total	gross	credit	exposure.

(4) This	category	includes	counterparties	that	have	not	been	rated	by	Moody's	or	Standard	&	Poor's,	and	are	considered	non-investment	grade	based	on	Dominion's	evaluation	of	the counterparty's	creditworthiness.	The	five	largest	counterparty	exposures,	combined,	for	this	category	represented	approximately	3	percent	of	the	total	gross	credit	exposure.

# 30.				Dominion	Fiber	Ventures,	LLC

Dominion	has	a	50	percent	voting	interest	in	DFV,	a	joint	venture	with	a	third-party	investor	trust	(Investor	Trust).	DFV	was	established	to	fund	the	development	of	its principal	investment,	Dominion	Telecom,	Inc.	(DTI),	a	telecommunications	business.	DTI	is	a	facilities-based	interchange	and	emerging	local	carrier	that	provides broadband	solutions	to	wholesale	customers	throughout	the	eastern	United	States.	Due	to	the	veto	rights	and	substantive	equity	at	risk	from	the	Investor	Trust, Dominion's	investment	in	DFV	is	accounted	for	using	the	equity	method.	See	Note	31.

In	connection	with	its	formation,	DFV	issued	$665	million	of	7.05	percent	senior	secured	notes	due	March	2005	(DFV	Senior	Notes).

The	DFV	Senior	Notes	were	secured	in	part	by	Dominion	convertible	preferred	stock	held	in	trust.	Dominion	was	the	beneficial	owner	of	the	trust	and	included	it	in the	preparation	of	its	Consolidated	Financial	Statements.	Prior	to	Dominion's	repurchase	of	substantially	all	of	the	outstanding	DFV	Senior	Notes	in	February	2003,	as described	below,	the	preferred	stock	would	have	been	subject	to	being	remarketed	in	an	amount	sufficient	to	retire	the	DFV	Senior	Notes	at	maturity	or	earlier	if	the credit	ratings	for	Dominion	Resources,	Inc.	senior	unsecured	debt	were	BBB–	or	Baa3	during	a	period	when	the	closing	price	of	Dominion's	common	stock	was	below $45.97	for	ten	consecutive	trading	days.	If	the	remarketing	of	the	preferred	stock	occurred,	the	convertible	preferred	stock	would	have	been	considered	in	the	calculation of	diluted	earnings	per	share	of	Dominion's	common	stock	or	could	have	resulted	in	the	issuance	of	additional	shares	of	Dominion	common	stock,	if	converted.

At	the	end	of	2002	and	2001,	DTI	and	DFV	had	loaned	Dominion	a	total	of	$140	million	and	$367	million,	respectively,	which	are	reported	as	notes	payable— affiliates	and	securities	due	within	one	year	on	the	Consolidated	Balance	Sheets.	In	2002	and	2001,	Dominion	incurred	$13	million	and	$23	million	of	interest	expense on	the	loans,	respectively.	For	management	and	other	support	services,	Dominion	billed	DTI	$35	million	and	$20	million	in	2002	and	2001,	respectively.

# Subsequent	Event

On	January	23,	2003,	Dominion	and	DFV	made	a	tender	and	consent	offering	for	the	DFV	Senior	Notes.	Under	the	terms	of	the	offering,	DFV	sought	the	consent	of	the note	holders	to	remove	the	stock	price	and	credit	downgrade	trigger	described	above	as	well	as	certain	other	related	modifications	to	the	indenture.	Dominion	offered	to purchase	for	cash	all	of	the	outstanding	notes.	The	consent	and	tender	offer	was	successful,	resulting	in	the	removal	of	the	stock	price	and	credit	downgrade	trigger	and the	purchase	of	$633	million	of	the	outstanding	notes	by	Dominion	in	February	2003.	Dominion	paid	a	total	of	$664	million	for	the	notes	acquired,	using	proceeds	from the	sale	of	$700	million	of	senior	notes.

In	connection	with	this	transaction,	Dominion	and	Investor	Trust	agreed	to	certain	amendments	to	the	DFV	limited	liability	company	agreement.	Pursuant	to	one of	these	amendments,	Dominion	agreed	that	upon	the	earlier	of	the	scheduled	maturity	date	of	the	DFV	Senior	Notes	or	upon	certain	default	events,	Dominion	will contribute	the	$644	million	of	DFV	Senior	Notes	it	holds	to	DFV	in	exchange	for	an	additional	equity	interest	in	DFV.

As	a	result	of	this	transaction,	Dominion	will	consolidate	the	results	of	DFV	in	its	financial	statements	beginning	in	February	2003.	The	DFV	Senior	Notes	held	by Dominion	will	be	eliminated	in	consolidation.	After	the	transaction,	$21	million	of	the	DFV	Senior	Notes	remain	outstanding	in	the	hands	of	third	parties.	Dominion will	recognize	a	pre-tax	charge	of	approximately	$60	million	on	the	effective	extinguishment	of	the	acquired	notes	in	the	first	quarter	of	2003.	The	charge	will	primarily consist	of	the	premium	paid	to	acquire	the	notes,	the	consent	fee	paid	to	the	note	holders	and	the	write-off	of	unamortized	debt	costs	related	to	the	original	issuance	of the	DFV	Senior	Notes.	Furthermore,	since	Dominion	holds	substantially	all	of	the	DFV	Senior	Notes,	it	is	unlikely	that	the	remarketing	of	the	Dominion	convertible preferred	stock	held	in	trust,	discussed	above,	would	ever	occur.

# 31.			Equity	Method	Investments	and	Affiliated	Transactions

At	December	31,	2002	and	2001,	Dominion's	equity	method	investments	totaled	$503	million	and	$523	million,	respectively,	and	equity	earnings	on	these	investments totaled	$11	million	in	2002,	$36	million	in	2001	and	$47	million	in	2000.	Dominion's	equity	method	investments	are	reported	on	the	Consolidated	Balance	Sheets	in other	investments.	In	addition,	Dominion	has	equity	method	investments	that	are	held	for	sale,	representing	primarily	its	interest	in	certain	Australian	natural	gas pipelines.	As	of	December	31,	2002	and	2001,	equity	method	investments	that	are	held	for	sale	totaled	$83	million	and	$68	million,	respectively,	and	are	included	in other	current	assets	in	the	Consolidated	Balance	Sheets.	Other	than	transactions	involving	its	telecommunications	joint	venture	described	in	Note	30,	transactions between	Dominion	and	its	affiliates,	as	well	as	amounts	due	from	those	affiliates,	were	not	significant.

Dominion	manages	its	operations	along	three	primary	business	lines:

								Dominion	Energy	manages	Dominion's	generation	portfolio,	consisting	primarily	of	generating	units	and	power	purchase	agreements.	It	also	manages	Dominion's energy	trading	and	marketing,	hedging	and	arbitrage	activities;	and	gas	pipeline	and	certain	gas	production	and	storage	operations.

Dominion	Delivery	manages	Dominion's	electric	and	gas	distribution	systems,	as	well	as	customer	service	and	electric	transmission.	Dominion	Delivery	also includes	Dominion's	investment	in	DFV,	see	Note	30.

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

Effective	January	1,	2003,	Dominion's	electric	transmission	operations	will	be	managed	by	the	Dominion	Energy	operating	segment.

In	addition,	Dominion	also	reports	the	operations	of	DCI	and	Dominion's	corporate	and	other	operations	as	a	segment.	Amounts	included	in	the	Corporate	and Other	category	include:

n						corporate	expenses	of	the	Dominion	and	CNG	holding	companies	(including	interest	not	allocated	to	other	segments);

n						2002	and	2001	restructuring	costs	and	2000	restructuring	and	acquisition-related	costs	(see	Note	8);

n						2001	costs	associated	with	termination	of	long-term	power	purchase	contracts	(see	Note	27);

n						2001	provision	for	credit	exposure	in	connection	with	Enron	bankruptcy	(see	Note	15);

n						2000	cumulative	effect	of	a	change	in	accounting	principle	(see	Note	3).

Dominion's	management	evaluates	performance	based	on	a	measure	of	profit	and	loss	that	represents	each	segment's	contribution	to	Dominion's	net	income.

Intersegment	sales	and	transfers	are	based	on	underlying	contractual	arrangements	and	agreements	and	may	result	in	intersegment	profit	or	loss.

