Item 1. Business

GENERAL

Dominion Energy, headquartered in Richmond, Virginia and incorporated in Virginia in 1983, is one of the nation’s largest producers and transporters of energy. Dominion’sDominion Energy’s strategy is to be a leading provider of electricity, natural gas and related services to customers primarily in the eastern and Rocky Mountain regions of the U.S. As of December 31, 2016, Dominion’s2017, Dominion Energy’s portfolio of assets includes approximately 26,40026,000 MW of generating capacity, 6,600 miles of electric transmission lines, 57,60057,900 miles of electric distribution lines, 14,90014,800 miles of natural gas transmission, gathering and storage pipelinepipelines and 51,30051,800 miles of gas distribution pipeline, exclusive of service lines. As of December 31, 2016,2017, Dominion Energy serves overnearly 6 million utility and retail energy customers and operates one of the nation’s largest underground natural gas storage systems, with approximately 1 trillion cubic feet of storage capacity.

In September 2016, Dominion Energy completed the Dominion Energy Questar Combination for total consideration of $4.4 billion and Dominion Energy Questar, a Rockies-based integrated natural gas company, became a wholly-owned subsidiary of Dominion. Dominion Questar is a Rockies-based integrated natural gas company.Energy. Questar Gas, a wholly-owned subsidiary of Dominion Energy Questar, is consolidated by Dominion Energy, and is a voluntary SEC filer. However, its Form10-K is filed separately and is not combined herein.

In March 2014, Dominion Energy formed Dominion Energy Midstream, an MLP designed to grow a portfolio of natural gas terminaling, processing, storage, transportation and related assets. In October 2014, Dominion Energy Midstream launched its initial public offering and issued 20,125,000 common units representing limited partner interests. Dominion Energy has recently and may continue to investigate opportunities to acquire assets that meet its strategic objective for Dominion Energy Midstream. At December 31, 2016,2017, Dominion Energy owns the general partner, 50.9%50.6% of the common and subordinated units and 37.5% of the convertible preferred interests in Dominion Energy Midstream, which owns a preferred equity interest and the general partner interest in Cove Point, DCG,DECG, Dominion Energy Questar Pipeline and a 25.93% noncontrolling partnership interest in Iroquois. Dominion Energy Midstream is consolidated by Dominion Energy, and is an SEC registrant. However, its Form10-K is filed separately and is not combined herein.

Dominion Energy is focused on expanding its investment in regulated electric generation, transmission and distribution and regulated natural gas transmission and distribution infrastructure. Dominion Energy expects 80% toapproximately 90% of earnings from its primary operating segments to come from regulated and long-term contracted businesses.

Dominion Energy continues to expand and improve its regulated and long-term contracted electric and natural gas businesses, in accordance with its existing five-year capital investment program. A major impetus for this program is to meet the anticipated increase in demand in its electric utility service territory. Other drivers for the capital investment program include the construction of infrastructure to handle the increase in natural gas production from the Marcellus and Utica Shale formations, to upgrade Dominion’sDominion Energy’s gas and electric transmission and distribution networks, and to meet environmental requirements

Dominion Energy Gas sold 0.65% of the noncontrolling partnership interest in Iroquois, a FERC-regulated interstate natural gas pipeline in New York and Connecticut, to TransCanada. At December 31, 2016,2017, Dominion Energy Gas holds a

Dominion Energy entered into a commission agreement under which the buyer will pay a commission in connection with the right to use Dominion Energy’s brand in marketing materials and other services over aten-year term. See Note 10 to the Consolidated Financial Statements for additional information.

ASSIGNMENTOF TOWER RENTAL PORTFOLIO

Virginia Power rents space on certain of its electric transmission towers to various wireless carriers for communications antennas and other equipment. In March 2017, Virginia Power sold its rental portfolio to Vertical Bridge Towers II, LLC for $91 million in cash. See Note 10 to the Consolidated Financial Statements for additional information.

ACQUISITIONOFNON-WHOLLY-OWNED MERCHANT SOLAR PROJECTS

In 2015, Dominion Energy acquired 50% of the units in Four Brothers and Three Cedars from SunEdison for $107 million. In November 2016, NRG acquired the 50% of units in Four Brothers and Three Cedars previously held by SunEdison. The facilities began commercial operations in the third quarter of 2016, with generating capacity of 530 MW, at a cost of $1.1 billion. See Note 3 to the Consolidated Financial Statements for additional information.

SALEOF INTERESTIN MERCHANT SOLAR PROJECTS

In September 2015, Dominion Energy signed an agreement to sell a noncontrolling interest (consisting of 33% of the equity interests) in all of its then wholly-owned merchant solar projects, 24 solar projects totaling 425 MW, to SunEdison. In December 2015, the sale of interest in 15 of the solar projects closed for $184 million with the sale of interest in the remaining projects completed in January 2016 for $117 million. Upon closing, SunEdison sold its interest in these projects to Terra Nova Renewable Partners. See Note 3 to the Consolidated Financial Statements for additional information.

DOMINION ENERGYMIDSTREAM ACQUISITIONOF INTERESTIN IROQUOIS

In September 2015, Dominion Energy Midstream acquired from NG and NJNR a 25.93% noncontrolling partnership interest in Iroquois. The investment was recorded at $216 million based on the value of Dominion Energy Midstream’s common units at closing. The common units issued to NG and NJNR are reflected as noncontrolling interest in Dominion’sDominion Energy’s Consolidated Financial Statements. See Note 3 to the Consolidated Financial Statements for additional information.

ACQUISITIONOF DCGDECG

In January 2015, Dominion Energy completed the acquisition of 100% of the equity interests of DCGDECG from SCANA Corporation for $497 million in cash, as adjusted for working capital. In April 2015, Dominion Energy contributed DCGDECG to Dominion Energy Midstream. See Note 3 to the Consolidated Financial Statements for additional information.

