X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002

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, 2002, the latest practicable date for determination, 278,121,959 shares of common stock, without par value, of the registrant were outstanding.

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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, 2001 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 Balance Sheet at December 31, 2001 has been derived from the audited Consolidated Financial Statements at that date.

** Debt securities issued by Dominion Resources, Inc. and certain subsidiaries constitute 100 percent of the trusts' assets.

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____________

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

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

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

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

DEI is an independent power producer and a natural gas and oil exploration and production company active in the United States and Canada.

Dominion manages its daily operations through three primary operating segments: Dominion Energy, Dominion Delivery and Dominion Exploration & Production. In addition, Dominion also reports its corporate and other operations as an operating segment. Assets remain wholly owned by the legal subsidiaries. See Note 16.

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

Note 2.    Significant Accounting Policies

In the opinion of Dominion's management, the accompanying unaudited consolidated financial statements contain all adjustments, including normal recurring accruals, necessary to present fairly Dominion's financial position as of June 30, 2002, and its results of operations for the three and six-month periods and cash flows for the six-month periods ended June 30, 2002 and 2001.

The consolidated financial statements include the accounts of Dominion Resources, Inc. and its subsidiaries, with all significant intercompany transactions and accounts eliminated in consolidation.

The accompanying unaudited consolidated financial statements reflect certain estimates and assumptions made by management in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.

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Dominion reports certain contracts and instruments at fair value in accordance with generally accepted accounting principles. Market pricing and indicative price information from external sources are used to measure fair value when available. In the absence of this information, Dominion estimates fair value based on near-term and historical price information and statistical methods. For individual contracts, the use of differing assumptions could have a material effect on the contract's estimated fair value. See Note 2 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001 for a more detailed discussion of Dominion's estimation techniques.

The results of operations for the interim periods are not necessarily indicative of the results expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, timing of fuel expense recovery and other factors.

In 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, which provides accounting requirements for the recognition and measurement of liabilities associated with the retirement of tangible long-lived assets. Under the standard, these liabilities will be recognized at fair value as incurred and capitalized as part of the cost of the related tangible long-lived assets. Accretion of the liabilities due to the passage of time will be an operating expense. Dominion will adopt the standard effective January 1, 2003. Dominion has identified certain retirement obligations that will be subject to the standard. These obligations are associated with the decommissioning of its nuclear generation facilities, removal of certain storage tanks, the abandonment of certain natural gas pipelines, and dismantlement and restoration activities for its gas and oil wells and platforms. The s tandard requires that any transition adjustments measured at adoption will be recognized as a cumulative effect of a change in accounting principle. Dominion has not yet determined the financial impact of adopting the new standard. For more discussion, see Note 4 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001.

Note 4.     Goodwill and Intangible Assets

In 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS No. 142 also requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives.

Dominion adopted SFAS No. 142 on January 1, 2002. The discontinuance of goodwill amortization under SFAS No. 142 will result in an increase in net income of $95 million in 2002. Dominion is required to test its goodwill for impairment using a two-step process described in SFAS No. 142 on an annual basis or whenever events or circumstances might indicate that the fair value of Dominion's reporting units may have been affected. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. Dominion completed the transitional goodwill impairment test during the second quarter of 2002 and found no instances of impairment.

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Had the provisions of SFAS No. 142 requiring the discontinuance of goodwill amortization been applied for the three and six months ended June 30, 2001, and for the years ended December 31, 2001, 2000, and 1999, Dominion's income before extraordinary item and cumulative effect of a change in accounting principle, net income and earnings per share would have been as follows:

Other than the $24 million adjustment made during the first quarter of 2002 to the carrying amount of goodwill recognized as part of the purchase of Louis Dreyfus Natural Gas Corp. (Louis Dreyfus), there were no significant changes in the carrying amount of goodwill during the first half of 2002. See Note 5.

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All of Dominion's intangible assets other than goodwill are subject to amortization. Amortization expense for intangible assets was $12 million and $9 million for the three months ended June 30, 2002 and 2001, respectively, and $25 million and $18 million for the six months ended June 30, 2002 and 2001, respectively. There were no material acquisitions of intangible assets during the first half of 2002. The components of intangible assets at June 30, 2002 were as follows:

Amortization expense for intangible assets is estimated to be $52 million for 2002, $49 million for 2003, $46 million for 2004, $38 million for 2005 and $34 million for 2006.

Note 5.     Acquisitions

Louis Dreyfus

On November 1, 2001, Dominion acquired all of the outstanding shares of common stock of Louis Dreyfus Natural Gas Corp., a natural gas and oil exploration and production company headquartered in Oklahoma City, Oklahoma, for $1.8 billion in common stock and cash. Dominion acquired Louis Dreyfus by merging it into a new subsidiary and then contributed the subsidiary to CNG. The purchase price allocation was completed during the first quarter of 2002 upon receipt of information from outside specialists, increasing liabilities and goodwill each by $24 million. All of the goodwill arising from the Louis Dreyfus acquisition has been allocated to the Dominion Exploration & Production segment for purposes of impairment testing under SFAS No. 142.