The	following	table	presents	segment	information	pertaining	to	Dominion's	operations:

| (millions) | Dominion<br>Energy | Dominion<br>Delivery | Dominion<br>E&amp;P | Corporate<br>and	Other | Adjustments	&amp;<br>Eliminations | Consolidated<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| 2002 |  |  |  |  |  |  |
| Total\trevenue\tfrom\texternal\tcustomers | $5,781 | $2,526 | $1,629 | $215 | $67 | $10,218 |
| Intersegment\trevenue | 159 | 26 | 90 | 568 | (843) |  |
| Total\toperating\trevenue | 5,940 | 2,552 | 1,719 | 783 | (776) | 10,218 |
| Interest\tand\trelated\tcharges | 258 | 202 | 88 | 653 | (256) | 945 |
| Depreciation,\tdepletion\tand\tamortization | 368 | 328 | 502 | 60 |  | 1,258 |
| Equity\tin\tearnings\tof\tequity\tmethod\tinvestees | 29 | (32) | 5 | 9 |  | 11 |
| Income\ttax\texpense\t(benefit) | 462 | 236 | 165 | (182) |  | 681 |
| Net\tincome | 770 | 455 | 380 | (243) |  | 1,362 |
| Investment\tin\tequity\tmethod\tinvestees | 216 | 74 | 53 | 160 |  | 503 |
| Capital\texpenditures | 836 | 455 | 1,492 | 45 |  | 2,828 |
| Total\tassets\t(billions) | $15.5 | $8.2 | $7.8 | $15.1 | $(8.7) | $37.9 |
| 2001 |  |  |  |  |  |  |
| Total\trevenue\tfrom\texternal\tcustomers | $6,001 | $2,948 | $1,354 | $255 |  | $10,558 |
| Intersegment\trevenue | 143 | 15 | 106 | 626 | $(890) |  |
| Total\toperating\trevenue | 6,144 | 2,963 | 1,460 | 881 | (890) | 10,558 |
| Interest\tand\trelated\tcharges | 292 | 225 | 64 | 621 | (205) | 997 |
| Depreciation,\tdepletion\tand\tamortization | 379 | 339 | 364 | 163 |  | 1,245 |
| Equity\tin\tearnings\tof\tequity\tmethod\tinvestees | 39 | (3) | 5 | (5) |  | 36 |
| Income\ttax\texpense\t(benefit) | 477 | 200 | 145 | (452) |  | 370 |
| Net\tincome | 723 | 366 | 320 | (865) |  | 544 |
| Investment\tin\tequity\tmethod\tinvestees | 208 | 102 | 71 | 142 |  | 523 |
| Capital\texpenditures | 793 | 435 | 898 | 42 |  | 2,168 |
| Total\tassets\t(billions) | $13.7 | $8.0 | $7.4 | $10.8 | $(5.5) | $34.4 |
| 2000 |  |  |  |  |  |  |
| Total\trevenue\tfrom\texternal\tcustomers | $4,731 | $2,798 | $1,279 | $438 |  | $9,246 |
| Intersegment\trevenue | 163 | 28 | 51 | 398 | $(640) |  |
| Total\toperating\trevenue | 4,894 | 2,826 | 1,330 | 836 | (640) | 9,246 |
| Interest\tand\trelated\tcharges | 230 | 221 | 83 | 519 | (29) | 1,024 |
| Depreciation,\tdepletion\tand\tamortization | 340 | 318 | 352 | 166 |  | 1,176 |
| Equity\tin\tearnings\tof\tequity\tmethod\tinvestees | 23 |  | 12 | 12 |  | 47 |
| Income\ttax\texpense\t(benefit) | 262 | 187 | 97 | (363) |  | 183 |
| Net\tincome | 489 | 339 | 255 | (647) |  | 436 |
| Capital\texpenditures | $330 | $457 | $751 | $27 |  | $1,565 |

As	of	December	31,	2002	and	2001,	approximately	3	and	2	percent	of	Dominion's	total	long-lived	assets,	respectively,	were	associated	with	international operations.	For	the	years	ended	December	31,	2002	and	2001,	approximately	1	and	2	percent	of	operating	revenues	were	associated	with	international	operations.

# 33.				Gas	and	Oil	Producing	Activities		(unaudited)

# Capitalized	Costs

The	aggregate	amounts	of	costs	capitalized	for	gas	and	oil	producing	activities,	and	related	aggregate	amounts	of	accumulated	depreciation,	depletion	and	amortization, at	December	31,	2002	and	2001	follow:

| (millions) | 2002 | 2001 |
| :--- | :--- | :--- |
| Capitalized\tcosts\tof: |  |  |
| Proved\tproperties | $6,265 | $4,707 |
| Unproved\tproperties | 1,440 | 1,508 |
|  | 7,705 | 6,215 |
| Accumulated\tdepreciation\tof: |  |  |
| Proved\tproperties | 1,212 | 447 |
| Unproved\tproperties | 151 | 120 |
|  | 1,363 | 567 |
| Net\tcapitalized\tcosts | $6,342 | $5,648 |

The	following	costs	were	incurred	in	gas	and	oil	producing	activities	during	the	years	ended	December	31,	2002,	2001	and	2000:

| (millions) | Total | United<br>States | Canada | Total | United<br>States | Canada | Total | United<br>States | Canada |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Property\tacquisition\tcosts: |  |  |  |  |  |  |  |  |  |
| Proved\tproperties | $243 | $243 |  | $1,586 | $1,586 |  | $1,475 | $1,459 | $16 |
| Unproved\tproperties | 177 | 170 | $7 | 908 | 897 | $11 | 125 | 125 |  |
|  | 420 | 413 | 7 | \t 2,494 | \t 2,483 | 11 | \t 1,600 | \t 1,584 | 16 |
| Exploration\tcosts | 267 | 260 | 7 | 305 | 305 |  | 159 | 115 | 44 |
| Development\tcosts(1) | 760 | 679 | 81 | 512 | 395 | 117 | 261 | 236 | 25 |
| Total | $1,447 | $1,352 | $95 | $3,311 | $3,183 | $128 | $2,020 | $1,935 | $85 |

(1) Development	costs	incurred	for	proved	undeveloped	reserves	were	$223	million	and	$133	million	for	2002	and	2001,	respectively.

Dominion	cautions	that	the	following	standardized	disclosures	required	by	the	FASB	do	not	represent	the	results	of	operations	based	on	its	historical	financial statements.	In	addition	to	requiring	different	determinations	of	revenue	and	costs,	the	disclosures	exclude	the	impact	of	interest	expense	and	corporate	overhead.

| (millions) | Total | United<br>States | Canada | Total | United<br>States | Canada | Total | United<br>States | Canada |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Revenue\t(net\tof\troyalties)\tfrom: |  |  |  |  |  |  |  |  |  |
| Sales\tto\tnonaffiliated\tcompanies | $1,396 | $1,257 | $139 | $1,144 | $920 | $224 | $861 | $691 | $170 |
| Transfers\tto\tother\toperations | 97 | 97 |  | 114 | 114 |  | 93 | 93 |  |
| Total | \t 1,493 | 1,354 | 139 | \t 1,258 | 1,034 | 224 | \t 954 | 784 | 170 |
| Less: |  |  |  |  |  |  |  |  |  |
| Production\t(lifting)\tcosts | 272 | 220 | 52 | 220 | 162 | 58 | \t 158 | 133 | 25 |
| Depreciation,\tdepletion\tand\tamortization | 502 | 452 | 50 | 358 | 307 | 51 | \t 345 | 294 | 51 |
| Income\ttax\texpense | 222 | 209 | 13 | 208 | 162 | 46 | \t 134 | 93 | 41 |
| Results\tof\toperations | $497 | $473 | $24 | $472 | $403 | $69 | $317 | $264 | $53 |

# Company-Owned	Reserves

Estimated	net	quantities	of	proved	gas	and	oil	(including	condensate)	reserves	in	the	United	States	and	Canada	at	December	31,	2002,	2001	and	2000,	and	changes	in the	reserves	during	those	years,	are	shown	in	the	two	schedules	which	follow.

| (billion	cubic	feet) | Total | United<br>States | Canada | Total | United<br>States | Canada | Total | United<br>States | Canada |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Proved\tdeveloped\tand\tundeveloped\treserves |  |  |  |  |  |  |  |  |  |
| —Gas |  |  |  |  |  |  |  |  |  |
| At\tJanuary\t1 | 4,090 | 3,517 | 573 | 2,337 | 1,858 | 479 | 1,114 | 600 | 514 |
| Changes\tin\treserves: |  |  |  |  |  |  |  |  |  |
| Extensions,\tdiscoveries\tand\tother\tadditions | 874 | 769 | 105 | 503 | 394 | 109 | 274 | 232 | 42 |
| Revisions\tof\tprevious\testimates | 158 | 145 | 13 | (24) | (64) | 40 | (89) | (59) | (30) |
| Production | (399) | (346) | (53) | (295) | (238) | (57) | (269) | (222) | (47) |
| Purchases\tof\tgas\tin\tplace | 381 | 379 | 2 | 1,578 | 1,576 | 2 | 1,322 | 1,322 |  |
| Sales\tof\tgas\tin\tplace | (6) | (6) |  | (9) | (9) |  | (15) | (15) |  |
| At\tDecember\t31 | 5,098 | 4,458 | 640 | 4,090 | 3,517 | 573 | 2,337 | 1,858 | 479 |
| Proved\tdeveloped\treserves—Gas |  |  |  |  |  |  |  |  |  |
| At\tJanuary\t1 | 3,466 | 3,026 | 440 | 1,954 | 1,593 | 361 | 1,005 | 600 | 405 |
| At\tDecember\t31 | 4,035 | 3,549 | 486 | 3,466 | 3,026 | 440 | 1,954 | 1,593 | 361 |
| (thousands\tof\tbarrels) |  |  |  |  |  |  |  |  |  |
| Proved\tdeveloped\tand\tundeveloped\treserves |  |  |  |  |  |  |  |  |  |
| —Oil |  |  |  |  |  |  |  |  |  |
| At\tJanuary\t1 | 140,567 | 115,988 | 24,579 | 75,342 | 51,072 | 24,270 | 20,808 | 659 | 20,149 |
| Changes\tin\treserves: |  |  |  |  |  |  |  |  |  |
| Extensions,\tdiscoveries\tand\tother\tadditions | 24,326 | 24,273 | 53 | 40,676 | 37,401 | 3,275 | 14,213 | 12,813 | 1,400 |
| Revisions\tof\tprevious\testimates | 11,165 | 4,293 | 6,872 | (1,617) | (165) | (1,452) | (5,082) | (2,443) | (2,639) |
| Production | (9,725) | (8,653) | (1,072) | (7,663) | (6,134) | (1,529) | (7,694) | (6,436) | (1,258) |
| Purchases\tof\toil\tin\tplace | 2,928 | 2,928 |  | 34,619 | 34,604 | 15 | 54,977 | 48,359 | 6,618 |
| Sales\tof\toil\tin\tplace | (31) | (31) |  | (790) | (790) |  | (1,880) | (1,880) |  |
| At\tDecember\t31 | 169,230 | 138,798 | 30,432 | 140,567 | 115,988 | 24,579 | 75,342 | 51,072 | 24,270 |
| Proved\tdeveloped\treserves—Oil |  |  |  |  |  |  |  |  |  |
| At\tJanuary\t1 | 63,777 | 46,473 | 17,304 | 36,236 | 21,709 | 14,527 | 6,102 | 659 | 5,443 |
| At\tDecember\t31 | 65,823 | 47,759 | 18,064 | 63,777 | 46,473 | 17,304 | 36,236 | 21,709 | 14,527 |