SALEOF ELECTRIC RETAIL ENERGY MARKETING BUSINESS

In March 2014, Dominion Energy completed the sale of its electric retail energy marketing business. The proceeds were $187 million, net of transaction costs. The sale of the electric retail energy marketing business did not qualify for discontinued operations classification.

SALEOF PIPELINESAND PIPELINE SYSTEMS

In March 2014, Dominion Energy Gas sold the Northern System to an affiliate that subsequently sold the Northern System to Blue Racer for consideration of $84 million. Dominion Energy Gas’ consideration consisted of $17 million in cash proceeds and the extinguishment of affiliated current borrowings of $67 million and Dominion Energy’s consideration consisted of cash proceeds of $84 million.

In September 2013, DETI sold LineTL-388 to Blue Racer for $75 million in cash proceeds.

SALEOF BRAYTON POINT, KINCAIDAND EQUITY METHOD INVESTMENTIN ELWOOD

In August 2013, Dominion Energy completed the sale of Brayton Point, Kincaid and its equity method investment in Elwood to Energy Capital Partners and received proceeds of $465 million, net of transaction costs. The historical results of Brayton Point’s and Kincaid’s operations are presented in discontinued operations.

OPERATING SEGMENTS

Dominion Energy manages its daily operations through three primary operating segments: DVP, DominionPower Delivery, Power Generation and Gas Infrastructure. Dominion Energy. DominionEnergy also reports a Corporate and Other segment, which includes its corporate, service company and other functions (including unallocated debt). In addition, Corporate and Other includes specific items attributable to Dominion’sDominion Energy’s other operating segments that are not included in profit measures evaluated by executive management in assessing the segments’ performance or in allocating resources.

Virginia Power manages its daily operations through two primary operating segments: DVPPower Delivery and DominionPower Generation. It also reports a Corporate and Other segment that primarily includes specific items attributable to its operating segments that are not included in profit measures evaluated by executive management in assessing the segments’ performance or in allocating resources.

Dominion Energy Gas manages its daily operations through its primary operating segment: Dominion Energy.Gas Infrastructure. It also reports a Corporate and Other segment that primarily includes specific items attributable to its operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources and the effect of certain items recorded at Dominion Energy Gas as a result of Dominion’sDominion Energy’s basis in the net assets contributed.

While daily operations are managed through the operating segments previously discussed, assets remain wholly-owned by the Companies and their respective legal subsidiaries.

Power and Associates’ scoring. In the future, safety, electric service reliability, outage durations and customer service will remain key focus areas for electric distribution. Modernizing the electric grid will become a key focus area to support the enhancement of the customer service experience, build upon improvements in resiliency and security and support enhanced innovation and renewable generation.

Virginia legislation in 2014 provides for the recovery of costs, subject to approval by the Virginia Commission, for Virginia Power to move approximately 4,000 miles of electric distribution lines underground. The program is designed to reduce restoration outage time by moving itsVirginia Power’s most outage-prone overhead distribution lines underground, has an annual investment cap of approximately $175 million and is expected to be implementedcompleted over the next decade. In August 2016, the Virginia Commission approved the first phase of the program encompassing approximately 400 miles of converted lines and $140 million in capital spending (with approximately $123 million recoverable through Rider U). In December 2016, Virginia Power filed its application withSeptember 2017, the Virginia Commission to recover costs associated with the first and second phasesapproved recovery through Rider U of this program. Thea total capital investment of $40 million for second phase will convert an estimated 244 miles at a cost of $110 million.conversions.

Virginia Power’s generation operations are not subject to significant competition as only a limited number of its Virginia jurisdictional electric utility customers have retail choice. SeeElectric underState Regulations inRegulation for more information. Currently, North Carolina does not offer retail choice to electric customers.

DominionPower Generation Operating Segment—Dominion Energy

DominionPower Generation’s recently acquired and developed renewable generation projects are not currently subject to significant competition as the output from these facilities is primarily sold under long-term power purchase agreements with terms generally lasting betweenranging from 15 andto 25 years. Competition for the nonrenewable merchant fleet is impacted by electricity and fuel prices, new market entrants, construction by others of generating assets and transmission capacity, technological advances in power generation, the actions of environmental and other regulatory authorities and other factors. These competitive factors may negatively impact the merchant fleet’s ability to profit from the sale of electricity and related products and services.

As part of Dominion’sDominion Energy’s acquisition of both Millstone and Kewaunee, it acquired decommissioning funds for the related

Dominion Energy Midstream in December 2016 as well as Dominion’sDominion Energy’s acquisition of DCG,DECG, which Dominion Energy contributed to Dominion Energy Midstream in April 2015, and Dominion Energy Midstream’s acquisition of a 25.93% noncontrolling partnership interest in Iroquois in September 2015. DCGDECG provides FERC-regulated interstate natural gas transportation services in South Carolina and southeastern Georgia through 1,500 miles of gas transmission pipeline.

Dominion Energy’sGas Infrastructure’s existing five-year investment plan includes spending approximately $8.0$8.3 billion from 20172018 through 20212022 to upgrade existing or add new infrastructure to meet growing energy needs within its service territory and maintain reliability. Demand for natural gas is expected to continue to grow as initiatives to transition to gas from more carbon-intensive fuels are implemented. This plan includes Dominion’sDominion Energy’s portion of spending for the Atlantic Coast Pipeline Project.

In addition to the earnings drivers noted above for Dominion Gas, earningsEarnings for theDominion EnergyGas Infrastructure Operating Segment of Dominion Energy Gas primarily result from rates established by FERC and the Ohio Commission. The profitability of this business is dependent on Dominion Energy Gas’ ability, through the rates it is permitted to charge, to recover costs and earn a reasonable return on its capital investments. Variability in earnings results from changes in operating and maintenance expenditures, as well as changes in rates and the demand for services, which are dependent on weather, changes in commodity prices and the economy.

