___________________

___________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes X No __

At July 31, 2000, 171,484 shares of common stock, without par value, of the registrant were outstanding, all of which were held, beneficially and of record, by Dominion Resources, Inc.

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The Company had no other comprehensive income reportable in accordance with Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.

The accompanying notes are an integral part of the consolidated financial statements.

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The accompanying notes are an integral part of the consolidated financial statements.

* The consolidated balance sheet at December 31, 1999 has been derived from the audited consolidated financial statements at that date.

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The accompanying notes are an integral part of the consolidated financial statements.

*The consolidated balance sheet at December 31, 1999 has been derived from the audited consolidated financial statements at that date.

** As described in Note E, the 8.05% Junior Subordinated Notes totaling $139 million principal amount constitute 100 percent of the Trust's assets.

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The accompanying notes are an integral part of the consolidated financial statements.

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Note A. Significant Accounting Policies

Virginia Electric and Power Company is a regulated public utility engaged in the generation, transmission, distribution and sale of electric energy within a 30,000 square-mile area in Virginia and northeastern North Carolina. It sells electricity to retail customers (including governmental agencies) and to wholesale customers such as rural electric cooperatives, municipalities, power marketers and other utilities. The Virginia service area comprises about 65 percent of Virginia's total land area, but accounts for over 80 percent of its population. The Company engages in off-system wholesale purchases and sales of electricity and purchases and sales of natural gas, and is developing trading relationships beyond the geographic limits of its retail service territory. Within this document, the terms "Virginia Power" and the "Company" shall refer to the entirety of Virginia Electric and Power Company, including, without limitation, its Virginia and North Carolina operations, and all of its subsidiaries.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, including normal recurring accruals, necessary to present fairly the financial position as of June 30, 2000, the results of operations for the three months and six months ended June 30, 2000 and 1999, and the cash flows for the six months ended June 30, 2000 and 1999. Certain amounts in the 1999 consolidated financial statements have been reclassified to conform to the 2000 presentation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

The consolidated financial statements include the accounts of the Company and its subsidiaries, with all significant intercompany transactions and accounts being eliminated on consolidation.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

These financial statements should be read in conjunction with the consolidated financial statements, and notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

Note B. Extraordinary Item - Discontinuance of SFAS No. 71

In 1999, the Governor of Virginia signed into law legislation establishing a detailed plan to restructure the electric utility industry in Virginia. Such legislation will deregulate generation by 2002 with the phase-in of retail customer choice beginning at that time. Under this legislation, the Company's base rates will remain generally unchanged until July 2007 and recovery of generation-related costs will continue to be provided through the capped rates. The legislation's deregulation of generation required discontinuation of SFAS No. 71 for the Company's generation operations in the quarter ended March 31, 1999. Discontinuing SFAS No. 71 resulted in an after-tax charge of $255 million to write-off expected unrecoverable generation-related assets and reversal of previously deferred investment tax credits. The Company's transmission and distribution operations continue to meet the criteria for recognition of regulatory assets and liabilities as defined by SFAS No. 71 and fuel expense continues to be subject to deferral accounting.

For further discussion of the impact of deregulation in Virginia on the Company, see Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes B and R to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

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Note C. Restructuring Costs

On January 28, 2000, Dominion Resources, Inc. (Dominion), Virginia Power's parent company, acquired Consolidated Natural Gas Company (CNG). Subsequent to the acquisition, Dominion and its subsidiaries developed and began the implementation of a plan to restructure the operations of the combined companies. The restructuring plan includes the following components:

• An involuntary severance program;
• A transition plan to implement operational changes to provide efficiencies, including the consolidation of post-merger operations and the integration of information technology systems; and
• A voluntary early retirement program (the ERP).

Salaried employees of Virginia Power, excluding officers, who had attained age 52 and completed at least five years of service as of July 1, 2000 were eligible under the ERP. The early retirement option provides up to three additional years of age and three additional years of employee service, subject to age and service maximums, for benefit formula purposes under Dominion's postretirement medical and pension plans. During the second quarter of 2000, approximately 400 Virginia Power employees elected to participate in the ERP, resulting in an expense approximating $51 million. Some of the ERP participants will receive benefits under both the involuntary severance package and the ERP. Benefits under the involuntary severance package are subject to reduction as a result of coordination with the additional retirement plan benefits provided by the ERP.