# Standardized	Measure	of	Discounted	Future	Net	Cash	Flows	and	Changes	Therein

The	following	tabulation	has	been	prepared	in	accordance	with	the	FASB's	rules	for	disclosure	of	a	standardized	measure	of	discounted	future	net	cash	flows	relating	to proved	gas	and	oil	reserve	quantities	owned	by	Dominion.

| (millions) | Total | United<br>States | Canada | Total | United<br>States | Canada | Total | United<br>States | Canada |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Future\tcash\tinflows | $28,337 | $25,344 | $2,993 | $12,350 | $11,161 | $1,189 | $23,602 | $19,117 | $4,485 |
| Less: |  |  |  |  |  |  |  |  |  |
| Future\tdevelopment\tcosts(1) | 1,092 | 1,005 | 87 | 845 | 770 | 75 | 503 | 405 | 98 |
| Future\tproduction\tcosts | 3,603 | 2,979 | 624 | 3,571 | 3,091 | 480 | 2,055 | 1,540 | 515 |
| Future\tincome\ttax\texpense\t(benefit) | 7,582 | 6,904 | 678 | 1,917 | 2,026 | (109) | 7,145 | 5,591 | \t 1,554 |
| Future\tcash\tflows | \t 16,060 | 14,456 | \t 1,604 | 6,017 | 5,274 | 743 | \t 13,899 | 11,581 | \t 2,318 |
| Less\tannual\tdiscount\t(10%\ta\tyear) | 8,255 | 7,436 | 819 | 2,804 | 2,513 | 291 | 5,723 | 4,622 | \t 1,101 |
| Standardized\tmeasure\tof\tdiscounted\tfuture\tnet |  |  |  |  |  |  |  |  |  |
| cash\tflows(2) | $7,805 | $7,020 | $785 | $3,213 | $2,761 | $452 | $8,176 | $6,959 | $1,217 |

(1) Estimated	future	development	costs,	excluding	abandonment,	for	proven	undeveloped	reserves	are	estimated	to	be	$236	million,	$239	million	and	$203	million	for	2003,	2004	and	2005, respectively.

(2) Amounts	exclude	the	effect	of	derivative	instruments	designated	as	hedges	of	future	sales	of	production	at	year	end.

In	the	foregoing	determination	of	future	cash	inflows,	sales	prices	for	gas	and	oil	were	based	on	contractual	arrangements	or	market	prices	at	year-end.	Future costs	of	developing	and	producing	the	proved	gas	and	oil	reserves	reported	at	the	end	of	each	year	shown	were	based	on	costs	determined	at	each	such	year	end, assuming	the	continuation	of	existing	economic	conditions.	Future	income	taxes	were	computed	by	applying	the	appropriate	year-end	or	future	statutory	tax	rate	to future	pretax	net	cash	flows,	less	the	tax	basis	of	the	properties	involved,	and	giving	effect	to	tax	deductions,	permanent	differences	and	tax	credits.

It	is	not	intended	that	the	FASB's	standardized	measure	of	discounted	future	net	cash	flows	represent	the	fair	market	value	of	Dominion's	proved	reserves. Dominion	cautions	that	the	disclosures	shown	are	based	on	estimates	of	proved	reserve	quantities	and	future	production	schedules	which	are	inherently	imprecise	and subject	to	revision,	and	the	10	percent	discount	rate	is	arbitrary.	In	addition,	costs	and	prices	as	of	the	measurement	date	are	used	in	the	determinations,	and	no	value	may be	assigned	to	probable	or	possible	reserves.

The	following	tabulation	is	a	summary	of	changes	between	the	total	standardized	measure	of	discounted	future	net	cash	flows	at	the	beginning	and	end	of	each year.

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Standardized\tmeasure\tof\tdiscounted\tfuture\tnet\tcash\tflows\tat\tJanuary\t1 | $3,213 | $8,176 | $549 |
| Changes\tin\tthe\tyear\tresulting\tfrom: |  |  |  |
| Sales\tand\ttransfers\tof\tgas\tand\toil\tproduced\tduring\tthe\tyear,\tless\tproduction\tcosts | (1,221) | (1,038) | (796) |
| Prices\tand\tproduction\tand\tdevelopment\tcosts\trelated\tto\tfuture\tproduction | 3,975 | (9,793) | 9,544 |
| Extensions,\tdiscoveries\tand\tother\tadditions,\tless\tproduction\tand\tdevelopment\tcosts | 2,039 | 767 | 1,602 |
| Previously\testimated\tdevelopment\tcosts\tincurred\tduring\tthe\tyear | 223 | 134 | 82 |
| Revisions\tof\tprevious\tquantity\testimates | (152) | 62 | (778) |
| Accretion\tof\tdiscount | 426 | 1,117 | 259 |
| Income\ttaxes | (2,639) | 2,949 | (3,309) |
| Acquisition\tof\tLouis\tDreyfus\tand\tCNG |  | 1,347 | 1,322 |
| Other\tpurchases\tand\tsales\tof\tproved\treserves\tin\tplace | 799 | 102 | 994 |
| Other\t(principally\ttiming\tof\tproduction) | 1,142 | (610) | (1,293) |
| Standardized\tmeasure\tof\tdiscounted\tfuture\tnet\tcash\tflows\tat\tDecember\t31 | $7,805 | $3,213 | $8,176 |

# 34.				Quarterly	Financial	and	Common	Stock	Data	(unaudited)

A	summary	of	the	quarterly	results	of	operations	for	the	years	ended	December	31,	2002	and	2001	follows.	Amounts	reflect	all	adjustments,	consisting	of	only	normal recurring	accruals,	necessary	in	the	opinion	of	management	for	a	fair	statement	of	the	results	for	the	interim	periods.	Results	for	interim	periods	may	fluctuate	as	a	result of	weather	conditions,	changes	in	rates	and	other	factors.	Amounts	for	2001	reflect	certain	reclassifications	to	conform	to	the	2002	presentation.

| (millions,	except	per	share	amounts) | First	Quarter | Second	Quarter | Third	Quarter | Fourth	Quarter | Full<br>Year |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2002 |  |  |  |  |  |
| Operating\trevenue | $2,634 | $2,332 | $2,545 | $2,707 | $10,218 |
| Income\tfrom\toperations | 711 | 625 | 836 | 713 | 2,885 |
| Net\tincome | 322 | 272 | 430 | 338 | 1,362 |
| Earnings\tper\tshare—basic | 1.21 | 0.98 | 1.55 | 1.12 | 4.85 |
| Earnings\tper\tshare—diluted | 1.20 | 0.97 | 1.54 | 1.12 | 4.82 |
| Dividends\tpaid\tper\tshare | 0.645 | 0.645 | 0.645 | 0.645 | $2.58 |
| Common\tstock\tprices\t(high-low) | $65.97-$56.39 | $67.06-$60.59 | $66.15-$47.97 | $55.74-$35.40 |  |
| 2001 |  |  |  |  |  |
| Operating\trevenue | $3,198 | $2,309 | $2,544 | $2,507 | $10,558 |
| Income\tfrom\toperations | 496 | 518 | 780 | (9) | 1,785 |
| Net\tincome\t(loss) | 162 | 155 | 344 | (117) | 544 |
| Earnings\t(loss)\tper\tshare—basic | 0.66 | 0.63 | 1.38 | (0.45) | 2.17 |
| Earnings\t(loss)\tper\tshare—diluted | 0.65 | 0.62 | 1.37 | (0.45) | 2.15 |
| Dividends\tpaid\tper\tshare | 0.645 | 0.645 | 0.645 | 0.645 | 2.58 |
| Common\tstock\tprices\t(high-low) | $68-$55.31 | $69.99-$59.47 | $64.15-$55.13 | $62.97-$55.30 |  |

Item	9. Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure

# Part	III

# Item	10. Directors	and	Executive	Officers	of	the	Registrant

Information	regarding	the	directors	of	Dominion	contained	under	the	heading	Election	of	Directors,	in	the	2003	Proxy	Statement,	File	No.	1-8489,	which	will	be	filed	on or	around	March	21,	2003	(the	2003	Proxy	Statement),	is	incorporated	by	reference.	Information	regarding	Section	16(a)	beneficial	ownership	reporting	compliance	is contained	under	the	heading	Section	16(a)	Beneficial	Ownership	Reporting	Compliance	in	the	2003	Proxy	and	is	incorporated	by	reference.	The	information	concerning the	executive	officers	of	Dominion	required	by	this	item	is	included	in	Part	I	of	this	Form	10-K	under	the	caption	Executive	Officers	of	the	Registrant.