Approximately 91% of DETI’s transmission capacity is subscribed including 86% under long-term contracts (two years or greater) and 5% on ayear-to-year basis. DETI’s storage services are 100% subscribed with long-term contracts.

Revenue from processing and fractionation operations largely results from the sale of commodities at market prices. For DGP’s processing plants, Dominion Energy Gas receives the wet gas product from producers and may retain the extracted NGLs as compensation for its services. This exposes Dominion Energy Gas to commodity price risk for the value of the spread between the NGL products and natural gas. In addition, Dominion Energy Gas has volumetric risk as the majority of customers receiving these services are not required to deliver minimum quantities of gas.

East Ohio utilizes a straight-fixed-variable rate design for a majority of its customers. Under this rate design, East Ohio recovers a large portion of its fixed operating costs through a flat monthly charge accompanied by a reduced volumetric base delivery rate. Accordingly, East Ohio’s revenue is less impacted by weather-related fluctuations in natural gas consumption than under the traditional rate design.

Earnings for theGas Infrastructure Operating Segment of Dominion Energyprimarily include the results of rates established by FERC and the West Virginia, Utah, Wyoming and Idaho Commissions. Additionally, Dominion Energy receives revenue from firmfee-based contractual arrangements, including negotiated rates, for certain LNG storage and regasificationterminalling services. Dominion Energy Questar Pipeline’s and DCG’sDECG’s revenues are primarily derived from reservation charges for firm transportation and storage services as provided for in their FERC-approved tariffs. Revenue provided by Questar Gas’ operations is based primarily on rates established by the Utah and Wyoming Commissions. The Idaho Commission has contracted with the

Cove Point’s gas transportation, LNG import and storage operations, as well as the Liquefaction Project’s capacity are contracted primarily under long-term fixed reservation fee agreements. However, in the future Cove Point may compete with other independent terminal operators as well as major oil and gas companies on the basis of terminal location, services provided and price. Competition from terminal operators primarily comes from refiners and distribution companies with marketing and trading arms.

Dominion Energy Questar Pipeline’s and DCG’sDECG’s pipeline systems generate a substantial portion of their revenue from long-term firm contracts for transportation services and are therefore insulated from competitive factors during the terms of the contracts. When these long-term contracts expire, Dominion Energy Questar Pipeline’s pipeline system faces competitive pressures from similar facilities that serve the Rocky Mountain region and DCG’sDECG’s pipeline system faces competitive pressures from similar facilities that serve the South Carolina and southeastern Georgia area in terms of location, rates, terms of service, and flexibility and reliability of service.

Dominion’sDominion Energy’s retail energy marketing operations compete against incumbent utilities and other energy marketers in nonregulated energy markets for natural gas. CustomersIn March 2014, Dominion Energy completed the sale of its electric retail energy marketing business. In October 2017, Dominion Energy entered into an agreement to sell certain assets associated with its nonregulated retail energy marketing operations. The sale is expected to be completed by the end of 2018. The remaining retail natural gas business consists of approximately 350,000 customer accounts in five states. The heaviest concentration of customers in these markets have the right to select a retail marketer and typically do so based upon price savings or price stability; however, incumbentare located in states where utilities have the advantage of long-standing relationships with their customerscommitment to customer choice, primarily Ohio and greater name recognition in their markets.Pennsylvania.

REGULATION

Dominion EnergyGas Infrastructure Operating Segment—Dominion Energy and Dominion Energy Gas

Dominion Energy Gas’ natural gas transmission and storage operations are regulated primarily by FERC. East Ohio’s gas distribution operations, including the rates that it may charge to customers, are regulated by the Ohio Commission. SeeState Regulations andFederal Regulations inRegulation for more information.

Dominion EnergyGas Infrastructure Operating Segment—Dominion Energy

Cove Point’s, Dominion Energy Questar Pipeline’s, and DCG’sDECG’s operations are regulated primarily by FERC. Questar Gas’ distribution operations, including the rates it may charge customers, are regulated by the Utah, Wyoming and Idaho Commissions. Hope’s gas distribution operations, including the rates that it may charge customers, are regulated by the West Virginia Commission. SeeState Regulations andFederal Regulations inRegulation for more information.

PROPERTIESAND INVESTMENTS

For a description of Dominion’sDominion Energy’s and Dominion Energy Gas’ existing facilities see Item 2.Properties.

Dominion Energy to export LNG from Cove Point tonon-free trade agreement countries.

In May 2014, the FERC staff issued its EA for the Liquefaction Project. In the EA, the FERC staff addressed a variety of topics related to the proposed construction and development of the Liquefaction Project and its potential impact to the environment, and determined that with the implementation of appropriate mitigation measures, the Liquefaction Project can be built and operated safely with no significant impact to the environment. In September 2014, Cove Point received the FERC order authorizing the Liquefaction Project with certain conditions. The conditions regarding the Liquefaction Project set forth in the FERC order largely incorporate the mitigation measures proposed in the EA.environmental assessment. In October 2014, Cove Point commenced construction of the Liquefaction Project, with anin-service date anticipated in late 2017March 2018 at a total estimated cost of approximately $4.0$4.1 billion, excluding financing costs. The Cove Point facility is authorized to export at a rate of 770 million cubic feet of natural gas per day for a period of 20 years.

In April 2013, Dominion Energy announced it had fully subscribed the capacity of the project with20-year terminal service agreements. ST Cove Point, LLC, a joint venture of Sumitomo Corporation, a Japanese corporation that is one of the world’s leading trading companies, and Tokyo Gas Co., Ltd., a Japanese corporation that is the largest natural gas utility in Japan, and GAIL Global (USA) LNG LLC, a wholly-owned indirect U.S. subsidiary of GAIL (India) Ltd., have each contracted for half of the capacity. Following completion of thefront-end engineering and design work, Dominion Energy also announced it had awarded its engineering, procurement and construction contract for new liquefaction facilities to IHI/Kiewit Cove Point, a joint venture between IHI E&C International Corporation and Kiewit Energy Company.