Virginia Power may incur additional charges relating to restructuring activities as business operations are consolidated and administrative functions are integrated.

Note D. Commitments and Contingencies

In 1987, the Environmental Protection Agency (EPA) identified the Company and a number of other entities as Potentially Responsible Parties (PRPs) at two Superfund sites located in Kentucky and Pennsylvania. Current cost studies estimate total remediation costs for the sites to range from $106 million to $156 million. The Company's proportionate share of the total cost is expected to be in the range of $2 million to $3 million, based upon allocation formulas and the volume of waste shipped to the sites. The Company has accrued a reserve of $2 million to meet its obligations at these two sites. Based on a financial assessment of the PRPs involved at these sites, the Company has determined that it is probable that the PRPs will fully pay the costs apportioned to them.

The Company generally seeks to recover its costs associated with environmental remediation from third party insurers. At June 30, 2000, any pending or possible claims were not recognized as an asset or offset against such obligations of the Company.

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In 1999, the Company was notified by the Department of Justice of alleged noncompliance with the EPA's oil spill prevention, control and countermeasures (SPCC) plans and facility response plan (FRP) requirements at one of the Company's power stations. If, in a legal proceeding, such instances of noncompliance are deemed to have occurred, the Company may be required to remedy any alleged deficiencies and pay civil penalties. Settlement of this matter is currently in negotiation and is not expected to be material to the Company's financial condition or results of operations.

The Company also identified matters at certain other power stations that the EPA might view as not in compliance with the SPCC and FRP requirements. The Company reported these matters to the EPA and its plan for correction thereof. Presently, the EPA has not assessed any penalties against the Company, pending its review of the Company's disclosure information. Future resolution of these matters is not expected to have a material impact on the Company's financial condition or results of operations.

Also in 1999, the Company received notices from the Attorneys General of Connecticut and New York of their intentions to file suit against the Company for alleged violations of the Clean Air Act. The notices question whether modifications at certain Virginia Power generating facilities were properly permitted under the Clean Air Act and allege that emissions from these facilities have contributed to damage to public health and the environment in the Northeast. In July 2000, the Attorney General of New York filed its suit against Virginia Power alleging these violations at one of Virginia Power's plants. The Company believes that it has obtained the necessary permits and resolution of these claims would not have a material impact on its financial condition or results of operations.

The Company received a Notice of Violation (NOV), dated April 24, 2000, from the EPA alleging that Virginia Power is operating its Mt. Storm Power Station in West Virginia in violation of the Clean Air Act as had the notices received from the Attorneys General of Connecticut and New York. The NOV alleges that the Company failed to obtain New Source Review permits prior to undertaking specified construction projects at the station. EPA alleges that each of these projects resulted in an increase in the emission of air pollutants beyond levels that require a New Source Review permit specified under the Clean Air Act. Violations of the Clean Air Act may result in the imposition of substantial civil penalties and injunctive relief. The Company believes that it has obtained the permits necessary in connection with its generating facilities and will vigorously defend against the allegations in the NOV.

For additional information regarding Contingencies, see Note R to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

Note E. Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust

In 1995, the Company established Virginia Power Capital Trust I (VP Capital Trust). VP Capital Trust sold 5.4 million shares of Preferred Securities for $135 million, representing preferred beneficial interests and 97% beneficial ownership in the assets held by VP Capital Trust.

Virginia Power issued $139 million of its 1995 Series A, 8.05% Junior Subordinated Notes (the Notes) in exchange for the $135 million realized from the sale of the Preferred Securities and $4 million of common securities of VP Capital Trust. The common securities represent the remaining 3% beneficial ownership interest in the assets held by VP Capital Trust. The Notes constitute 100% of VP Capital Trust's assets.

