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 sustainable 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’s2018, Dominion Energy’s portfolio of assets includesincluded approximately 26,40026,000 MW of electric generating capacity, 6,6006,700 miles of electric transmission lines, 57,60058,300 miles of electric distribution lines, 14,90014,800 miles of natural gas transmission, gathering and storage pipelinepipelines and 51,30052,300 miles of gas distribution pipeline, exclusive of service lines. As of December 31, 2016,2018, Dominion serves over 6Energy served more than 5 million utility and retail energy customers and operatesoperated one of the nation’s largest underground natural gas storage systems, with approximately 1 trillion cubic feet of storage capacity.

In September 2016,January 2019, Dominion Energy completed the Dominion QuestarSCANA Combination for total considerationin astock-for-stock merger valued at $13.4 billion. SCANA is primarily engaged in the generation, transmission and distribution of $4.4 billionelectricity in the central, southern and Dominion Questar became a wholly-owned subsidiarysouthwestern portions of Dominion. Dominion Questar is a Rockies-based integratedSouth Carolina and in the distribution of natural gas company. Questar Gas,in North Carolina and South Carolina. In addition, SCANA markets natural gas to retail customers in the southeast U.S. Following the completion of the SCANA Combination, Dominion Energy’s portfolio of assets includes approximately 32,000 MW of electric generating capacity, 10,200 miles of electric transmission lines, 84,800 miles of electric distribution lines, 15,900 miles of natural gas transmission, gathering and storage pipelines and 92,900 miles of gas distribution pipeline, exclusive of service lines. Dominion Energy operates approximately 1 trillion cubic feet of natural gas storage capacity and serves nearly 7.5 million utility and retail energy customers. SCANA operates as a wholly-owned subsidiary of Dominion Questar, is consolidated by Dominion,Energy. SCANA and isone of its wholly-owned subsidiaries, SCE&G, are currently SEC registrants. SCANA and SCE&G file a voluntary SEC filer. However, itscombined Form10-K, is filed separately and is not combined herein.

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

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

Dominion continues to expand and improveimproving its regulated and long-term contracted electric and natural gas businesses in accordance with its existing five-yearwhile transitioning to a cleaner energy future. The capital investment program. A major impetusprogram for this program2019 through 2023 includes a focus on upgrading the electric grid in Virginia through investments in additional renewable generation facilities, strategic undergrounding, energy conservation programs and smart-grid devices. Renewable generation facilities are expected to include investments in utility-scale solar and offshore wind projects. In addition, Dominion Energy is currently seeking, or intends to meet the anticipated increaseseek, license extensions for its regulated nuclear power stations in demand in its electric utility service territory.Virginia. 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’s gas and electric transmission and distribution networks, and to meet environmental requirements and standards set by various regulatory bodies. Investmentsincluding investing in utility-

ect closed in 2018 and the second is expected to close in 2019 with a total expected cost of $280 million once constructed, including the initial acquisition cost, and will generate approximately 155 MW combined.

See Note 10 to the Consolidated Financial Statements for additional information.

SALEOF CERTAIN RETAIL ENERGY MARKETING ASSETS

In October 2017, Dominion Energy entered into an agreement to sell certain assets associated with its nonregulated retail energy marketing operations for total consideration of $143 million, subject to customary approvals and certain adjustments. In December 2017, the first phase of the agreement closed for $79 million. In October 2018, the second phase of the agreement closed for $63 million. Pursuant to the agreement, Dominion Energy entered into a commission agreement with the buyer upon the first closing in December 2017, 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. In August 2018, NRG’s ownership in Four Brothers and Three Cedars was transferred to GIP. 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

produced from the acreage.