Cove Point has historically operated as an LNG import facility under various long-term import contracts. Since 2010, Dominion Energy has renegotiated certain existing LNG import contracts in a manner that will result in a significant reduction in pipeline and storage capacity utilization and associated anticipated revenues during the period from 2017 through 2028. Such amendments created the opportunity for Dominion Energy to explore the Liquefaction Project, which, assuming it becomes operational, will extend the economic life of Cove Point and contribute to Dominion’sDominion Energy’s overall growth plan. In total, these renegotiations reduced Cove Point’s expected annual revenues from the import-related contracts by approximately $150 million from 2017 through 2028, partially offset by approximately $50 million of additional revenues in the years 2013 through 2017.

In OctoberJune 2015, Cove Point executed binding agreements with two customers for the approximately $150 million Eastern Market Access Project. In January 2018, Cove Point received FERC authorization to construct the approximately $40 million Keys Energy Project. Construction onand operate the project commenced in December 2015, and the project facilities, which are expected to be placed into service in March 2017.early 2019.

In November 2016, Cove Point filed an application to request FERC authorization to construct the approximately $150 million Eastern Market Access Project. Construction on the project is expected to begin in the fourth quarter of 2017, and the project facilities are expected to be placed into service in late 2018.

of Pennsylvania. Blue Racer is an equal partnership between Dominion Energy and Caiman, with Dominion Energy contributing midstream assets and Caiman contributing private equity capital. Midstream services offered by Blue Racer include gathering, processing, fractionation, and natural gas liquids transportation and marketing. Blue Racer is expected to develop additional new capacity designed to meet producer needs as the development of the Utica Shale formation increases. See Note 9 to the Consolidated Financial Statements for further information about Dominion’sDominion Energy’s equity method investment in Blue Racer.

SOURCESOF ENERGY SUPPLY

Dominion’sGas Infrastructure Operating Segment—Dominion Energy and Dominion Energy Gas

Dominion Energy’s and Dominion Energy Gas’ natural gas supply is obtained from various sources including purchases from major and independent producers in theMid-Continent and Gulf Coast regions, local producers in the Appalachian area, gas marketers and, for Questar Gas specifically, from Wexpro and other producers in the Rocky Mountain region. Wexpro’s gas development and production operations serve the majority of Questar Gas’ gas supply requirements in accordance with the Wexpro Agreement and the Wexpro II Agreement, comprehensive agreements with the states of Utah and Wyoming. Dominion’sDominion Energy’s and Dominion Energy Gas’ large underground natural gas storage network and the location of their pipeline systems are a significant link between the country’s major interstate gas pipelines and large markets in the Northeast,mid-Atlantic and Rocky Mountain regions. Dominion’sDominion Energy’s and Dominion Energy Gas’ pipelines are part of an interconnected gas transmission system, which provides access to supplies nationwide for local distribution companies, marketers, power generators and industrial and commercial customers.

Dominion’sDominion Energy’s and Dominion Energy Gas’ underground storage facilities play an important part in balancing gas supply with consumer demand and are essential to serving the Northeast,mid-Atlantic, Midwest and Rocky Mountain regions. In addition, storage capacity is an important element in the effective management of both gas supply and pipeline transmission capacity.

The supply of gas to serve Dominion’sDominion Energy’s retail energy marketing customers is procured through Dominion’sDominion Energy’s energy marketing group and market wholesalers.

SEASONALITY

Gas Infrastructure Operating Segment—Dominion Energy’sEnergy and Dominion Energy Gas

Gas Infrastructure’s natural gas distribution business earnings vary seasonally, as a result of the impact of changes in temperature on demand by residential and commercial customers for gas to meet heating needs. Historically, the majority of these earnings have been generated during the heating season, which is generally from November to March; however, implementation of rate

In February 2015, the Virginia Governor signed legislation into law which will keep Virginia Power’s base rates unchanged until at least December 1, 2022. In addition, no biennial reviews will be conducted by the Virginia Commission for the five successive12-month test periods beginning January 1, 2015, and ending December 31, 2019. The legislation states that Virginia Power’s 2015 biennial review, filed in March 2015, would proceed for the sole purpose of reviewing and determining whether any refunds are due to customers based on earnings performance for generation and distribution services during the 2013 and 2014 test periods. In addition the legislation requires the Virginia Commission to conduct proceedings in 2017 and 2019 to determine the utility’s ROE for use in connection with rate adjustment clauses and requires utilities to file integrated resource plans annually rather than biennially. In November 2017, the Virginia Commission approved an ROE of 9.2% for rate adjustment clauses.

In February 2017, the Governor of Virginia signed legislation into law that allows utilities to file a rate adjustment clause to recover costs of pumped hydroelectricity generation and storage facilities that are located in the coalfield region of Virginia. In March 2017, the Governor of Virginia signed legislation into law that allows utilities to file a rate adjustment clause to recover, beginning in 2020, reasonably appropriate costs for extending the operating licenses, or the operating lives, of nuclear power generation facilities.

In March 2017, the Governor of Virginia signed legislation into law stating that it is in the public interest for utilities to replace existing overhead tap lines having nine or more total unplanned outageevents-per-mile with new underground facilities, and that utilities can seek cost recovery for such new underground facilities through a rate adjustment clause.

If the Virginia Commission’s future rate decisions, including actions relating to Virginia Power’s rate adjustment clause filings, differ materially from Virginia Power’s expectations, it may adversely affect its results of operations, financial condition and cash flows.

SeeFutures Issues and Other Matters in Item 7. MD&A and Note 13 to the Consolidated Financial Statements for additional information, which is incorporated herein by reference.