# Item	11. Executive	Compensation

The	information	regarding	executive	compensation	contained	under	the	heading	Executive	Compensation	and	the	information	regarding	director	compensation contained	under	the	heading	The	Board—Compensation	and	Other	Programs	in	the	2003	Proxy	Statement	is	incorporated	by	reference.

# Item	12. Security	Ownership	of	Certain	Beneficial	Owners	and	Management

The	information	concerning	stock	ownership	by	directors,	executive	officers	and	five	percent	beneficial	owners	contained	under	the	heading	Share	Ownership	Table	in the	2003	Proxy	Statement	is	incorporated	by	reference.

The	information	regarding	equity	securities	of	Dominion	that	are	authorized	for	issuance	under	its	equity	compensation	plans	contained	under	the	heading	Equity Compensation	in	the	2003	Proxy	Statement	is	incorporated	by	reference.

# Item	13. Certain	Relationships	and	Related	Transactions

The	information	concerning	certain	transactions	with	executive	officers	under	the	heading	Executive	Compensation—	Stock	Purchase	Programs	and	other	transactions contained	under	the	heading	Certain	Relationships	and	Related	Transactions	in	the	2003	Proxy	Statement	is	incorporated	by	reference.

# Item	14. Controls	and	Procedures

Senior	management,	including	the	Chief	Executive	Officer	and	Chief	Financial	Officer,	evaluated	the	effectiveness	of	Dominion's	disclosure	controls	and	procedures within	90	days	of	the	date	of	this	report.	Based	on	this	evaluation	process,	the	Chief	Executive	Officer	and	Chief	Financial	Officer	have	concluded	that	Dominion's disclosure	controls	and	procedures	are	effective.	Since	that	evaluation	process	was	completed,	there	have	been	no	significant	changes	in	internal	controls	or	in	other factors	that	could	significantly	affect	these	controls.

# Part	IV

# 	 Exhibits,	Financial	Statement	Schedules,	and	Reports	on	Form	8-K

(a)				Certain	documents	are	filed	as	part	of	this	Form	10-K	and	are	incorporated	by	reference	and	found	on	the	pages	noted.

# 1.				Financial	Statements

See	Index	on	page	46.

| Independent	Auditors'	Report | 101 |
| :--- | :--- |
| Schedule\tI—Condensed\tFinancial\tInformation\tof\tRegistrant | 102 |
| Schedule\tII—Valuation\tand\tQualifying\tAccounts | 109 |

All	other	schedules	are	omitted	because	they	are	not	applicable,	or	the	required	information	is	shown	in	the	financial	statements	or	the	related	notes.

4.7 Indenture,	Junior	Subordinated	Debentures,	dated	December	1,	1997,	between	Dominion	Resources,	Inc.	and	JP	Morgan	Chase	Bank	(formerly	The	Chase Manhattan	Bank)	as	supplemented	by	a	First	Supplemental	Indenture,	dated	December	1,	1997	(Exhibit	4.1	and	Exhibit	4.2	to	Form	S-4	Registration Statement,	File	No.	333-50653,	as	filed	on	April	21,	1998,	incorporated	by	reference);	Second	and	Third	Supplemental	Indentures,	dated	January	1,	2001, (Exhibits	4.6	and	4.13,	Form	8-K,	dated	January	9,	2001,	incorporated	by	reference).

4.8 Indenture,	dated	as	of	May	1,	1971,	between	Consolidated	Natural	Gas	Company	and	JP	Morgan	Chase	Bank	(formerly	The	Chase	Manhattan	Bank	and Manufacturers	Hanover	Trust	Company)	(Exhibit	(5)	to	Certificate	of	Notification	at	Commission	File	No.	70-5012,	incorporated	by	reference);	Fifteenth Supplemental	Indenture	dated	as	of	October	1,	1989	(Exhibit	(5)	to	Certificate	of	Notification	at	Commission	File	No.	70-7651,	incorporated	by	reference); Seventeenth	Supplemental	Indenture	dated	as	of	August	1,	1993	(Exhibit	(4)	to	Certificate	of	Notification	at	Commission	File	No.	70-8167,	incorporated	by reference);	Eighteenth	Supplemental	Indenture	dated	as	of	December	1,	1993	(Exhibit	(4)	to	Certificate	of	Notification	at	Commission	File	No.	70-8167, incorporated	by	reference);	Nineteenth	Supplemental	Indenture	dated	as	of	January	28,	2000	(Exhibit	(4A)(iii),	Form	10-K	for	the	fiscal	year	ended December	31,	1999,	File	No.	1-3196,	incorporated	by	reference);	Twentieth	Supplemental	Indenture	dated	as	of	March	19,	2001	(Exhibit	4(viii),	Form	10-K for	the	fiscal	year	ended	December	31,	2000,	File	No.	1-8489,	incorporated	by	reference).

4.10 Senior	Indenture,	dated	June	1,	2000,	between	Dominion	Resources,	Inc.	and	JP	Morgan	Chase	Bank	(formerly	The	Chase	Manhattan	Bank),	as	Trustee (Exhibit	4	(iii),	Form	S-3,	Registration	Statement,	File	No.	333-93187,	incorporated	by	reference);	First	Supplemental	Indenture,	dated	June	1,	2000 (Exhibit	4.2,	Form	8-K,	dated	June	21,	2000,	File	No.	1-8489,	incorporated	by	reference);	Second	Supplemental	Indenture,	dated	July	1,	2000	(Exhibit	4.2, Form	8-K,	dated	July	11,	2000,	File	No.	1-8489,	incorporated	by	reference);	Third	Supplemental	Indenture,	dated	July	1,	2000	(Exhibit	4.3,	Form	8-K dated	July	11,	2000,	incorporated	by	reference);	Fourth	Supplemental	Indenture	and	Fifth	Supplemental	Indenture	dated	September	1,	2000	(Exhibit	4.2, Form	8-K,	dated	September	8,	2000,	incorporated	by	reference);	Sixth	Supplemental	Indenture,	dated	September	1,	2000	(Exhibit	4.3,	Form	8-K,	dated September	8,	2000,	incorporated	by	reference);	Seventh	Supplemental	Indenture,	dated	October	1,	2000	(Exhibit	4.2,	Form	8-K,	dated	October	11,	2000, incorporated	by	reference);	Eighth	Supplemental	Indenture,	dated	January	1,	2001	(Exhibit	4.2,	Form	8-K,	dated	January	23,	2001,	incorporated	by reference);	Ninth	Supplemental	Indenture,	dated	May	1,	2001	(Exhibit	4.4,	Form	8-K,	dated	May	25,	2001,	incorporated	by	reference);	Form	of	Tenth Supplemental	Indenture	(Exhibit	4.2,	Form	8-K	filed	March	18,	2002,	File	No.	1-8489,	incorporated	by	reference);	Form	of	Eleventh	Supplemental Indenture	(Exhibit	4.2,	Form	8-K	filed	June	25,	2002,	File	No.	1-8489,	incorporated	by	reference.);	Form	of	Twelfth	Supplemental	Indenture	(Exhibit	4.2, Form	8-K	filed	September	11,	2002,	File	No.	1-8489,	incorporated	by	reference);	Thirteenth	Supplemental	Indenture	dated	September	16,	2002	(Exhibit 4.1,	Form	8-K	filed	September	17,	2002,	File	No.	1-8489,	incorporated	by	reference);	Forms	of	Fifteenth	and	Sixteenth	Supplemental	Indentures	(Exhibits 4.2	and	4.3	to	Form	8-K	filed	December	12,	2002,	File	No.	1-8489,	incorporated	by	reference);	Forms	of	Seventeenth	and	Eighteenth	Supplemental Indentures	(Exhibits	4.2.	and	4.3	to	Form	8-K	filed	February	11,	2003,	File	No.	1-8489,	incorporate	by	reference);	Forms	of	Twentieth	and	Twenty-first Supplemental	Indentures	(Exhibits	4.2	and	4.3	to	Form	8-K	filed	March	4,	2003,	File	No.	1-8489,	incorporated	by	reference).

4.13 Indenture,	dated	as	of	June	15,	1994,	between	Louis	Dreyfus	Natural	Gas	Corp.,	Dominion	Oklahoma	Texas	Exploration	and	Production,	Inc.	and	The Bank	of	New	York	(as	successor	trustee	to	Bank	of	Montreal	Trust	Company)	(Exhibit	4.13,	Form	10-K	for	the	fiscal	year	ended	December	31,	2001,	File No.	1-8489,	incorporated	by	reference);	as	supplemented	by	the	First	Supplemental	Indenture,	dated	as	of	November	1,	2001(Exhibit	4.7,	Form	10-Q	for the	quarter	ended	September	30,	2001,	incorporated	by	reference).

10.1 Amended	and	Restated	Interconnection	and	Operating	Agreement,	dated	as	of	July	29,	1997	between	Virginia	Electric	and	Power	Company	and	Old Dominion	Electric	Cooperative	(Exhibit	10(v),	Form	10-K	for	the	fiscal	year	ended	December	31,	1997,	File	No.	1-8489,	incorporated	by	reference).