In December 2013,January 2018, Dominion Energy Gas and the natural gas producer closed on agreements with two natural gas producersan amendment to convey over timethe agreement, which included the conveyance of Dominion Energy Gas’ remaining 50% interest in approximately 100,00018,000 acres and the elimination of Marcellus Shale development rights underneath several natural gas storage fields. The agreements provide for payments to Dominion Gas, subject to customary adjustments, of approximately $200 million over a period of nine years, and anEnergy Gas’ overriding royalty interest in gas produced from that acreage.all acreage for proceeds of $28 million.

See Note 10 to the Consolidated Financial Statements for additional information on certain of these sales of Marcellus acreage.

SALEOF BERAYTONLECTRIC PROINT, KINCAIDANDETAIL EQUITYNERGY METHODARKETING IBNVESTMENTIN ELWOODUSINESS

In August 2013,March 2014, Dominion Energy completed the sale of Brayton Point, Kincaid and its equity method investment in Elwood to Energy Capital Partners and receivedelectric retail energy marketing business. The proceeds of $465were $187 million, net of transaction costs. The historical results

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 Brayton Point’s$84 million. Dominion Energy Gas’ consideration consisted of $17 million in cash proceeds and Kincaid’s operations are presented in discontinued operations.the extinguishment of affiliated current borrowings of $67 million and Dominion Energy’s consideration consisted of cash proceeds of $84 million.

OPERATING SEGMENTS

Effective January 2019, Dominion Energy manages its daily operations through threefour primary operating segments: DVP,Power Delivery, Power Generation, Gas Infrastructure and Southeast Energy. Dominion Generation and 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.

operation of the system and (iii) safely and effectively integrating new utility-scale renewable generation and storage as well as customer–level distributed energy resources such as rooftop solar and battery storage.

Revenue provided by electric distribution operations is based primarily on rates established by state regulatory authorities and state law. Approximately 85% of revenue comes from serving Virginia jurisdictional customers. Variability in earnings is driven primarily by changes in rates, weather, customer growth and other factors impacting consumption such as the economy and energy conservation, in addition to operating and maintenance expenditures. Operationally, electric distribution continues to focus on improving service levels while striving to reduce costs and link investments to operational results. SAIDI performance results, excluding major events, were 137134 minutes atfor the end of 2016, which is higher compared tothree- year average ending 2018, up from the previous three-year average of 123125 minutes primarily due to storm-related outages across all seasons. Virginia Power’s overall customer satisfaction, however, improved year over year when compared to 2015 J.D. Power and Associates’ scoring.increased storm activity during the year. In the future, safety, electric service reliability, outage durations and customer service will remain key focus areas for electric distribution.

SOURCESOF ENERGY SUPPLY

DVP Operating Segment—Dominion and Virginia Power

DVP’s Delivery’s supply of electricity to serve Virginia Power customers is produced or procured by DominionPower Generation. SeeDominionPower Generation for additional information.

SEASONALITY

DVP Operating Segment—Dominion and Virginia Power

DVP’s Delivery’s earnings vary seasonally as a result of the impact of changes in temperature, the impact of storms and other catastrophic weather events, and the availability of alternative sources for heating on demand by residential and commercial customers. Generally, the demand for electricity peaks during the summer and winter months to meet cooling and heating needs.needs, respectively. An increase in heating degree days for DVP’sPower Delivery’s electric utility-related operations does not produce the same increase in revenue as an increase in cooling degree days, due to seasonal pricing differentials and because alternative heating sources are more readily available.

DominionPower Generation

The DominionPower Generation Operating Segment of Virginia Power includes the generation operations of the Virginia Power regulated electric utility and its related energy supply operations. Virginia Power’s utility generation operations primarily serve the supply requirements for the DVP segment’sPower Delivery’s utility customers. Virginia Power’snon-jurisdictional operations serve certain large-scale customers.

The DominionPower Generation Operating Segment of Dominion Energy includes Virginia Power’s generation facilities and its related energy supply operations as well as the generation operations of Dominion’sDominion Energy’s merchant fleet and energy marketing and price risk management activities for these assets.