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Note F. Preferred Stock

As of June 30, 2000, the total number of authorized shares for all preferred stock (whether or not subject to mandatory redemption) was 10 million shares. There were 1.4 million and 5.1 million issued and outstanding shares of preferred stock subject to mandatory redemption and preferred stock not subject to mandatory redemption, respectively. In March 2000, the Company redeemed 400,000 shares of preferred stock subject to mandatory redemption. The remaining 1.4 million shares of preferred stock subject to mandatory redemption are scheduled to be redeemed in September 2000. Accordingly, the Company has classified the $140 million of preferred stock subject to mandatory redemption in Securities due within one year at June 30, 2000.

Note G. Recently Issued Accounting Standards

In June 2000, the Financial Accounting Standards Board issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The new standard addresses various SFAS No. 133 implementation issues including expanded availability of exclusions of normal purchase and normal sale agreements from classification as derivatives. The Company will adopt SFAS No. 133, as amended, on January 1, 2001. The Company is in the process of assessing the impact and method of adoption of SFAS No. 133 and has not estimated the financial impact of adoption.

Note H. Business Segments

The Company manages its operations along two primary business lines, Energy and Delivery. The Energy segment, formerly the Generation segment, encompasses the Company's portfolio of generating facilities and purchased power contracts, trading and marketing activities, nuclear consulting services and energy services activities. The Delivery segment includes bulk power transmission, distribution and metering services, and customer service and continues to be subject to cost-based regulation.

The majority of the Company's revenue is provided through bundled rate tariffs. Such revenues generally are allocated between the two business lines for management reporting based on prior cost of service studies. Amounts in Other include: (1) transactions or events for which the segments are not held accountable for internal reporting purposes (including 2000 restructuring costs and the 1999 extraordinary item); (2) adjustments to reconcile internal financial statement groupings to those used to prepare the externally reported consolidated financial statements; and (3) intercompany eliminations, where applicable.

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This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995, including (without limitation) discussions as to expectations, beliefs, plans, objectives and future financial performance, or assumptions underlying or concerning matters discussed in this document. These discussions, and any other discussions, including certain contingency matters (and their respective cautionary statements) discussed elsewhere in this report, that are not historical facts, are forward-looking and, accordingly, involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

The business and financial condition of Virginia Power are influenced by a number of factors including political and economic risks, market demand for energy, inflation, capital market conditions, governmental policies, legislative and regulatory actions (including those of the Federal Energy Regulatory Commission (FERC), the Environmental Protection Agency (EPA), the Department of Energy, the Nuclear Regulatory Commission, the State Corporation Commission of Virginia (Virginia Commission) and the North Carolina Utilities Commission (North Carolina Commission), industry and rate structure and legal and administrative proceedings. Some other important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements include changes in and compliance with environmental laws and policies, weather conditions and catastrophic weather-related damage, present or prospective wholesale and retail competition, competition for new energy development opportunities, pricing and transportation of commodities, operation of nuclear power facilities, acquisition and disposition of assets and facilities, nuclear decommissioning costs, exposure to changes in the fair value of commodity contracts, counter-party credit risk and unanticipated changes in operating expenses and capital expenditures. All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond the control of Virginia Power. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on Virginia Power.

Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made.

We manage our operations in a manner that requires disclosure of two business segments-Energy and Delivery. Our Energy segment, formerly the Generation segment, includes our portfolio of generating facilities and purchased power contracts, trading and marketing activities, nuclear consulting services, and energy services activities. Our Delivery segment includes bulk power transmission, distribution and metering services, and customer service and continues to be subject to cost-based regulation.

The majority of our revenue is provided through bundled rate tariffs. Such revenue is allocated between the Energy and Delivery segments for internal reporting purposes and discussion herein. Certain activities discussed in Liquidity and Capital Resources are not managed currently at the segment level; however, specific references to segments are made as appropriate. Our discussion of trends and variations generally applies to Virginia Power as a whole.

Cash flow from operating activities provided $558 million and $463 million during the six months ended June 30, 2000 and 1999, respectively. On average, operating cash flow, after dividend payments, covered approximately 92 percent of our plant and nuclear fuel expenditures during each of these six month periods and covered approximately 64 percent of our total cash requirements. Cash requirements not met by the timing or amount of cash flow from operations are generally satisfied with proceeds from the sale of securities and short-term borrowings.