Electric Regulation in North Carolina

Virginia Power’s retail electric base rates in North Carolina are regulated on acost-of-service/rate-of-return basis subject to North Carolina statutes and the rules and procedures of the North Carolina Commission. North Carolina base rates are set by a process that allows Virginia Power to recover its operating costs and an ROIC. If retail electric earnings exceed the authorized ROE established by the North Carolina Commission, retail electric rates may be subject to review and possible reduction by the North Carolina Commission, which may decrease Virginia Power’s future earnings. Additionally, if the North Carolina Commission does not allow recovery of costs incurred in providing service on a timely basis, Virginia Power’s future earnings could be negatively impacted. Fuel rates are subject to revision under annual fuel cost adjustment proceedings.

Virginia Power’s transmission service rates in North Carolina are regulated by the North Carolina Commission as part of Virginia Power’s bundled retail service to North Carolina customers.

In addition to general base rate increases, East Ohio makes routine filings with the Ohio Commission to reflect changes in the costs of gas purchased for operational balancing on its system. These purchased gas costs are subject to rate recovery 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. The rider filings cover unrecovered gas costs plus prospective annual demand costs. Increases or decreases in gas cost rider rates result in increases or decreases in revenues with corresponding increases or decreases in net purchased gas cost expenses.

The Ohio Commission has also approved several stand-alone cost recovery mechanisms to recover specified costs and a return for infrastructure projects and certain other costs that vary widely over time; such costs are excluded from general base rates. See Note 13 to the Consolidated Financial Statements for additional information.

EPACT included provisions to create an ERO. The ERO is required to promulgate mandatory reliability standards governing the operation of the bulk power system in the U.S. FERC has certified NERC as the ERO and also issued an initial order approving many reliability standards that went into effect in 2007. Entities that violate standards will be subject to fines of up to $1$1.2 million per day, per violation and can also be assessednon-monetary penalties, depending upon the nature and severity of the violation.

Dominion Energy and Virginia Power plan and operate their facilities in compliance with approved NERC reliability requirements. Dominion Energy and Virginia Power employees participate on various NERC committees, track the development and implementation of standards, and maintain proper compliance registration with NERC’s regional organizations. Dominion Energy and Virginia Power anticipate incurring additional compliance expenditures over the next several years as a result of the implementation of new

hydrogen chloride, NOx,NO_X, SO₂, and particulate matter. At a minimum, delegated states are required to establish regulatory programs to address all requirements of the CAA. However, states may choose to develop regulatory programs that are more restrictive. Many of the Companies’ facilities are subject to the CAA’s permitting and other requirements.

GLOBAL CLIMATE CHANGE

The national and international attention in recent years onto GHG emissions and their relationship to climate change has resulted in federal, regional and state legislative and regulatory action in this area. See, for example, the discussion of the Clean Power Plan and the United Nation’s Paris Agreement inEnvironmental Matters inFuture Issues and OtherMatters in Item 7. MD&A.

The Companies support national climate change legislation that would provide a consistent, economy-wide approach to addressing this issue and are currently taking action to protect the

This process is referred to as decommissioning, and Dominion Energy and Virginia Power are required by the NRC to be financially prepared. For information on decommissioning trusts, seeDominionPower Generation-Nuclear Decommissioning above and Note 9 to the Consolidated Financial Statements. See Note 22 to the Consolidated Financial Statements for information on spent nuclear fuel.

ENVIRONMENTAL STRATEGY

Environmental stewardship is embedded inAs part of the Companies’ culture and core values and isoverall long term strategic planning overseen by the responsibilityBoard of all employees. They are committed to working with their stakeholders and the communities in which the Companies operate to find sustainable solutions to the energy andDirectors, we have a well formed environmental challenges that confront the Companies and the U.S.strategy. The Companies are committed to continuing to be an industry leader, delivering safe, reliable, clean and affordable energy while protecting the environmentfully complying with all applicable environmental laws and strengthening theregulations. Additionally, we seek to build partnerships and engage with local communities, they serve.stakeholders and customers on environmental issues important to them. The Companies are dedicated to meeting their customers’ growing energy needs with innovative, sustainable solutions. It is the Companies’ belief that sustainable solutions mustshould strive to balance the interdependent goals of environmental stewardship and economic prosperity. Theireffects. The integrated strategy to meet this objectivethese objectives consists of fourthree major elements:

operations which have significantly improved environmental performance. For example, Power Generation has significantly reduced both its carbon emissions and its carbon intensity while generating electricity with an increasingly clean portfolio. From 2000 through 2016, our carbon intensity decreased by 43%. This strategy incorporateshas also resulted in significant reductions of other air pollutants such as NO_X, SO₂ and mercury and also reduced the Companies’ efforts to voluntarily reduce GHG emissions, which are described below. SeeDominion Generation-Propertiesamount of coal ash generated and Dominion Energy-Propertiesfor more information on certain the amount of water withdrawn. The principal components of the projects described below.

Conservationstrategy, which include initiatives that address electric energy production and Load Management

Conservationdelivery, natural gas storage, transmission and loaddelivery and energy management, playare as follows:

emissions per net MWh in 2016 and 0.348 metric tons CO₂ equivalent emissions per net MWh in 2015.

For Power Delivery’s regulated electric transmission and distribution operations, direct CO ₂ equivalent emissions for 2016 were 42,856 metric tons, compared to 53,819 metric tons in 2015.

Dominion Energy’s natural gas companies have been reporting GHG emissions to the EPA since 2011 under the GHG Reporting Program. In January 2016, the GHG Reporting Program was expanded to also include GHG inputs and emissions associated with natural gas gathering and boosting sources and transmission pipeline blowdowns for facilities that exceed 25,000 metric tons per year of CO₂ equivalent emissions. The sources within these new facilities were not previously covered under the rule and the first reports for these new sources were submitted to EPA on March 31, 2017.

Hope and East Ohio direct CO₂ equivalent emissions together decreased from 0.90 million metric tons in 2015 to 0.86 million metric tons in 2016. DETI’s and Cove Point’s direct CO₂ equivalent emissions together were 1.3 million metric tons in 2016, increasing from 1.1 million metric tons in 2015 attributable to new EPA reporting of transmission pipeline blowdowns.