DominionPower Generation’s existing five-year investment plan includes spending approximately $8.0$10.3 billion from 20172019 through 20212023 to maintain existing and construct new generation capacity to meet growing electricity demand within its service territory and maintain reliability. The most significant project currently under construction is Greensville County, which is estimated to cost approximately $1.3 billion, excluding financing costs.investments are expanding the renewable generation asset portfolio and the subsequent license renewal projects seeking20-year license extensions for the regulated nuclear power stations in Virginia. SeePropertiesand Environmental Strategy for additional information on this and other utility projects.

In addition, Dominion’sDominion Energy’s merchant generation fleet includes numerous renewable generation facilities, which include a fuel cellincluding solar generation facility in Connecticut and solar generationwind facilities in operation or development in nineten states, including Virginia. The output of these facilities is primarily sold under long-term power purchase agreements with terms generally ranging from 15 to 25 years. See NoteNotes 3 and 10 to the Consolidated Financial Statements for additional information regarding certain solar projects.

Earnings fortheDominionPower Generation Operating Segment of Virginia Powerprimarily result from the sale of electricity generated by its utility fleet. Revenue is based primarily on rates established by state regulatory authorities and state law. Approximately 82%76% of revenue comes from serving Virginia jurisdictional customers. Base rates for the Virginia jurisdiction are set using a modifiedcost-of-service rate model, and are generally designed to allow an opportunity to recover the cost of providing utility service and earn a reasonable return on investments used to provide that service. Earnings variability may arise when revenues are impacted by

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.

ments with other suppliers to provide for utility system load requirements.

DominionPower Generation also occasionally purchases electricity from the PJM andISO-NE spot marketsmarket to satisfy physical forward sale requirements as part of its merchant generation operations.

DominionPower Generation Operating Segment—Virginia Power

Presented below is a summary of Virginia Power’s actual system output by energy source:

The estimated decommissioning costs and license expiration dates for the nuclear units owned by Dominion Energy and Virginia Power are shown in the following table:

Also see Notes 14 and 22 to the Consolidated Financial Statements for further information about AROs and nuclear decommissioning, respectively, and Note 9 to the Consolidated Financial Statements for information about nuclear decommissioning trust investments.

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.

In addition toEarnings for the operations of Dominion Gasthe Dominion Energy Infrastructure Operating Segment of Dominionalsoincludes LNG operations, Dominion Questar operations, Hope’s gas distribution operations in West Virginia, and nonregulated retail natural gas marketing, as well as Dominion’s investments in the Blue Racer joint venture, Atlantic Coast Pipeline and Dominion Midstream. SeeProperties and Investmentsbelow for additional information regarding the Blue Racer and Atlantic Coast Pipeline investments. Dominion’s LNG operations involve the import and storage of LNG at Cove Point and the transportation of regasified LNG to

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 transportation, LNG import and storage operations and Dominion Energy Questar Pipeline’s,Pipeline 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 and Dominion Energy Gas’ existing facilities see Item 2.Properties.

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

Dominion Energy Gas has the following significant projects under construction or development to better serve customers or expand its service offerings within its service territory.

operates a416-mile FERC regulated interstate natural gas pipeline providing service to local gas distribution companies, electric utilities and electric power generators, as well as marketers and other end users,end-users, through interconnecting pipelines and exchanges. Iroquois’ pipeline extends from the U.S.-Canadian border at Waddington, New York through the state of Connecticut to South Commack, Long Island, New York and continuing on from Northport, Long Island, New York through the Long Island Sound to Hunts Point, Bronx, New York. See Note 9 to the Consolidated Financial Statements for further information about Dominion’sDominion Energy’s equity method investment in Iroquois.