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In March 2000, we issued $220 million in aggregate principal of variable-rate medium-term notes maturing in 2002. We also entered into a swap agreement as a hedge to synthetically convert $200 million of these variable rate notes to fixed rate debt. Under the swap agreement, we will pay a 7.27% fixed rate. We issued the notes primarily to satisfy the retirement during the first and second quarters of 2000 of approximately $226 million of outstanding debt and preferred stock.

We have a commercial paper program limited to $500 million based on amounts available under two credit facilities. We have a $300 million credit facility and also participate in a credit facility established by Dominion Resources, Inc. (Dominion), our parent company, that supports the combined commercial paper programs of Dominion, Virginia Power, Consolidated Natural Gas Company (CNG). This facility, established in June 2000, is for $1.75 billion and matures May 2001. Although we have access to the full amount of the $1.75 billion facility, we operate with an internal allocation of $200 million. Participation in this facility replaces our $200 million credit agreement that matured in June 2000.

Net borrowings under the program were $443 million at June 30, 2000, an increase of $65 million from amounts outstanding at December 31, 1999. Borrowings under these facilities are used primarily to fund working capital requirements and may vary significantly during the course of the year depending upon the timing and amount of cash requirements not satisfied by current cash provided from operations.

In addition to commercial paper, we may also issue extendible commercial notes (ECNs) to meet working capital requirements. This program became effective in July 2000 and will allow us to issue up to $100 million aggregate outstanding principal of ECNs. ECNs are unsecured notes expected to be sold in private placements. Any ECNs we issue would have a stated maturity of 390 days from issuance and may be redeemed, at our option, within 90 days or less from issuance.

During the second quarter 2000, we filed with the Securities and Exchange Commission (SEC) for the registration of $1.5 billion in debt and preferred securities. This registration statement, which became effective in June 2000, also replaces two previous registration statements: (1) $400 million aggregate principal of junior subordinated notes and (2) $100 million aggregate par value of preferred stock. As of June 30, 2000, we have $120 million of remaining aggregate principal amount under a medium-term note registration statement. In total, at June 30, 2000, we have $1.62 billion of principal amount available under currently effective shelf registration statements with the SEC available to meet capital requirements.

There have been no significant changes in the planned levels of spending for capacity and other capital projects and maturities of securities as disclosed in MD&A included in our Annual Report on Form 10-K for the year ended December 31, 1999. We expect to fund our capital requirements and maturities with cash flow from operations and a combination of sales of securities and short-term borrowings.

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The following General discussion of the results of operations for Virginia Power considers those aspects of the results of our operations that relate to both our Energy and Delivery segments, and accordingly, are discussed on a consolidated basis. In addition, we discuss separately the results of operations specific to our Energy and Delivery segments.

Total revenue for the three months and six months ended June 30, 2000 and 1999, respectively was allocated to the Energy and Delivery segments as follows:

Electric service revenue consists primarily of sales to retail customers in our service territory at rates authorized by the Virginia and North Carolina regulatory commissions and sales to cooperatives and municipalities at wholesale rates authorized by FERC. The following analysis and discussion present the primary factors affecting electric service revenue for the three months and six months ended June 30, 2000 as compared to the same periods in 1999:

Retail customer growth-Electric service revenue increased an estimated $15 million and $37 million due to higher levels of retail customers during the three months and six months ended June 30, 2000, respectively, as compared to comparable periods in 1999. On average, we served approximately 36,000 and 38,000 more retail customers during the three months and six months ended June 30, 2000, respectively, than in the comparable periods in 1999.

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Weather-Warmer weather in the second quarter of 2000, as compared to 1999, increased electric service revenue by an estimated $38 million and $33 million for the three months and six months ended June 30, 2000, over comparable periods in 1999.

Base rate reduction-The impact of a two-phased $150 million rate reduction, implemented as part of our 1998 rate settlement, on comparative quarterly electric service revenue amounts was fully recognized as of the first quarter of 2000. Electric service revenue for the first six months of 2000, as compared to 1999, reflects the $8 million reduction recognized in the first quarter of 2000. As a result of Virginia law enacted in 1999, our Virginia jurisdictional base rates will remain unchanged until July 2007. See Note B to the Consolidated Financial Statements.