The Companies’ GHG inventory follows all methodologies specified in the EPA Mandatory Greenhouse Gas Reporting Rule, 40 Code of Federal Regulations Part 98 for calculating emissions. Total CO₂ equivalent emissions reported for our natural gas assets, as estimated in Dominion Energy’s corporate inventory, were 2.3 million metric tons in 2016. This estimate includes emissions reported under the GHG Reporting Program, as well as other emissions not required to be reported under the federal program. The 2016 corporate GHG inventory emission estimate includes Dominion Energy Questar Pipeline, Questar Gas and Wexpro for the entire calendar year.

Energy Infrastructure Modernization

Dominion Energy’s existing five-year investment plan includes significant capital expenditures to upgrade or add new electric transmission and distribution lines, substations and other facilities to meet growing electricity demand within its service territory, maintain reliability, implement a strategic underground program to minimize outage duration and address environmental requirements. These enhancements are primarily aimed at meeting Dominion’sDominion Energy’s continued goal of providing reliable service, and are intended to address both continued population growth and increases in electricity consumption by the typical consumer.consumption. An additional benefit will be added capacity to efficiently deliver electricity from the renewable projects now being developed, or to be developed in the future.future, to meet our customers’ preference for cleaner energy. SeeProperties in Item 1. Business,Operating Segments DVP for additional information.

The Companies have also implemented infrastructure improvements and improved operational practices to reduce the GHG emissions from our natural gas facilities. Dominion Energy and Dominion Energy Gas, in connection with their existing five-year investment plans, are also pursuing the construction

CYBERSECURITY

In an effort to reduce the likelihood and severity of cyber intrusions, the Companies have a comprehensive cybersecurity program designed to protect and preserve the confidentiality, integrity and availability of data and systems. In addition, the Companies are subject to mandatory cybersecurity regulatory requirements, interface regularly with a wide range of external organizations, and participate in classified briefings to maintain an awareness of current cybersecurity threats and vulnerabilities. The Companies’ current security posture and regulatory compliance efforts are intended to address the evolving and changing cyber threats. See Item 1A. Risk Factors for additional information.

Item 1A. Risk Factors

The Companies’ businesses are influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond their control. A number of these factors have been identified below. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see Forward-Looking Statements in Item 7. MD&A.

The Companies’ results of operations can be affected by changes in the weather.Fluctuations in weather can affect demand for the Companies’ services. For example, milder than normal weather can reduce demand for electricity and gas transmission and distribution services. In addition, severe weather, including hurricanes, winter storms, earthquakes, floods and other natural disasters can disrupt operation of the Companies’ facilities and cause service outages, production delays and property damage that require incurring additional expenses. Changes in weather conditions can result in reduced water levels or changes in water temperatures that could adversely affect operations at some of the Companies’ power stations. Furthermore, the Companies’ operations could be adversely affected and their physical plant placed at greater risk of damage should changes in global climate produce, among other possible conditions, unusual variations in temperature and weather patterns, resulting in more intense, frequent and extreme weather events, abnormal levels of precipitation and, for operations located on or near coastlines, a change in sea level or sea temperatures.

The rates of Dominion’sDominion Energy’s and Dominion Energy Gas’ gas transmission and distribution operations and Virginia Power’s electric transmission, distribution and generation operations are subject to regulatory review.Revenue provided by Virginia Power’s electric transmission, distribution and generation operations and Dominion’sDominion Energy’s and Dominion Energy Gas’ gas transmission and

base rates, on a timely basis, of costs incurred in providing service, Virginia Power’s future earnings could be negatively impacted.

Governmental officials, stakeholders and advocacy groups may challenge these regulatory reviews. Such challenges may lengthen the time, complexity and costs associated with such regulatory reviews.

The Companies are subject to complex governmental regulation, including tax regulation, that could adversely affect their results of operations and subject the Companies to monetary penalties.The Companies’ operations are subject to extensive federal, state and local regulation and require numerous permits, approvals and certificates from various governmental agencies. Such laws and regulations govern the terms and conditions of the services we offer, our relationships with affiliates, protection of our critical electric infrastructure assets and pipeline safety, among other matters. These operations are also subject to legislation governing taxation at the federal, state and local level. They must also comply with environmental legislation and associated regulations. Management believes that the necessary approvals have been obtained for existing operations and that the business is conducted in accordance with applicable laws. The Companies’ businesses are subject to regulatory regimes which could result in substantial monetary penalties if any of the Companies is found not to be in compliance, including mandatory reliability standards and interaction in the wholesale markets. New laws or regulations, the revision or reinterpretation of existing laws or regulations, changes in enforcement practices of regulators, or penalties imposed fornon-compliance with existing laws or regulations may result in substantial additional expense. Recent legislative and regulatory changes that are impacting the Companies include the 2017 Tax Reform Act and tariffs imposed on imported solar panels by the U.S. government in 2018.

Dominion’sThe2017 Tax Reform Act could have a material impact on our operations, cash flows, and financial results.Reductions in the estimated annual cost-of-service effect (commonly referred to as thegross-up factor) due to the reduction in the corporate income tax rates to 21% under the provisions of the 2017 Tax Reform Act could result in amounts currently collected from utility customers to be refundable to such customers, generally through reductions in rates. In addition, the Companies’ regulators may require the reduction in accumulated deferred income tax balances under the provisions of the 2017 Tax Reform Act to be shared with customers, generally through reductions in future rates. The 2017 Tax Reform Act includes provisions that stipulate how these excess deferred taxes may be passed back to customers for certain accelerated tax depreciation benefits. Potential refunds of other deferred taxes may be determined by our federal and state regulators.