Atlantic Coast Pipeline—In September 2014, Dominion Energy, along with Duke and Southern Company Gas, (formerly known as AGL Resources Inc.), announced the formation of Atlantic Coast Pipeline. The Atlantic Coast Pipeline partnership agreement includes provisions to allow Dominion Energy an option to purchase additional ownership interest in Atlantic Coast Pipeline to maintain a leading ownership percentage. In October 2016, Dominion purchased an additional 3% membership interest in Atlantic Coast Pipeline from Duke for $14 million. The members which are subsidiaries of the above-referenced parent companies, hold the following membership interests: Dominion Energy, 48%; Duke, 47%; and Southern Company Gas, (formerly known as AGL Resources Inc.), 5%. Atlantic Coast Pipeline is focused on constructing an approximately600-mile natural gas pipeline running from West Virginia through Virginia to North Carolina, which has a total expected cost of $5.0 billion

Revenue provided by SCE&G and PSNC’s natural gas distribution operations primarily results from rates established by the South Carolina and North Carolina Commissions, respectively. Variability in earnings results from changes in operating and maintenance expenditures, as well as changes in rates and the demand for services, the availability and prices of alternative fuels and the economy.

SCE&G is a member of the Virginia-Carolinas Reliability Group, one of several geographic divisions within the SERC Reliability Corporation. The SERC Reliability Corporation is one of seven regional entities with delegated authority from NERC for the purpose of proposing and enforcing reliability standards approved by NERC.

COMPETITION

There is no competition for electric distribution or generation service within SCE&G’s service territory in South Carolina and no such competition is currently permitted. However, competition from third-party owners for development, construction and ownership of certain transmission facilities in SCE&G’s service territory is permitted pursuant to Order 1000, subject to state and local siting and permitting approvals. This could result in additional competition to build and own transmission infrastructure in SCE&G’s service area in the future.

Competition in Southeast Energy’s natural gas distribution operations is generally based on price and convenience. Large commercial and industrial customers often have the ability to switch from natural gas to an alternate fuel, such as propane or fuel oil. Natural gas competes with these alternate fuels based on price. As a result, any significant disparity between supply and demand, either of natural gas or of alternate fuels, and due either to production or delivery disruptions or other factors, will affect price and the ability to retain large commercial and industrial customers.

Southeast Energy’s marketing services for natural gas and other energy-related services face competition from affiliates of large energy companies and electric membership cooperatives, among others. The ability of Southeast Energy to maintain its market share primarily depends on the prices it charges customers relative to the prices charged by its competitors and its ability to provide high levels of customer service.

REGULATION

SCE&G’s electric distribution service, including the rates it may charge to jurisdictional customers, is subject to regulation by the South Carolina Commission. SCE&G’s electric generation operations are subject to regulation by the South Carolina Commission, FERC, the NRC, the EPA, the DOE and various other federal, state and local authorities. SCE&G’s electric transmission service is primarily regulated by FERC and the DOE. SCE&G and PSNC’s gas distribution operations are subject to regulation by the South Carolina and North Carolina Commissions, respectively, as well as PHMSA, the U.S. Department of Transportation, the South Carolina Office of Regulatory Staff and the North Carolina Commission for enforcement of federal and state pipeline safety requirements in their respective service territories. SEMI’s energy marketing activities are subject to regulation by the Georgia Public Service Commission as to retail prices for customers served under regulated provider contracts and FERC.

counterparties, which expire between 2019 and 2084. PSNC purchases natural gas under contracts with producers and marketers on a short-term basis at market-based prices and on a long-term basis for reliability assurance at first of the month index prices plus a reservation charge in certain cases. The gas is delivered to North Carolina through transportation agreements with Transco, which expire at various dates through 2031.

Coal—Southeast Energy primarily obtains coal through short-term and long-term contracts with suppliers located in eastern Kentucky, Tennessee, Virginia and West Virginia. These contracts provide for approximately 2.1 million tons annually. These contracts expire at various times through 2020. Spot market purchases may occur when needed or when prices are believed to be favorable.