Fuel rates-Currently, we recover the cost of fuel used in generating electricity through fuel rates approved by regulatory authorities. The increase in fuel rate revenue reflects higher fuel rates approved during the quarter ended March 31, 2000.

Other retail, net-The extra "leap-year" day in February 2000 favorably impacted year-to-date electric service revenue by approximately $12 million as compared to the six months ended June 30, 1999. Other factors affecting electric service revenue for the quarter were individually insignificant.

Other revenue includes sales of electricity beyond our service territory, sales of natural gas, and other revenue. The decrease in other revenue during the three months and six months ended June 30, 2000, as compared to the same periods in 1999, reflect primarily lower revenues associated with power and gas marketing and trading activities and lower mark-to-market gains on our portfolio of commodity contracts.

Certain expenses, which are not allocated separately to the Energy and Delivery segments, changed as follows when compared to the applicable prior year periods:

Restructuring Costs -During the three months and six months ended June 30, 2000, we incurred restructuring costs in connection with the implementation of a plan to restructure the operations of Dominion subsidiaries following Dominion's acquisition of CNG. Total charges for costs associated with work-force reduction activities for the three months and six months ended June 30, 2000 were $49 million and $69 million, respectively. See Restructuring Costs in the Future Issues section below and Note C to the Consolidated Financial Statements for further information.

Extraordinary Item-We recorded this extraordinary item in connection with the passage of new legislation in 1999 establishing a detailed plan to restructure the electric utility industry in Virginia. The legislation's deregulation of generation was an event that required discontinuation of Statement of Financial Accounting Standards (SFAS) No. 71 for our generation operations. Generation-related assets and liabilities not expected to be recovered during the transition period were written off in March 1999, resulting in an after-tax charge of $255 million. See Note B to the Consolidated Financial Statements.

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Net income for our Energy segment increased for the three months and six months ended June 30, 2000 as compared to the same periods in 1999. This growth in net income reflects primarily increased electric service revenue resulting from growth in our customer base offset partially by lower revenues associated with power and gas marketing and trading activities. Expenses for the second quarter of 2000, as compared to 1999, did not change significantly as increased fuel and operations and maintenance expenses were substantially offset by decreased purchased power capacity expenses. Expenses for the six months ended June 30, 2000 increased reflecting higher fuel and operation and maintenance expenses offset partially by lower expenses associated with purchased power capacity, depreciation and amortization, and other taxes. Selected financial information relevant to the operations of our Energy segment for the comparative quarters and year-to-date periods is as follows:

Revenue-see General section for discussion of revenue on a consolidated basis.

Fuel, net increased in the second quarter of 2000, as compared to the same quarter of 1999, primarily due to increased energy purchases. For the six months ended June 30, 2000, fuel, net increased due to increased energy purchases and the inclusion of previously deferred fuel expenses being recovered in current fuel rates.

Purchased power capacity, net decreased in the three months and six months ended June 30, 2000 as compared to 1999 reflecting the expiration of two major long-term power purchase contracts as of December 31, 1999.

Operations and maintenance increased in the second quarter of 2000 as compared to 1999 primarily as a result of higher corporate general and administrative support costs allocated to the segment. For the six months ended June 30, 2000, as compared to same period of 1999, operations and maintenance expense increased primarily as a result of nuclear outage costs in the first quarter of 2000, with no similar level of costs in 1999, and increased corporate general and administrative support costs.

Depreciation and amortization decreased for the six months ended June 30, 2000, as compared to 1999, reflecting the amortization of certain terminated construction projects in the first quarter of 1999 with no such expenses occurring in the current year. The terminated construction projects were completely amortized as of the end of the first quarter 1999.

Taxes other than income decreased during the six months ended June 30, 2000 as compared to 1999 due to the accrual for a tax refund in the first quarter of 2000.

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Net income for our Delivery segment increased for the three months and six months ended June 30, 2000, as compared to comparable periods of 1999, reflecting primarily increased revenue for retail electric service due to customer growth and electric transmission services. Selected financial information relevant to the operations of our Delivery segment for the comparative quarters and year-to-date periods is as follows:

Revenue-see General section for discussion of revenue on a consolidated basis.