The2017 Tax Reform Act could have a material impact on Dominion Energy and Dominion Energy Gas’ FERC-regulated gas operations including rates charged to customers.In light of the reduction in the income tax rate in the 2017 Tax Reform Act, our FERC-regulated gas subsidiaries are subject to an increased risk of FERC initiating industry-wide proceedings under Section 5 of the Natural Gas Act to have interstate pipelines substantiate rates charged for transportation and storage of natural gas in interstate commerce, when viewed holistically, are “just and reasonable” taking into account the effects of tax reform and all other drivers. It is unclear if FERC will mandate aone-time rate reset or Section 5 rate case for Dominion Energy and Dominion

may be considered in the future. The Companies compete for projects with companies of varying size and financial capabilities, including some that may have competitive advantages. Commencing construction on announced and future projects may require approvals from applicable state and federal agencies, and such approvals could include mitigation costs which may be material to the Companies. Projects may not be able to be completed on time as a result of weather conditions, delays in obtaining or failure to obtain regulatory approvals, delays in obtaining key materials, labor difficulties, difficulties with partners or potential partners, a decline in the credit strength of counterparties or vendors, or other factors beyond the Companies’ control. Even if facility construction, pipeline, expansion, electric transmission line, conversion and other infrastructure projects are completed, the total costs of the projects may be higher than anticipated and the performance of the business of the Companies following completion of the projects may not meet expectations.Start-up and operational issues can arise in connection with the commencement of commercial operations at our facilities, including but not limited to commencement of commercial operations at our power generation facilities following expansions and fuel type conversions to natural gas and biomass.the Liquefaction Project. Such issues may include failure to meet specific operating parameters, which may require adjustments to meet or amend these operating parameters. Additionally, the Companies may not be able to timely and effectively integrate the projects into their operations and such integration may result in unforeseen operating difficulties or unanticipated costs. Further, regulators may disallow recovery of some of the costs of a project if they are deemed not to be prudently incurred. Any of these or other factors could adversely affect the Companies’ ability to realize the anticipated benefits from the facility construction, pipeline, electric transmission line, expansion, conversion and other infrastructure projects.

The development, construction and constructioncommissioning of several large-scale infrastructure projects simultaneously involves significant execution risk.The Companies are currently simultaneously developing, constructing or constructingcommissioning several major projects, including the Liquefaction Project, the Atlantic Coast Pipeline Project, the Supply Header project, Greensville County and multiple DTIDETI projects, which together help contribute to the over $24$25 billion in capital expenditures planned by the Companies through 2021.2022. Several of the Companies’ key projects are increasingly large-scale, complex and being constructed in constrained geographic areas (for example, the Liquefaction Project) or in difficult terrain, (forfor example, the Atlantic Coast Pipeline Project).Project. The advancement of the Companies’ ventures is also affected by the interventions, litigation or other activities of stakeholder and advocacy groups, some of which oppose naturalgas-related and energy infrastructure projects. For example, certain landowners and stake-

Compliance costs cannot be estimated with certainty due to the inability to predict the requirements and timing of implementation of any new environmental rules or regulations. Other factors which affect the ability to predict future environmental expenditures with certainty include the difficulty in estimatingclean-up costs and quantifying liabilities under environmental laws that impose joint and several liabilityliabilities on all responsible parties. However, such expenditures, if material, could make the Companies’ facilities uneconomical to operate, result in

employee safety impacts, loss of revenues, increased liabilities, heightened regulatory scrutiny and reputational risk. Further, the location of pipelines and storage facilities, or generation, transmission, substations and distribution facilities near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from these risks.

Dominion Energy and Virginia Power have substantial ownership interests in and operate nuclear generating units; as a result, each may incur substantial costs and liabilities.Dominion’sDominion Energy’s and Virginia Power’s nuclear facilities are subject to operational, environmental, health and financial risks such as theon-site storage of spent nuclear fuel, the ability to dispose of such spent nuclear fuel, the ability to maintain adequate reserves for decommissioning, limitations on the amounts and types of insurance available, potential operational liabilities and extended outages, the costs of replacement power, the costs of maintenance and the costs of securing the facilities against possible terrorist attacks. Dominion Energy and Virginia Power maintain decommissioning trusts and external insurance coverage to minimize the financial exposure to these risks; however, it is possible that future decommissioning costs could exceed amounts in the decommissioning trusts and/or damages could exceed the amount of insurance coverage. If Dominion’sDominion Energy’s and Virginia Power’s decommissioning trust funds are insufficient, and they are not allowed to recover the additional costs incurred through insurance, or in the case of Virginia Power through regulatory mechanisms, their results of operations could be negatively impacted.

Dominion’sDominion Energy’s and Virginia Power’s nuclear facilities are also subject to complex government regulation which could negatively impact their results of operations. The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generating facilities. In the event of noncompliance, the NRC has the authority to impose fines, set license conditions, shut down a nuclear unit, or take some combination of these actions, depending on its assessment of the severity of the situation, until compliance is achieved. Revised safety requirements promulgated by the NRC could require Dominion Energy and Virginia Power to make substantial expenditures at their nuclear plants. In addition, although the Companies have no reason to anticipate a serious nuclear incident at their plants, if an incident did occur, it could materially and adversely affect their results of operations and/or financial condition. A major incident at a nuclear facility anywhere in the world, such as the nuclear events in Japan in 2011, could cause

In addition, in the event that any of the merchant generation facilities experience a forced outage, Dominion Energy may not receive the level of revenue it anticipated.

The Companies’ financial results can be adversely affected by various factors driving supply and demand for electricity and gas andrelated services.Technological advances required by federal laws mandate new levels of energy efficiency inend-use devices, including lighting, furnaces and electric heat pumps and could lead to declines in per capita energy consumption. Additionally, certain regulatory and legislative bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by a fixed date. Further, Virginia Power’s business model is premised upon the cost efficiency of the production, transmission and distribution of large-scale centralized utility generation. However, advances in distributed generation technologies, such as solar cells, gas microturbines and fuel cells, may make these alternative generation methods competitive with large-scale utility generation, and change how customers acquire or use our services. Virginia Power has an exclusive franchise to serve retail electric customers in Virginia. However, Virginia’s Retail Access Statutes allow certain Power Generation customers exceptions to this franchise. As market conditions change, Virginia Power’s customers may further pursue exceptions and Virginia Power’s exclusive franchise may erode.