10.11* Form	of	Employment	Continuity	Agreement	for	certain	officers	of	Dominion	including	Messrs.	Roach,	Farrell,	Chewning,	Radtke,	Sanderlin	and O'Hanlon	(Exhibit	10(i),	Form	10-Q	for	the	quarter	ended	June	30,	1999,	File	No.	1-8489,	incorporated	by	reference)	and	as	amended	October	19,	2001 (Exhibit	10.15,	Form	10-K	for	the	fiscal	year	ended	December	31,	2001,	File	No.	1-8489,	incorporated	by	reference).

10.14* Dominion	Resources,	Inc.	Executives'	Deferred	Compensation	Plan,	effective	January	1,	1994	and	as	amended	and	restated	January	1,	2003	(filed herewith).

10.15* Dominion	Resources,	Inc.	Stock	Accumulation	Plan	for	Outside	Directors,	as	amended,	effective	December	17,	1999	(filed	herewith).

10.16* Dominion	Resources,	Inc.	Directors	Stock	Compensation	Plan,	effective	April	9,	1998	(Exhibit	99,	Form	S-8	Registration	Statement,	File	No.	333- 49725,	incorporated	by	reference).

10.17* Dominion	Resources,	Inc.	Directors	Deferred	Cash	Compensation	Plan,	as	amended	and	in	effect	September	20,	2002	(Exhibit	10.4,	Form	10-Q	for	the quarter	ended	September	30,	2002,	incorporated	by	reference).

10.19* Dominion	Resources,	Inc.	Executive	Stock	Purchase	Tool	Kit,	effective	September	1,	2001,	as	amended	and	restated	December	20,	2002	(filed herewith).

10.20* Dominion	Resources,	Inc.	Security	Option	Plan,	effective	January	1,	2003	(filed	herewith).

10.21* Arrangement	with	Thos.	E.	Capps	regarding	additional	credited	years	of	service	for	retirement	and	retirement	life	insurance	purposes	(filed	herewith).

10.22* Employment	Agreement	dated	September	30,	2002	between	Dominion	and	Thos.	E.	Capps	(Exhibit	10.1,	Form	10-Q	for	the	quarter	ended	September 30,	2002,	incorporated	by	reference)	including	supplemental	letter	dated	February	27,	2003	(filed	herewith).

10.23* Form	of	Reimbursement	Agreement	between	certain	executive	officers	and	Dominion	(Exhibit	10(xxvii),	Form	10-K	for	the	fiscal	year	ended December	31,	1999,	File	No.	1-2255,	incorporated	by	reference).

10.24* Letter	agreement	between	Dominion	and	Thomas	F.	Farrell,	II	(filed	herewith).

10.25* Letter	agreement	between	Dominion	and	Thomas	N.	Chewning	(filed	herewith).

10.26* Offer	of	employment	dated	March	16,	2001	between	Dominion	and	Duane	C.	Radtke	(filed	herewith).

* Indicates	management	contract	or	compensatory	plan	or	arrangement.

2. 	 Dominion	filed	a	report	on	Form	8-K	on	January	23,	2003,	relating	to	Dominion's	press	release	announcing	unaudited	results	of	operations	for	the	fiscal	year ended	December	31,	2002.

To	the	Shareholders'	and	Board	of	Directors	of Dominion	Resources,	Inc.

We	have	audited	the	consolidated	financial	statements	of	Dominion	Resources,	Inc.	and	subsidiaries	as	of	December	31,	2002	and	2001,	and	for	each	of	the	three	years in	the	period	ended	December	31,	2002,	and	have	issued	our	report	thereon	dated	January	21,	2003	(February	19,	2003	as	to	the	last	two	paragraphs	of	the	Lease Commitments	section	of	Note	27	and	February	21,	2003	as	to	the	date	of	the	last	three	paragraphs	of	Note	30),	which	report	expresses	an	unqualified	opinion	and includes	an	explanatory	paragraph	as	to	changes	in	accounting	principle:	for	goodwill	and	other	intangible	assets	in	2002,	derivative	instruments	and	hedging	activities	in 2001,	and	the	method	of	accounting	used	to	develop	the	market-related	value	of	pension	plan	assets	in	2000;	such	consolidated	financial	statements	and	report	are included	elsewhere	in	this	Form	10-K.	Our	audits	also	included	the	consolidated	financial	statement	schedules	of	the	Company,	listed	in	Item	15.	These	consolidated financial	statement	schedules	are	the	responsibility	of	the	Company's	management.	Our	responsibility	is	to	express	an	opinion	based	on	our	audits.	In	our	opinion,	such consolidated	financial	statement	schedules,	when	considered	in	relation	to	the	basic	consolidated	financial	statements	taken	as	a	whole,	present	fairly	in	all	material respects	the	information	set	forth	therein.

# Dominion	Resources,	Inc.	(Parent	Company)

# Schedule	I—Condensed	Financial	Information	of	Registrant

# Condensed	Statements	of	Income

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Operating\tRevenue | $— | $ — | $3 |
| Operating\tExpenses | 33 | 22 | 31 |
| Loss\tfrom\toperations | (33) | (22) | (28) |
| Other\tincome: |  |  |  |
| Affiliated\tinterest\tincome | 85 | 87 | 37 |
| Other | 7 | 7 | 10 |
| Total\tother\tincome | 92 | 94 | 47 |
| Interest\tand\trelated\tcharges | 421 | 405 | 350 |
| Loss\tbefore\tincome\ttaxes | (362) | (333) | (331) |
| Income\ttax\tbenefit | 121 | 117 | 129 |
| Equity\tin\tundistributed\tearnings\tof\tsubsidiaries | \t 1,603 | 760 | 638 |
| Net\tIncome | $1,362 | $544 | $436 |

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

# Condensed	Balance	Sheets

| (millions) | 2002 | 2001 |
| :--- | :--- | :--- |
| ASSETS |  |  |
| Current\tAssets |  |  |
| Cash\tand\tcash\tequivalents | $74 | $181 |
| Receivables\tand\tadvances\tdue\tfrom\taffiliates | 2,201 | 840 |
| Prepayments | 68 | 41 |
| Escrow\taccount\tfor\tdebt\trefunding | 500 |  |
| Other | 1 | 1 |
| Total\tcurrent\tassets | 2,844 | 1,063 |
| Investments |  |  |
| Investment\tin\taffiliates | 13,966 | 12,821 |
| Loans\tto\taffiliates | 1,300 | 1,300 |
| Other | 26 | 24 |
| Total\tinvestments | 15,292 | 14,145 |
| Property,\tPlant\tand\tEquipment,\tNet |  |  |
| Property,\tplant\tand\tequipment | 6 | 6 |
| Less:\taccumulated\tdepreciation,\tdepletion\tand\tamortization | (3) | (3) |
| Total\tproperty,\tplant\tand\tequipment,\tnet | 3 | 3 |
| Deferred\tCharges\tand\tOther\tAssets | 32 | 15 |
| Total\tassets | $18,171 | $15,226 |
| LIABILITIES\tAND\tSHAREHOLDERS'\tEQUITY |  |  |
| Current\tLiabilities |  |  |
| Securities\tdue\twithin\tone\tyear | $1,548 | $45 |
| Short-term\tdebt | 354 | 648 |
| Payables\tand\tshort-term\tborrowings\tdue\tto\taffiliates | 43 | 78 |
| Accrued\tinterest\tand\ttaxes | 97 | 161 |
| Other | 4 | 51 |
| Total\tcurrent\tliabilities | 2,048 | 983 |
| Long-Term\tDebt |  |  |
| Long-term\tdebt | 4,219 | 4,028 |
| Notes\tpayable\tto\taffiliates | 914 | 1,144 |
| Total\tlong-term\tdebt | 5,133 | 5,172 |
| Deferred\tCredits\tand\tOther\tLiabilities |  |  |
| Deferred\tincome\ttaxes | 54 | 19 |
| Other | 58 | 19 |
| Total\tdeferred\tcredits\tand\tother\tliabilities | 112 | 38 |
| Total\tliabilities | 7,293 | 6,193 |
| Preferred\tStock | 665 | 665 |
| Common\tShareholders'\tEquity |  |  |
| Common\tstock,\tno\tpar(1) | 9,051 | 7,129 |
| Other\tpaid-in\tcapital | 47 | 28 |
| Accumulated\tother\tcomprehensive\tincome\t(loss) | (446) | 289 |
| Retained\tearnings | 1,561 | 922 |
| Total\tcommon\tshareholders'\tequity | 10,213 | 8,368 |
| Total\tliabilities\tand\tshareholders'\tequity | $18,171 | $15,226 |