The following discussion of future issues and other information includes current developments of previously disclosed matters and new issues arising during the period covered by and subsequent to these financial statements. We recommend that this section be read in connection with Future Issues in MD&A included in our Annual Report on Form 10-K for the year ended December 31, 1999.

In March 1999, the Governor of Virginia signed into law legislation establishing a detailed plan to restructure the electric utility industry in Virginia which will provide for customer choice beginning in 2002. For additional information on the impact of this legislation and customer choice, see Note B to the Consolidated Financial Statements and MD&A included in our Annual Report on Form 10-K for the year ended December 31, 1999. Since March 1999, we have supported certain technical amendments which were passed by the 2000 General Assembly and were signed by the Governor in April 2000.

In March 1998, the Virginia Commission issued an Order Establishing Investigation with regard to independent system operators, regional power exchanges and retail access pilot programs. The Order instructed Virginia Power and American Electric Power-Virginia (AEP) each to design and file a retail access pilot program. In response, we filed a report describing the details, objectives and characteristics of our proposed retail access pilot program and a hearing was held. On April 28, 2000, the Virginia Commission entered a Final Order adopting, with certain exceptions, the Hearing Examiner's recommendations, including the Hearing Examiner's market price methodology. Pursuant to the Final Order, the Company's pilot program will begin on September 1, 2000 and will initially give approximately 35,000 customers the ability to choose their electric supplier. The program will be expanded to include approximately 71,000 customers by January 2001. A final order from the Virginia Commission on the interim rules governing electric and gas retail pilot programs in Virginia was issued on May 26, 2000.

In April 2000, the Virginia Commission entered an order proposing regulations governing the functional separation of the generation, retail transmission, and distribution of incumbent electric utilities under the Virginia Electric Utility Restructuring Act (the Act). Pursuant to the Act, Virginia electric utilities are required to file their functional separation plans with the Virginia Commission by January 1, 2001. Comments on the Commission's proposed functional separation rules were filed by the Company on June 12, 2000.

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In July 2000, the Virginia Commission issued a Final Order promulgating regulations governing the transfer of ownership or control of electric transmission assets to regional transmission entities (RTE). The regulations: (1) establish the elements of an RTE essential to the public interest to be applied by the Virginia Commission in determining whether to authorize transfer of control of electric transmission facilities to an RTE, (2) establish the filing requirements for entities seeking authorization to transfer the facilities, and (3) establish a schedule for such filings. Under the regulations, we are required to file an application to obtain authorization for the transfer of control of our electric transmission facilities to an RTE on or before October 16, 2000.

In June 1999, Virginia Power, together with AEP, Consumers Energy Company, The Detroit Edison Company and First Energy Corporation, on behalf of themselves and their public utility operating company subsidiaries (Alliance Companies), filed with FERC applications under Sections 205 and 203 of the Federal Power Act for approval of the proposed Alliance Regional Transmission Organization (Alliance RTO). FERC issued an Order granting the application subject to certain conditions and filing requirements.

During the first quarter of 2000, the Alliance Companies filed amendments to the Alliance RTO documents to comply with certain conditions and requirements of the Order and also filed an application seeking rehearing of certain of those conditions and requirements. In May 2000, FERC issued an Order on Compliance Filing and Requests for Rehearing and Clarification in response to the Alliance Companies' application for rehearing and request for clarifications and to the compliance filings. The Order granted in part and denied in part the Alliance Companies' request for rehearing and clarifications, and directed the Alliance Companies to make further filings to comply with certain conditions and requirements of the Order. The Alliance Companies are preparing a response to the Order, and expect to file it by September 2000.

In July 2000, the Virginia Commission issued an Order Establishing Cogeneration Tariff to modify our cogeneration and small power production rates under Schedule 19. The order sustained our proposed method to determine avoided costs, agreed with our position that off system sales should be excluded from the calculation of avoided costs, and that the cogenration rate should be effective through 2001.

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Subsequent to Dominion's acquisition of CNG, Dominion and its subsidiaries developed and began the implementation of a plan to restructure the operations of the combined companies. Restructuring activities include workforce reductions and the consolidation of post-merger operations and information technology systems. For the three and six month periods ended June 30, 2000, the Company recognized $49 million and $69 million, respectively, of restructuring costs as discussed below.