Reduced energy demand or significantly slowed growth in demand due to customer adoption of energy efficient technology, conservation, distributed generation, regional economic conditions, or the impact of additional compliance obligations, unless substantially offset through regulatory cost allocations, could adversely impact the value of the Companies’ business activities.

Dominion Energy Gas has experienced a decline in demand for certain of its processing services due to competing facilities operating in nearby areas.

Dominion Energy and Dominion Energy Gas may not be able to maintain, renew or replace their existing portfolio of customer contracts successfully,or on favorable terms.Upon contract expiration, customers may not elect tore-contract with Dominion Energy and Dominion Energy Gas as a result of a variety of factors, including the amount of competition in the industry, changes in the price of natural gas, their level of satisfaction with Dominion’sDominion Energy’s and Dominion Energy Gas’ services, the extent to which Dominion Energy and Dominion Energy Gas are able to successfully execute their business plans and the effect of the regulatory framework on customer demand. The failure to replace any such customer contracts on similar terms could result in a loss of revenue for Dominion Energy and Dominion Energy Gas and related decreases in their earnings and cash flows.

Certain of Dominion Energy and Dominion Energy Gas’ gas pipeline services are subject to long-term, fixed-price “negotiated rate” contracts that are not subject to adjustment, even if the cost toperform such services exceeds the revenues received from such contracts. Under FERC policy, a regulated service provider and a customer may mutually agree to sign a contract for service at a “negotiated rate” which may be above or below the FERC regulated, cost-based recourse rate for that service. These “negotiated rate” contracts are not generally subject to adjustment for increased costs which could be produced by inflation or other

If the decommissioning trust funds and benefit plan assets are negatively impacted by market fluctuations or other factors,

cial information. A major cyber incident could result in significant expenses to investigate and repair security breaches or system damage and could lead to litigation, fines, other remedial action, heightened regulatory scrutiny and damage to the Companies’ reputation. In addition, the misappropriation,

as described above, are in the subjective determination of Dominion Energy acting in good faith, or if the required authorizations, approvals, consents and/or permits are not obtained or received, result in the abandonment of the merger.

Dominion Energy expects to incur substantial expenses related to the merger with SCANA.Dominion Energy expects to incur relatively significant expenses in connection with completing the merger. While Dominion Energy has assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of its integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time.

Following the merger with SCANA, Dominion Energy may be unable to successfully integrate SCANA’s businesses.Dominion Energy and SCANA currently operate as independent public companies. After the merger, Dominion Energy will be required to devote significant management attention and resources to integrating SCANA’s business. Potential difficulties Dominion Energy may encounter in the integration process include the following:

For these reasons, it is possible that the integration process following the merger could result in the distraction of Dominion Energy’s management, the disruption of Dominion Energy’s ongoing business or inconsistencies in its services, standards, controls, procedures and policies, any of which could adversely affect the ability of Dominion Energy to maintain or establish relationships with current and prospective customers, vendors and employees or could otherwise adversely affect the business and financial results of Dominion Energy.

Dominion Energy and SCANA may be materially adversely affected by negative publicity related to the merger and in connection with other related matters, including the abandonment of the V.C. Summer Units 2 and 3 new nuclear development project.From time to time, political and public sentiment in connection with the merger and in connection with other matters, including the abandonment of the V.C. Summer Units 2 and 3 new nuclear development project may result in a significant

Litigation against SCANA and Dominion Energy could result in an injunction preventing the completion of the merger with SCANA or may adversely affect the combined company’s business, financial position,condition or results of operations following the merger with SCANA.Following the announcement of the SCANA Merger Agreement, lawsuits have been filed asserting claims relating to the merger. Among other things, the lawsuits allege breaches of various fiduciary duties by the members of the SCANA board in connection with the merger and allegations that Dominion Energy and/or cash flows.SCANA aided and abetted such alleged breaches. Among other remedies, the plaintiffs seek to enjoin the merger, rescind the merger agreement or be awarded monetary damages should the merger be completed. While Dominion Energy believes that dismissal of these lawsuits is warranted, the outcome of any such litigation is inherently uncertain. The defense or settlement of any lawsuit or any claim that remains unresolved at the time the merger closes may adversely affect the combined company’s business, financial condition or results of operation. Additionally, other lawsuits may be filed in the future making similar or new claims and seeking similar or new remedies.

Dominion Energy has goodwill and other intangible assets on its balance sheet, and these amounts will increase as a result of the merger with SCANA. If its goodwill or other intangible assets become impaired in the future, Dominion Energy may be required to record a significant, non-cash charge to earnings and reduce its shareholders’ equity.Upon the completion of the merger, Dominion Energy will record as goodwill the excess of the purchase price paid by Dominion Energy over the fair value of SCANA’s assets and liabilities as determined for financial accounting purposes. Under GAAP, intangible assets are reviewed for impairment on an annual basis or more frequently whenever events or circumstances indicate that its carrying value may not be recoverable. If Dominion Energy’s intangible assets, including goodwill as a result of the merger, are determined to be impaired in the future, Dominion Energy may be required to record a significant, non-cash charge to earnings during the period in which the impairment is determined.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of December 31, 2016,2017, Dominion Energy owned its principal executive office and three other corporate offices, all located in Richmond, Virginia. Dominion Energy also leases corporate offices in other cities in which its subsidiaries operate. Virginia Power and Dominion Energy Gas share Dominion’sDominion Energy’s principal office in Richmond, Virginia, which is owned by Dominion.Dominion Energy. In addition, Virginia Power’s DVPPower Delivery and Power Generation segments share certain leased build-