# Condensed	Statements	of	Cash	Flows

| (millions) | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- |
| Net\tCash\tProvided\tBy\tOperating\tActivities | $547 | $408 | $1,310 |
| Investing\tActivities |  |  |  |
| Investment\tin\taffiliates | (95) | (17) | (71) |
| Advances\tto\taffiliates,\tnet\tof\trepayments | (2,435) | 327 | (611) |
| Loans\tto\taffiliates |  | (1,300) |  |
| Acquisition\tof\tConsolidated\tNatural\tGas\tCompany |  |  | (2,869) |
| Escrow\tdeposit\tfor\tdebt\trefunding | (500) |  |  |
| Other | (3) | (4) | 17 |
| Net\tcash\tused\tin\tinvesting\tactivities | (3,033) | (994) | (3,534) |
| Financing\tActivities |  |  |  |
| Issuance\tof\tcommon\tstock | 2,020 | 245 | 532 |
| Repurchase\tof\tcommon\tstock | (66) |  | (1,641) |
| Issuance\tof\tlong-term\tdebt | 1,680 | 1,097 | 2,913 |
| Repayment\tof\tlong-term\tdebt |  |  | (50) |
| Issuance\t(repayment)\tof\tshort-term\tdebt,\tnet | (294) | (908) | 1,108 |
| Issuance\tof\tnotes\tpayable\tto\taffiliates |  | 1,276 |  |
| Repayment\tof\tnotes\tpayable\tto\taffiliates | (227) | (345) |  |
| Common\tdividends\tpaid | (723) | (649) | (615) |
| Other | (11) |  |  |
| Net\tcash\tprovided\tby\tfinancing\tactivities | 2,379 | 716 | 2,247 |
| Increase\t(decrease)\tin\tcash\tand\tcash\tequivalents | (107) | 130 | 23 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tthe\tyear | 181 | 51 | 28 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tthe\tyear | $74 | $181 | $51 |
| Supplemental\tcash\tflow\tinformation: |  |  |  |
| Noncash\ttransactions\tfrom\tinvesting\tand\tfinancing\tactivities: |  |  |  |
| Common\tstock\tissuance\t—acquisition\tof\tConsolidated\tNatural\tGas\tCompany |  |  | $3,527 |
| Stock\tand\tstock\toption\tissuance\t—Louis\tDreyfus\tacquisition |  | $894 |  |
| Conversion\tof\tshort-term\tadvances\tand\tother\tamounts\treceivable\tfrom\tsubsidiaries\tto\tpaid-in\tcapital | $959 | 86 |  |
| Issuance\tof\tpreferred\tstock\tto\tbeneficially\towned\ttrust |  | 665 |  |
| Common\tstock\treceived\tin\texchange\tfor\treduction\tin\tamounts\treceivable\tfrom\tsubsidiary | 150 |  |  |
| Exchange\tof\tdebt\tsecurities | 450 |  |  |

# Notes	to	Condensed	Financial	Statements

# Note	1.				Basis	of	Presentation

Pursuant	to	rules	and	regulations	of	the	Securities	and	Exchange	Commission	(SEC),	the	unconsolidated	condensed	financial	statements	of	Dominion	Resources,	Inc. (the	Company)	do	not	reflect	all	of	the	information	and	notes	normally	included	with	financial	statements	prepared	in	accordance	with	generally	accepted	accounting principles.	Therefore,	these	financial	statements	should	be	read	in	conjunction	with	the	consolidated	financial	statements	and	related	notes	included	in	the	2002	Form 10-K,	Part	II,	Item	8.

Accounting	for	subsidiaries—The	Company	has	accounted	for	the	earnings	of	its	subsidiaries	under	the	equity	method	in	the	unconsolidated	condensed	financial statements.

Income	Taxes—The	unconsolidated	income	tax	benefit	computed	for	the	Company	in	accordance	with	Statement	of	Financial	Accounting	Standards	No.	109,

Accounting	for	Income	Taxes,	reflects	the	tax	assets	and	liabilities	of	the	Company	on	a	stand	alone	basis	and	the	effect	of	filing	a	consolidated	U.S.	tax	return	with	its subsidiaries.

| (millions) |  | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Senior\tand\tmedium-term\tnotes: |  |  |  |
| Variable\trates,\tdue\t2002\tto\t2003 | 2.49% | $100 | $350 |
| 3.875%\tto\t8.125%,\tdue\t2003\tto\t2032^(2) | 6.63% | 4,920 | 3,250 |
| (3) |  |  |  |
| Equity-linked\tsenior\tnotes,\t5.75%\tto\t8.05%,\tdue\t2006\tto\t2008 | 7.03% | 743 | 413 |
| Nonrecourse\tdebt: |  |  |  |
| Variable\trates,\tdue\t2004 | 2.21% | 18 | 18 |
|  |  | 5,781 | 4,031 |
| (4) |  |  |  |
| Fair\tvalue\thedge\tvaluation |  | 5 |  |
| Amount\tdue\twithin\tone\tyear |  | (1,500) |  |
| (5) |  |  |  |
| Unamortized\tdiscount |  | (67) | (3) |
|  |  | 4,219 | 4,028 |
| Notes\tpayable—affiliates: |  |  |  |
| 6.0%,\tdue\t2005 |  | 126 | 175 |
| 7.83%\tto\t8.4%,\tdue\t2027\tto\t2041 | 8.22% | 822 | 822 |
| Variable\trates,\tdue\t2006 | 2.05% | 14 | 192 |
|  |  | 962 | 1,189 |
| Amount\tdue\twithin\tone\tyear |  | (48) | (45) |
|  |  | 914 | 1,144 |
| Total\tlong-term\tdebt |  | $5,133 | $5,172 |

(2) Includes	$250	million	of	the	7.82	percent	Series	E	Remarketable	Notes	due	September	15,	2014,	which	will	be	either	mandatorily	purchased and	remarketed	by	the	remarketing	agent	or mandatorily	redeemed	by	the	Company	on	September	15,	2004.

(4) Represents	changes	in	fair	value	of	certain	fixed	rate	long-term	debt	associated	with	fair	value	hedging	relationships.

(5) In	2002,	the	Company	redeemed	two	series	of	its	remarketable	senior	notes	due	September	16,	2012:	$200	million,	7.40	percent	Series	D	and	$250	million,	Variable	Rate	Series	F (Remarketable	Senior	Notes).	In	a	direct	exchange,	the	Company	completed	the	redemption	by	issuing	$520	million,	5.70	percent	Series	C	Senior	Notes	due	September	17,	2012	(Senior Notes).	The	principal	amount	of	the	Senior	Notes	was	determined	by	an	exchange	ratio	that	was	based	upon	the	fair	value	of	the	Remarketable	Senior	Notes.	The	$63	million	difference between	the	principal	amounts	of	Senior	Notes	issued	and	Remarketable	Senior	Notes	redeemed	was	recorded	as	an	increase	in	debt	discount.	In	addition,	through	September	2004,	the interest	rate	for	the	Senior	Notes	may	increase	if	the	credit	ratings	established	by	Moody's	or	Standard	&	Poor's	for	Dominion	Resources,	Inc.	senior	unsecured	debt	securities	decline.	The total	increase	is	limited	to	1	percent	and	would	continue	for	any	period	in	which	the	downgrade	is	in	effect.

| 2003 | 2004 | 2005 | 2006 | 2007 | Thereafter | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| $1,549 | $319 | $727 | $427 | — | $3,722 | $6,743 |

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

The	Company's	long-term	debt	agreements	contain	customary	covenants	and	default	provisions.	As	of	December	31,	2002,	there	were	no	events	of	default	under those	covenants.

# Note	3.				Equity-Linked	Securities

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

the	Company	as	consideration	for	the	purchase	of	stock.	Alternatively,	holders	may	choose	to	continue	holding	the	senior	notes	and	use	other	resources	as	consideration for	the	purchase	of	stock	under	the	stock	purchase	contracts.

The	Company	makes	quarterly	interest	payments	on	the	senior	notes	and	quarterly	payments	on	the	stock	purchase	contracts	at	the	rates	described	below.	The Company	has	recorded	the	present	value	of	the	stock	purchase	contract	payments	as	a	liability,	offset	by	a	charge	to	common	stock	in	shareholders'	equity.	Interest payments	on	the	senior	notes	are	recorded	as	interest	expense	and	stock	purchase	contract	payments	are	charged	against	the	liability.	Accretion	of	the	stock	purchase contract	liability	is	recorded	as	interest	expense.

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

Selected	information	about	the	Company's	equity-linked	debt	securities	is	presented	below	(amounts	other	than	percentages	are	in	millions):

| Date	of	Issuance | Units	Issued | Total	Net<br>Proceeds | Total<br>Long-<br>Term	Debt | Senior	Notes<br>Annual	Interest<br>Rate | Stock	Purchase<br>Contract	Annual<br>Rate | Total<br>Equity<br>Charge | Stock	Purchase<br>Settlement	Date | Maturity	of	Senior<br>Notes |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| 2000 | 8.3 | $400.1 | $412.5 | 8.05% | 1.45% | $20.7 | 11/04 | 11/06 |
| 2002 | 6.6 | $320.1 | $330.0 | 5.75% | 3.00% | $36.3 | 5/06 | 5/08 |

# Note		4.				Guarantees,	Letters	of	Credit	and	Surety	Bonds

In	the	ordinary	course	of	business,	the	Company	is	party	to	various	agreements	providing	financial	or	performance	assurance	to	third	parties	on	behalf	of	certain subsidiaries.	These	agreements	include	guarantees,	standby	letters	of	credit	and	surety	bonds.	The	amounts	subject	to	certain	of	these	agreements	vary	depending	on	the covered	contracts	actually	outstanding	at	any	particular	point	in	time.	Guarantees	and	stand-by	letters	of	credit	are	used,	when	necessary,	to	support	or	enhance	a subsidiary's	stand-alone	creditworthiness.	Accordingly,	the	Company	entered	into	guarantees	and	stand-by	letters	of	credit	so	that	third	parties	would	be	willing	to	enter into	contracts	with	the	subsidiaries	and	to	extend	sufficient	credit	to	facilitate	the	subsidiaries'	accomplishment	of	intended	commercial	purposes.	In	such	instances, guarantees	may	be	used	to	limit	exposures	resulting	from	subsidiary	business	activities	to	pre-defined	amounts.	While	the	majority	of	these	guarantees	do	not	have	a termination	date,	the	Company	may	choose	at	any	time	to	limit	the	applicability	of	such	guarantees	to	future	transactions.