Nuclear—Southeast Energy primarily utilizes long-term contracts to support its nuclear fuel requirements. SCE&G, for itself and as agent for Santee Cooper, and Westinghouse are parties to a fuel alliance agreement and contracts for fuel fabrication and related services. Under these contracts, SCE&G supplies enriched products to Westinghouse, who in turn supplies nuclear fuel assemblies for Summer. Westinghouse is SCE&G’s exclusive provider of such fuel assemblies on a cost-plus basis. The fuel assemblies to be delivered under the contracts are expected to supply the nuclear fuel requirements through 2033.

In addition, SCE&G has contracts covering its nuclear fuel needs for uranium, conversion services and enrichment services. These contracts have varying expiration dates through 2024. SCE&G believes that it will be able to renew these contracts as they expire or enter into similar contractual arrangements with other suppliers of nuclear fuel materials and services and that sufficient capacity for nuclear fuel supplies and processing exists to allow for normal operations of its nuclear generating unit. 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 optimal fuel and inventory levels.

SEASONALITY

Southeast Energy’s electric operations vary seasonally as a result of the impact of changes in temperature, the impact of storms and other catastrophic weather events and the availability of alternative sources for heating on demand by residential and commercial customers. Generally, the demand for electricity peaks during the summer and winter months to meet cooling and heating needs. An increase in heating degree days does not produce the same increase in revenue as an increase in cooling degree days, due to seasonal pricing differentials and because alternative heating sources are more readily available.

Southeast Energy’s gas operations 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. The majority of these earnings are generated during the heating season, which is generally from November to March; however, North Carolina and South Carolina have certain mechanisms designed to reduce the impact of weather-related fluctuations.

The earnings of Southeast Energy’s natural gas marketing operations also vary seasonally, and generally peak during the winter months to meet heating needs.

REGULATION

The Companies are subject to regulation by various federal, state and local authorities, including the state commissions of Virginia, North Carolina, South Carolina, Ohio, West Virginia, Georgia, Utah, Wyoming and Idaho, SEC, FERC, EPA, DOE, NRC, Army Corps of Engineers and the U.S. Department of Transportation.

State Regulations

ELECTRIC

Virginia Power’sPower and SCE&G’s electric utility retail service isservices are subject to regulation by the Virginia Commissionand North Carolina Commissions and the NorthSouth Carolina Commission.Commission, respectively.

Virginia Power holdsand SCE&G hold CPCNs which authorize itthem to maintain and operate itstheir electric facilities now in operation and to sell electricity to customers. However, Virginia Power and SCE&G may not construct generating facilities or large capacity transmission lines without the prior approval of various state and federal government agencies. In addition, the Virginia Commission and the North Carolina Commission regulate Virginia Power’s and the South Carolina Commission regulates SCE&G’s transactions with affiliates and transfers of certain facilities. The Virginia, CommissionNorth Carolina and South Carolina Commissions also regulatesregulate the issuance of certain securities.

Electric Regulation in Virginia

The Regulation Act instituted acost-of-service rate model, ending Virginia’s planned transition to retail competition for electric supply service to most classes of customers.

The Regulation Act authorizes stand-alone rate adjustment clauses for recovery of costs for new generation projects, including pumped hydroelectricity generation and storage facilities as well as extensions of operating licenses of nuclear power generation facilities, FERC-approved transmission costs, underground distribution lines,

ject to review and possible reduction, which may decrease SCE&G’s future earnings. Additionally, if the South Carolina Commission does not allow recovery of costs incurred in providing service on a timely basis, SCE&G’s future earnings could be negatively impacted. Fuel costs are reviewed annually by the South Carolina Commission, as required by statute, and fuel rates are subject to revision in these annual fuel proceedings.

SCE&G offers to its retail electric customers several DSM programs designed to assist customers in reducing their demand for electricity and improving their energy efficiency. SCE&G submits annual filings to the South Carolina Commission related to these programs. As actual DSM program costs are incurred, they are deferred as regulatory assets and recovered through a rider approved by the South Carolina Commission. The rider also provides for recovery of any net lost revenues and for a shared savings incentive.