Under the restructuring plan, approximately 200 employee positions at Virginia Power and its subsidiaries have been identified for elimination. Through June 30, 2000, the Company has recorded $17 million in employee severance related costs, a reduction from amounts originally estimated in the first quarter of 2000. The revision reflects coordination of benefits under the severance and early retirement programs and lower than expected employee credited service and salaries. At June 30, 2000, a total of 156 positions had been eliminated, and $4 million of severance benefits had been paid.

During the second quarter of 2000, approximately 400 Virginia Power employees elected to participate in the early retirement program, resulting in an expense approximating $51 million.

We may incur additional charges relating to restructuring activities as business operations are consolidated and administrative functions are integrated. The planned workforce reductions should avoid future annualized operating costs of approximately $37 million that would have otherwise been incurred.

See Note C to the Consolidated Financial Statements for further discussion of restructuring activities and related costs.

The Virginia Department of Environmental Quality (DEQ) has proposed to impose a plantwide ozone season NOx emission limit of 0.15 lb/mmBtu at the Possum Point Power Station beginning in May 2003 as part of a State Implementation Plan to address ozone levels in Northern Virginia, which is classified as a serious ozone non-attainment area. Given the age of the existing units at Possum Point and the high probability of additional control requirements in the future, we evaluated various options to optimize the ability to continue to operate these units in a cost-effective manner while providing the Northern Virginia area with a reliable source of electricity. Based on this evaluation, we recently announced the planned replacement of 143 MW of existing oil-fired generation and conversion of 322 MW of coal-fired generation to natural gas or number 6 fuel oil at Possum Point. Additionally, a new, cleaner 540 MW combined cycle gas unit will be constructed and owned by a third party and operated by Virginia Power under an operating lease. This arrangement has been filed for approval with the Virginia Commission.

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In June 2000, the Financial Accounting Standards Board issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The new standard addresses various SFAS No. 133 implementation issues including expanded availability of exclusions of normal purchase and normal sale agreements from classification as derivatives. The Company will adopt SFAS No. 133, as amended, on January 1, 2001. The Company is in the process of assessing the impact and method of adoption of SFAS No. 133 and has not estimated the financial impact of adoption.

We are exposed to market risk because we utilize financial instruments, derivative financial instruments and derivative commodity instruments. The market risks inherent in these instruments are represented by the potential loss due to adverse changes in commodity prices, interest rates and equity security prices as described below. Commodity price risk is experienced in our power generation and commodity marketing and trading business due to the exposure to market shifts in the prices received and paid for natural gas and electricity. Interest rate risk generally is related to our outstanding debt, preferred stock and trust-issued securities. We are exposed to equity price risk primarily as a result of equity securities held in nuclear decommissioning trusts.

On a quarterly basis, we present an updated sensitivity analysis to disclose quantitative information about our exposure to commodity price risk as our portfolio of derivative commodity contracts held for trading purposes may change significantly each quarter. We do not present quarterly updates to the quantitative information regarding interest rate and equity price risk disclosed in Market Risk Sensitive Instruments and Risk Management under MD&A included in our Annual Report on Form 10-K for the year ended December 31, 1999. Generally, changes in our portfolio of securities subject to such risks do not give rise to significant changes in the quantitative information reported on an annual basis.

As part of our strategy to market energy from our generation capacity and to manage related risks, we manage a portfolio of derivative commodity contracts held for trading purposes. These contracts are sensitive to changes in the prices of natural gas and electricity. We employ established policies and procedures to manage the risks associated with these price fluctuations and use various commodity instruments, such as futures, swaps and options, to reduce risk by creating offsetting market positions. In addition, we seek to use our generation capacity, when not needed to serve customers in our service territory, to satisfy commitments to sell energy.

One of the techniques commonly used to measure risk in a commodity trading portfolio is sensitivity analysis, which determines a hypothetical change in the fair value of the portfolio which would result from an assumed change in the market prices of the related commodities. The fair value of the portfolio is a function of the underlying commodity, contract prices and market prices represented by each derivative commodity contract. For swaps, forward contracts and options, market value reflects our best estimates considering over-the-counter quotations, time value and volatility factors of the underlying commitments. Exchange-traded futures and options are marked to market based on closing exchange prices.