# Guarantees

The	Company	believes	it	unlikely	that	it	would	be	required	to	perform	or	otherwise	incur	any	losses	associated	with	guarantees	of	its	subsidiaries'	obligations.	As	of December	31,	2002,	outstanding	guarantees	include	$4.0	billion	issued	by	the	Company	and	represented	the	following	types	of	guarantees:

Guarantee	of	Subsidiary	Debt—The	Company	has	guaranteed	the	payment	of	interest	and	principal	of	$541	million	of	subsidiary	debt,	primarily	for	certain subsidiaries	of	Dominion	Energy	(DEI)	and	Dominion	Capital,	Inc.	(DCI).	In	the	event	of	default	by	the	subsidiaries,	the	Company	would	be	obligated	to	repay	such amounts.

Guarantees	Supporting	Commodity	Transactions	of	Subsidiaries—The	Company	has	also	guaranteed	contract	payments	up	to	approximately	$1.1	billion, primarily	for	certain	subsidiaries	of	Virginia	Electric	and	Power	Company	(Virginia	Power),	Consolidated	Natural	Gas	(CNG)	and	DEI	involved	in	energy	marketing activities	and	$88	million	related	to	other	commodity	commitments.	These	guarantees	were	provided	to	counterparties	in	order	to	facilitate	physical	and	financial transactions	in	gas,	pipeline	capacity,	transportation,	oil,	electricity	and	related	commodities	and	services.	If	any	one	of	these	subsidiaries	fails	to	perform	or	pay	under the	contracts	and	the	counterparties	seek	performance	or	payment,	the	Company	would	be	obligated	to	satisfy	such	obligation.	The	Company	and	its	subsidiaries	receive similar	guarantees	as	collateral	for	credit	extended	to	others.

Guarantees	Supporting	Other	Agreements—The	Company	has	also	guaranteed	the	following	transactions:

n	$26	million	related	to	the	future	nuclear	decommissioning	obligations	of	certain	DEI	subsidiaries	for	the	Millstone	Power	Station	(Millstone)	and	$264	million related	to	potential	retrospective	premiums	that	could	be	assessed,	if	there	is	a	nuclear	incident	under	the	Company's	nuclear	insurance	programs	for	the	Millstone	Power Station.	See	Note	16	to	the	Consolidated	Financial	Statements	included	in	the	2002	Form	10-K,	Part	II,	Item	8	for	more	information	on	nuclear	operations.	Also,	as	part of	satisfying	certain	Nuclear	Regulatory	Commission	requirements	concerned	with	ensuring	adequate	funding	for

# Notes	to	Condensed	Financial	Statements—(continued)

Millstone's	operations,	the	Company	has	also	agreed	to	provide	up	to	$150	million	to	a	DEI	subsidiary,	if	requested	by	such	subsidiary,	to	pay	Millstone	operating expenses.

n	$91	million	related	to	certain	leases	(fleet	vehicles	and	computer	hardware	and	software),	primarily	for	Dominion	Resources	Services,	Inc.	(DRS)	and	CNG.	For information	on	commitments	for	the	Company's	leases,	see	Lease	Commitments	in	Note	27	to	the	Consolidated	Financial	Statements	included	in	the	2002	Form	10-K, Part	II,	Item	8.

n	$1.6	billion	related	to	the	leasing	obligations	of	certain	subsidiaries	of	DEI	for	several	new	power	generation	projects,	as	well	as	those	of	DRS	for	corporate headquarters	and	aircraft.	See	Lease	Commitments	in	Note	27	to	the	Consolidated	Financial	Statements	included	in	the	2002	Form	10-K,	Part	II,	Item	8.

n	$35	million	related	to	the	obligations	of	a	DEI	subsidiary	under	a	cross-currency	swap	agreement.	If	the	subsidiary	were	to	default	on	any	amounts	payable	under the	swap	agreement,	the	Company	would	be	obligated	to	pay	such	amounts.

n	$22	million	related	to	guarantees	for	letters	of	credit	issued	primarily	on	behalf	of	certain	subsidiaries	of	DCI,	CNG	and	DEI.

n	Guarantees	Supporting	Related	Parties—As	of	December	31,	2002,	the	Company	has	guaranteed	$70	million	related	to	officers'	borrowings	under	executive stock	loan	programs,	for	which	individual	officers	are	personally	liable	for	repayment.	Substantially	all	of	this	guarantee	is	scheduled	to	expire	in	2005.	The	Company has	also	guaranteed	$32	million	for	certain	obligations	of	certain	equity	method	investments—Dominion	Telecom,	Inc.,	Morgantown	Energy	Associates	and	Elwood Energy.

# Standby	Letters	of	Credit

At	December	31,	2002,	the	Company	had	authorized	the	issuance	of	standby	letters	of	credit	by	financial	institutions	in	the	amounts	of	$71	million	for	the	benefit	of certain	counterparties	that	had	extended	credit	to	DEI.	In	the	unlikely	event	that	DEI	does	not	pay	amounts	when	due	under	the	covered	contracts,	any	covered counterparty	may	present	its	claim	for	payment	to	the	financial	institution,	which	would	then	request	payment	from	DEI	and	the	Company,	as	applicable.	See	Note	20	to the	Consolidated	Financial	Statements	included	in	the	2002	Form	10-K,	Part	II,	Item	8.	As	of	December	31,	2002,	no	amounts	had	been	presented	for	payment	under these	letters	of	credit.

# Surety	Bonds

At	December	31,	2002,	the	Company	and	its	subsidiaries	had	purchased	$63	million	of	surety	bonds,	$60	million	of	which	was	purchased	for	subsidiaries.	CNG, Virginia	Power	and	various	other	Company	subsidiaries	have	purchased	$40	million,	$9	million	and	$11	million,	respectively,	of	surety	bonds	primarily	in	relation	to providing	worker	compensation	benefits	and	obtaining	licenses,	permits	and	rights-of-way.	Under	the	terms	of	the	surety	bonds,	Virginia	Power,	DEI,	or	CNG	and	then the	Company,	are	obligated	to	indemnify	the	respective	surety	bond	company	for	any	amounts	paid	on	behalf	of	subsidiaries.	The	Company	has	also	indemnified	$3 million	of	surety	bonds	issued	for	Dominion	Telecom,	Inc.	For	additional	related	party	information,	see	Note	31	to	the	Consolidated	Financial	Statements	included	in	the 2002	Form	10-K,	Part	II,	Item	8.

In	addition,	as	part	of	commercial	contract	negotiations	in	the	normal	course	of	business,	the	Company	may	sometimes	agree	to	make	payments	to	compensate	or indemnify	other	parties	for	possible	future	unfavorable	financial	consequences	resulting	from	specified	events.	The	specified	events	may	involve	an	adverse	judgment	in a	lawsuit	or	the	imposition	of	additional	taxes	due	to	a	change	in	tax	law	or	interpretation	of	the	tax	law.	The	Company	is	unable	to	develop	an	estimate	of	the	maximum potential	amount	of	future	payments	under	these	contracts	because	events	that	would	obligate	the	Company	have	not	yet	occurred	or,	if	any	such	event	has	occurred,	the Company	has	not	been	notified	of	its	occurrence.	However,	at	December	31,	2002,	management	believes	future	payments,	if	any,	that	could	ultimately	become	payable under	these	contract	provisions,	would	not	have	a	material	impact	on	its	results	of	operations,	cash	flows	or	financial	position.

# Note	5.				Preferred	Stock

The	Company	is	authorized	to	issue	up	to	20	million	shares	of	preferred	stock.	The	Company	issued	665,000	shares	of	Series	A	mandatorily	convertible	preferred	stock, liquidation	preference	$1,000	per	share,	to	Piedmont	Share	Trust	(Piedmont	Trust)	in	connection	with	the	formation	of	Dominion	Fiber	Ventures	LLC	(DFV)	and	the issuance	of	senior	notes	by	DFV.	The	Company	is	the	beneficial	owner	of	the	Piedmont	Trust.	For	more	information	about	the	Company's	investment	in	DFV,	see	Note 30	to	the	Consolidated	Financial	Statements	included	in	the	2002	Form	10-K,	Part	II,	Item	8.

# Note 6.				Dividend	Restrictions

The	Company	received	dividends	from	its	consolidated	subsidiaries	in	the	amounts	of	$945	million,	$806	million	and	$1.3	billion	for	the	years	2002,	2001	and	2000, respectively.

The	1935	Act	and	related	regulations	issued	by	the	SEC	impose	restrictions	on	the	transfer	and	receipt	of	funds	by	a	registered	holding	company	from	its subsidiaries,	including	a	general	prohibition	against	loans	or	advances	being	made	by	the	subsidiaries	to	benefit	the	registered	holding	company.	Under	the	1935	Act, registered	holding	companies	and	their	subsidiaries	may	pay	dividends	only	from	retained	earnings,	unless	the	SEC	specifically	authorizes	payments	from	other	capital accounts.	In	response	to	the	Company's	request,	the	SEC	granted	relief	in	2000,	authorizing	payment	of	dividends	by	CNG	from	other	capital	accounts	to	the	Company in	amounts	up	to	$1.6	billion,	representing	CNG's	retained	earnings	prior	to	the	Company's	acquisition	of	CNG.	Furthermore,	the	Company	has	submitted	a	similar request	to	the	SEC	in	2002,	seeking	relief	from	this	restriction	in	regard	to	its	subsidiary,	into	which	Louis	Dreyfus	was	merged.	The	application	requests	relief	up	to $303	million,	representing	Louis	Dreyfus'	retained	earnings	prior	to	the	Company's	acquisition	of	Louis	Dreyfus.	The	Company's	ability	to	pay	dividends	on	its common	stock	at	declared	rates	was	not	impacted	by	the	restriction	discussed	above	during	2002,	2001	and	2000.