In connection with the SCANA Combination, SCE&G agreed not to file a general rate case with the South Carolina Commission with a requested rate effective date earlier than January 2021. Rate adjustments are permitted prior to 2021 for fuel and environmental costs, DSM costs and other rates routinely adjusted on an annual or biennial basis.

See Note 133 to the Consolidated Financial Statements for additional information, which is incorporated herein by reference.

GAS

Dominion Energy Questar’s natural gas development, production, transportation, and distribution services, including the rates it may charge its customers, are regulated by the state commissions of Utah, Wyoming and Idaho. East Ohio’s natural gas distribution services, including the rates it may charge its customers, are regulated by the Ohio Commission. Hope’s natural gas distribution services are regulated by the West Virginia Commission. SCE&G and PSNC’s natural gas distribution services are regulated by the South Carolina Commission and North Carolina Commission, respectively.

erally cover a prospective twelve-month period. Approved increases or decreases in gas cost recovery rates result in increases or decreases in revenues with corresponding increases or decreases in net purchased gas cost expenses.

Legislation was passed in West Virginia authorizing a stand-alone cost recovery mechanism to recover specified costs and a return for infrastructure upgrades, replacements and expansions between general base rate cases. See Note 13 to the Consolidated Financial Statements for additional information.

Gas Regulation in North Carolina

PSNC is subject to regulation of rates and other aspects of its business by the North Carolina Commission. PSNC’s base rates are set in a general rate case based on thecost-of-service by rate class. Such rates are designed primarily based on a rate design methodology in which the majority of operating costs are recovered through volumetric charges.

PSNC has certain riders to its tariff that allow it to make periodic rate adjustment filings with the North Carolina Commission outside of a general rate case. PSNC’s purchased gas adjustment allows it to recover from customers all prudently incurred gas costs and certain related uncollectible expenses. The purchased gas adjustment provides for a benchmark cost of gas rate component and a fixed gas cost component, both of which may be periodically adjusted to reflect changes in the costs of purchased gas, including transportation costs. In addition, PSNC utilizes a customer usage tracker, a decoupling mechanism, which allows it to adjust rates semi-annually for residential and commercial customers based on average customer consumption. PSNC also utilizes an integrity management tracker, which provides for semi-annual rate adjustments to recover the incurred capital investment and associated costs of complying with federal standards for pipeline integrity and safety requirements that are not in current base rates. All of these riders utilize deferral accounting to track over- and under-collected costs for subsequent rate consideration.

In connection with the SCANA Combination, PSNC agreed not to file a general rate case with the North Carolina Commission with a requested rate effective date earlier than November 2021 other than for rate adjustments pursuant to the customer usage tracker, the integrity management tracker and the purchased gas adjustment.

See Note 3 to the Consolidated Financial Statements for additional information, which is incorporated herein by reference.

Gas Regulation in South Carolina

SCE&G is subject to regulation of rates and other aspects of its natural gas distribution service by the South Carolina Commission. SCE&G provides retail natural gas service to customers in areas in which it has received authorization from the South Carolina Commission and in municipalities in which it holds a franchise. SCE&G’s base rates can be adjusted annually, pursuant to the Natural Gas Rate Stabilization Act, for recovery of costs related to natural gas infrastructure. Base rates are set based on thecost-of-service by rate class approved by the South Carolina Commission in the latest general rate case. Base rates for SCE&G are designed primarily based on a rate design methodology in which the majority of operating costs are recovered through volumetric charges. SCE&G also utilizes a weather normalization adjustment to adjust its base rates during the winter billing