We have determined a hypothetical loss by calculating a hypothetical fair value for each contract assuming a 10 percent unfavorable change in the market prices of the related commodity and comparing it to the fair value of the contracts based on market prices at June 30, 2000 and December 31, 1999. This hypothetical 10 percent change in commodity prices would have resulted in a hypothetical loss of approximately $6 million and $5 million in the fair value of our commodity contracts as of June 30, 2000 and December 31, 1999, respectively.

The sensitivity analysis does not include the price risks associated with utility operations, including those underlying utility fuel requirements. In the normal course of business, we also face risks that are either nonfinancial or unquantifiable. Such risks principally include credit risk, which is not reflected in the sensitivity analysis above.

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See Market Risk Sensitive Instruments and Risk Management under Management's Discussion And Analysis Of Financial Condition And Results Of Operations.

PAGE 21

On July 20, 2000, the New York Attorney General filed a lawsuit against Virginia Power for alleged violations of the Clean Air Act at one of its plants. The complaint alleges Virginia Power made upgrades at the station without installing appropriate emissions controls. For more detail, see Note D to the Consolidated Financial Statements.

On July 28, 2000, the Virginia Commission issued an Order Establishing Cogeneration Tariff to modify our cogeneration and small power production rates under Schedule 19. The Order sustained our proposed method to determine avoided costs, agreed with our position that off-system sales should be excluded from the calculation of avoided costs and that the cogeneration rate should be effective through 2001.

On May 26, 2000, a final order was issued by the Virginia Commission on the interim rules governing electric and gas retail pilot programs in Virginia.

In April 2000, the Virginia Commission entered an order proposing regulations governing the functional separation of the generation, retail transmission, and distribution of incumbent electric utilities under the Virginia Electric Utility Restructuring Act (the Act). Pursuant to the Act, Virginia electric utilities are required to file their functional separation plans with the Virginia Commission by January 1, 2001. Virginia Power filed its comments on the Virginia Commission's proposed functional separation rules on June 12, 2000.

In January 2000, we filed an application with the Virginia Commission to build and operating two 160 MW combustion turbine units in Caroline County, Virginia for additional peaking capacity. In May, a hearing was held on our application and we are now awaiting further Virginia Commission action.

In July 2000, the Virginia Commission approved the transfer by Virginia Power of all of its issued and outstanding common stock in VPS Communications, Inc. to Dominion. This transfer took place on August 1, 2000, resulting in VPS Communications becoming a direct subsidiary of Dominion.

For more detail of the above previously reported items, see Future Issues, Regulation, under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

In April 2000, a study commission, established by the North Carolina General Assembly to explore the future of electric service in North Carolina, developed a proposal to provide full retail competition to North Carolina by January 1, 2006, with a phase-in beginning on January 1, 2005 of up to 50% of each power supplier's customer load. These recommendations were part of a report given to the General Assembly in May 2000. The study commission will recommend to the 2001 General Assembly specific legislative language necessary to accomplish its recommendations including a proposal regarding resolution of certain issues concerning municipal power agency debt.

On May 18, 2000, FERC issued an Order on Compliance Filing and Requests for Rehearing and Clarification in response to the Alliance Companies' January 2000 application for rehearing and request for clarification and to the February 2000 compliance filing. The Order granted in part and denied in part the Alliance Companies' requests for rehearing and clarifications, and directed the Alliance Companies to make further filings to comply with certain

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conditions and requirements of the Order. The Alliance Companies are preparing a response to the Order, and expect to file it by September, 2000

On July 19, 2000, the Virginia Commission issued a Final Order promulgating regulations governing the transfer of ownership or control of electric transmission assets to regional transmission entities (RTE). The regulations: (1) establish the elements of RTE essential to the public interest to be applied by the Virginia Commission in determining whether to authorize transfer of control of electric transmission facilities to RTE, (2) establish the filing requirements for entities seeking authorization to transfer the facilities, and (3) establish a schedule for such filings. Under the regulations, Virginia Power is required to file an application to obtain authorization for the transfer of control of its electric transmission facilities to RTE on or before October 16, 2000.

1. Exhibits:

(b) Reports on Form 8-K;

None

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.