The	Virginia	State	Corporation	Commission	may	prohibit	any	public	service	company,	including	Virginia	Power,	from	declaring	or	paying	a	dividend	to	an affiliate,	if	found	not	to	be	in	the	public	interest.	At	December	31,	2002,	the	Virginia	Commission	had	not	restricted	the	payment	of	dividends	by	Virginia	Power.

Certain	agreements	associated	with	the	Company's	credit	facilities	contain	restrictions	on	the	ratio	of	debt	to	total	capitalization.	These	limitations	did	not	restrict the	Company's	ability	to	pay	dividends	or	receive	dividends	from	its	subsidiaries	at	December	31,	2002.

See	Note	22	to	the	Consolidated	Financial	Statements	included	in	the	2002	Form	10-K,	Part	II,	Item	8.,	for	a	description	of	potential	restrictions	on	dividend payments	by	the	Company	in	connection	with	the	deferral	of	payments	on	the	affiliated	notes	that	are	held	as	assets	by	certain	subsidiary	capital	trusts	of	the	Company.

# Schedule	II—Valuation	and	Qualifying	Accounts

| Description |  | Balance	at<br>Beginning	of<br>Period | Charged	to<br>Expense | Charged	to<br>Other<br>Accounts | Deductions | Balance	at<br>End	of	Period |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (Millions) |  |  |
| Valuation\tand\tqualifying\taccounts |  |  |  |  |  |  |
| which\tare\tdeducted\tin\tthe\tbalance\tsheet |  |  |  |  |  |  |
| from\tthe\tassets\tto\twhich\tthey\tapply: |  |  |  |  |  |  |
| Allowance\tfor\tdoubtful\taccounts | 2000 | $36(a) | $71 | $(1) | $39(b) | $67 |
|  | 2001 | 67 | 54 | — | 45(b) | 76 |
|  | 2002 | 76 | 48 | — | 61(b) | 63 |
| Allowance\tfor\tloan\tlosses | 2000 | 47 | 16 | — | 7(b) | 56 |
|  | 2001 | 56 | 178 | — | 158(b) | 76 |
|  | 2002 | 76 | — | — | 10(b) | 66 |
| Valuation\tallowance\tfor\tcommodity\ncontracts | 2000 | 22 | (3)(c) | — | — | 19 |
|  | 2001 | 19 | (8)(c) | — | — | 11 |
|  | 2002 | 11 | (7)(c) | — | — | 4 |
| Reserves: |  |  |  |  |  |  |
| Liability\tfor\tpre-2001\tworkforce\treductions | 2000 | 12(a) | — | — | 9(d) | 3 |
|  | 2001 | 3 | — | — | 3(d) | — |
|  | 2002 | — | — | — | — | — |
| Liabilities\tfor\trestructuring\tcosts: |  |  |  |  |  |  |
| 2000\tPlan |  |  |  |  |  |  |
| DCI\texit\tstrategies—Allowance\tfor\tloan |  |  |  |  |  |  |
| losses | 2000 | — | 19 | — | 14(b) | 5 |
|  | 2001 | 5 | — | — | 2(b) | 3 |
|  | 2002 | 3 | — | — | — | 3 |
| Severance\tand\trelated\tcosts | 2000 | — | 70 | — | 41(d) | 29 |
|  | 2001 | 29 | (2)(c) | — | 24(d) | 3 |
|  | 2002 | 3 | — | — | 3(d) | — |
| Lease\ttermination\tand\trestructuring | 2000 | — | 14 | — | 6(d) | 8 |
|  | 2001 | 8 | — | — | 7(d) | 1 |
|  | 2002 | 1 | — | — | 1(d) | — |
| Other,\tnet | 2000 | — | 8 | — | 8(d) | — |
|  | 2001 | — | — | — | — | — |
|  | 2002 | — | — | — | — | — |
| 2001\tPlan |  |  |  |  |  |  |
| Severance\tand\trelated\tcosts | 2001 | — | 42 | — | — | 42 |
|  | 2002 | 42 | (8)(c) | — | 24(d) | 10 |
| Lease\ttermination\tand\trestructuring | 2001 | — | 13 | — | 3(d) | 10 |
|  | 2002 | 10 | — | — | 1(d) | 9 |

(a) Includes	balance	of	acquired	company	at	date	of	acquisition.

(b) Represents	net	amounts	charged-off	as	uncollectible.

(c) Represents	adjustments	reflecting	changes	in	estimates.

(d) Represents	payments	of	liabilities.

# Signatures

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf by	the	undersigned,	thereunto	duly	authorized.

(Thos.	E.	Capps,	Chairman	of	the	Board	of	Directors,	President	and

Chief	Executive	Officer)

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	registrant and	in	the	capacities	indicated	on	the	20th	day	of	March,	2003.

William	S.	Barrack,	Jr.

Peter	W.	Brown

Ronald	J.	Calise

George	A.	Davidson,	Jr.

John	W.	Harris

Benjamin	J.	Lambert,	III

/s/				RICHARD	L.	LEATHERWOOD

Richard	L.	Leatherwood

/s/				MARGARET	A.	MCKENNA

Margaret	A.	McKenna

Steven	A.	Minter

K.	A.	Randall

Frank	S.	Royal

S.	Dallas	Simmons

Chairman	of	the	Board	of	Directors,	President	and	Chief	Executive	Officer

Director

Director,	Retired	Chairman	of	the	Board	of	Directors

# Signature

# Title

Robert	H.	Spilman

David	A.	Wollard

Thomas	N.	Chewning

Steven	A.	Rogers

Executive	Vice	President	and	Chief	Financial	Officer

Vice	President,	Controller	and	Principal	Accounting	Officer

# Certifications

I,	Thos.	E.	Capps,	certify	that:

1. I	have	reviewed	this	annual	report	on	Form	10-K	of	Dominion	Resources,	Inc.;

2. 	 Based	on	my	knowledge,	this	annual	report	does	not	contain	any	untrue	statement	of	a	material	fact	or	omit	to	state	a	material	fact	necessary	to	make	the statements	made,	in	light	of	the	circumstances	under	which	such	statements	were	made,	not	misleading	with	respect	to	the	period	covered	by	this	annual	report;

3. 	 Based	on	my	knowledge,	the	financial	statements,	and	other	financial	information	included	in	this	annual	report,	fairly	present	in	all	material	respects	the	financial condition,	results	of	operations	and	cash	flows	of	the	registrant	as	of,	and	for,	the	periods	presented	in	this	annual	report;

4. The	registrant's	other	certifying	officer	and	I	are	responsible	for	establishing	and	maintaining	disclosure	controls	and	procedures	(as	defined	in	Exchange	Act Rules	13a-14	and	15d-14)	for	the	registrant	and	have:

a) designed	such	disclosure	controls	and	procedures	to	ensure	that	material	information	relating	to	the	registrant,	including	its	consolidated	subsidiaries,	is made	known	to	us	by	others	within	those	entities,	particularly	during	the	period	in	which	this	annual	report	is	being	prepared;

b) evaluated	the	effectiveness	of	the	registrant's	disclosure	controls	and	procedures	as	of	a	date	within	90	days	prior	to	the	filing	date	of	this	annual	report	(the Evaluation	Date);	and

c) presented	in	this	annual	report	our	conclusions	about	the	effectiveness	of	the	disclosure	controls	and	procedures	based	on	our	evaluation	as	of	the Evaluation	Date;

5. The	registrant's	other	certifying	officer	and	I	have	disclosed,	based	on	our	most	recent	evaluation,	to	the	registrant's	auditors	and	the	audit	committee	of registrant's	board	of	directors	(or	persons	performing	the	equivalent	functions):

a) all	significant	deficiencies	in	the	design	or	operation	of	internal	controls	which	could	adversely	affect	the	registrant's	ability	to	record,	process,	summarize and	report	financial	data	and	have	identified	for	the	registrant's	auditors	any	material	weaknesses	in	internal	controls;	and

b) any	fraud,	whether	or	not	material,	that	involves	management	or	other	employees	who	have	a	significant	role	in	the	registrant's	internal	controls;	and

6. The	registrant's	other	certifying	officer	and	I	have	indicated	in	this	annual	report	whether	there	were	significant	changes	in	internal	controls	or	in	other	factors	that could	significantly	affect	internal	controls	subsequent	to	the	date	of	our	most	recent	evaluation,	including	any	corrective	actions	with	regard	to	significant deficiencies	and	material	weaknesses.

President	and	Chief	Executive	Officer

I,	Thomas	N.	Chewning,	certify	that:



Question: what is the growth rate in rental expense included in other operations and maintenance expense in 2002 compare to 2001?
Calculation: increase = 84 - 75
decrease = 107 - 84
percent_increase = increase / 75
percent_decrease = decrease / 84
answer = percent_increase * 100
Answer: 12.0%