Federal Regulations

FEDERAL ENERGY REGULATORY COMMISSION

Electric

Under the Federal Power Act, FERC regulates wholesale sales and transmission of electricity in interstate commerce by public utilities. Virginia Power purchases and sells electricity in the PJM wholesale market and Dominion’ssells electricity to wholesale purchasers in Virginia and North Carolina. Dominion Energy’s merchant generators sell electricity in the PJM, MISO, CAISO andISO-NE wholesale markets, and to wholesale purchasers in the states of Virginia, North Carolina, Indiana, Connecticut, Tennessee, Georgia, California, South Carolina and Utah, under Dominion’sDominion Energy’s market-based sales tariffs authorized by FERC or pursuant to FERC authority to sell as a qualified facility. In addition, Virginia Power hasand SCE&G have FERC approval of a tariff to sell wholesale power at capped rates based on itstheir respective embedded cost of generation. This cost-based sales tariff could be used to sell to loads within or outside Virginia Power’sPower and SCE&G’s service territory.territories. Any such sales would be voluntary.

Dominion Energy and Virginia Power are subject to FERC’s Standards of Conduct that govern conduct between transmission function employees of interstate gas and electricity transmission providers and the marketing function employees of their affiliates. The rule defines the scope of transmission and marketing-related functions that are covered by the standards and is designed to prevent transmission providers from giving their affiliates undue preferences.

Dominion Energy and Virginia Power are also subject to FERC’s affiliate restrictions that (1) prohibit power sales between Virginia Powermerchant plants and Dominion’s merchantutility plants without first receiving FERC authorization, (2) require the merchant plants and Virginia Powerutility plants to conduct their wholesale power sales operations separately, and (3) prohibit Virginia Powerutilities from sharing market information with merchant plant operating personnel. The rules are designed to prohibit Virginia Powerutilities from giving the merchant plants a competitive advantage.

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

itor and enforce compliance with worker safety requirements, which is routinely reviewed and considered for improvement. The Companies believe that they are in material compliance with all applicable laws and regulations related to worker health and safety. Notwithstanding these preventive measures, incidents may occur that are outside of the Companies’ control.

Environmental Regulations

Each of the Companies’ operating segments faces substantial laws, regulations and compliance costs with respect to environmental matters. In addition to imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. The cost of complying with applicable environmental laws, regulations and rules is expected to be material to the Companies. If compliance expenditures and associated operating costs are not recoverable from customers through regulated rates (in regulated businesses) or market prices (in unregulated businesses), those costs could adversely affect future results of operations and cash flows. The Companies have applied for or obtained the necessary environmental permits for the construction and operation of their facilities. Many of these permits are subject to reissuance and continuing review. For a discussion of significant aspects of these matters, including current and planned capital expenditures relating to environmental compliance required to be discussed in this Item, seeEnvironmental MattersinFuture Issues and Other Matters in Item 7. MD&A, which information is incorporated herein by reference. Additional information can also be found in Item 3. Legal Proceedings and Note 22 to the Consolidated Financial Statements, which information is incorporated herein by reference.

AIR

The CAA is a comprehensive program utilizing a broad range of regulatory tools to protect and preserve the nation’s air quality. Regulated emissions include, but are not limited to, carbon, methane, VOC, other GHG,GHGs, mercury, other toxic metals, 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 on 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

to compensate for harm of a protected species or habitat loss. These requirements and rule-making pertaining to hydraulic fracture stimulation could increase Wexpro’s costs, restrict its access to natural gas reservestime of year restrictions can result in adverse impacts on project plans and impose additional permitting and reporting requirements. These potential restrictions onschedules such that the use of hydraulic-fracture stimulation couldCompanies’ businesses may be materially affect Dominion’s ability to develop gas and oil reserves.affected.

OTHER REGULATIONS

Other significant environmental regulations to which the Companies are subject include the CERCLA (providing for immediate response and removal actions, and contamination clean up, in the event of releases of hazardous substances into the environment), the Endangered Species Act (prohibiting activities that can result in harm to specific species of plants and animals), and federal and state laws protecting graves, sacred sites, historic sites and cultural resources, including those of Native American populations.Indian tribal nations and tribal communities. These regulations can result in compliance and mitigation costs andas well as potential adverse effects