On June 1, 2002, Dominion acquired 100 percent ownership of Mirant State Line Ventures, Inc. (State Line) from Mirant Corporation for approximately $182 million in cash. State Line's assets include a 515-megawatt coal-fired generation facility located near Hammond, Indiana. State Line will be included in the Dominion Energy operating segment.

In the fourth quarter of 2001, after fully integrating Dominion's existing organization and operations with those of CNG, management initiated a focused review of Dominion's combined operations. As a result, Dominion recognized restructuring costs which included employee severance and termination benefits and the abandonment of leased office space no longer needed.

Under the 2001 restructuring plan, Dominion identified approximately 340 salaried positions to be eliminated and recorded $42 million in employee severance-related costs. Through June 30, 2002, Dominion had eliminated 243 positions.

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

For additional information on restructuring activities, see Note 7 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001.

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Note 7.     Earnings Per Share

The following table presents the calculation of Dominion's basic and diluted earnings per share:

For the three months ended June 30, 2002 and 2001, Dominion recognized total comprehensive income of $147 million and $308 million, respectively. For the six months ended June 30, 2002 and 2001, Dominion recognized total comprehensive income of $131 million and $400 million, respectively. Other comprehensive income for the three and six month periods ended June 30, 2002 and 2001 relates primarily to the effective portion of the changes in fair values of derivatives designated as hedging instruments in cash flow hedges as described in more detail in Note 9.

Dominion recorded an after-tax charge to accumulated other comprehensive income (AOCI) of $183 million, net of taxes of $106 million in the first quarter of 2001 in connection with the January 1, 2001 adoption of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.

Changes in Dominion's accumulated other comprehensive income (loss) associated with the effective portion of the change in fair value of derivatives designated as hedging instruments in cash flow hedges, net of taxes and related amounts reclassified to earnings are as follows:

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Based on balances at June 30, 2002, Dominion expects to reclassify approximately $17 million of net gains in AOCI at June 30, 2002 to earnings during the next twelve-month period. The actual amounts that will be reclassified to earnings over the next twelve months will vary from this amount as a result of changes in market prices. The effect of amounts being reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies. As of June 30, 2002, Dominion is hedging its exposure to the variability in future cash flows for forecasted transactions over periods of one to six years.

Dominion recognized pre-tax increases (decreases) in earnings for hedge ineffectiveness as follows:

For options designated as hedging instruments, Dominion excludes the changes in the options' fair value attributable to time value from the measurement of hedge effectiveness. Such amounts were included in earnings but did not exceed $1 million in any of the reported periods.

Margin Deposit Assets and Liabilities

Amounts reported as margin deposit assets represent funds held on deposit by various trading counterparties that resulted from credit exposures exceeding agreed upon credit limits. Amounts reported as margin deposit liabilities represent funds held by Dominion that resulted from credit exposures for various trading counterparties exceeding agreed upon credit limits. These credit limits and the mechanism for calculating the amounts to be held on deposit are determined in the ISDA (International Swap Dealers Association) master agreements in place between Dominion and the counterparties. As of June 30, 2002 and December 31, 2001, Dominion had margin assets (funds paid by Dominion and held by counterparties) of $302 million and $30 million, respectively, and margin deposit liabilities (funds paid by counterparties and held by Dominion) of $3 million and $88 million, respectively.

Note 10.     Ceiling Test

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In May 2002, Dominion, Virginia Power and CNG entered into two joint credit facilities that allow aggregate borrowings up to $2 billion. The facilities include a $1.25 billion 364-day revolving credit facility that terminates in May 2003 and a $750 million 3-year revolving credit facility that terminates in May 2005. These credit facilities replaced the $1.75 billion 364-day credit facility and Dominion's $300 million multi-year credit facility that matured during the second quarter of 2002. The new joint credit facilities will be used for working capital; as support for the combined commercial paper programs and letters of credit of Dominion, Virginia Power and CNG; and other general corporate purposes. At June 30, 2002, outstanding letters of credit totaled $185 million and related primarily to CNG.

Long-term Debt

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

__________________________________

During the first six months of 2002, Dominion and its subsidiaries repaid $949 million of long-term debt.

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In March 2002, Dominion issued $330 million of equity-linked debt securities. Dominion used the net proceeds for general corporate purposes, including the repayment of debt. Dominion had also issued $412.5 million of equity-linked debt securities in the fourth quarter of 2000. Each equity-linked debt security consists of a stock purchase contract and a senior note issued by Dominion. The stock purchase contracts obligate the holders to purchase from Dominion shares of Dominion common stock by a future settlement date. The purchase price is $50 and the number of shares to be purchased will be determined under a formula based upon the average closing price of Dominion common stock near the settlement date. The senior notes, or treasury securities in some instances, are pledged as collateral to secure the purchase of common stock under the related stock purchase contracts. The holders may satisfy their obligation under the stock purchase contracts by allowing the senior notes to be re marketed with the proceeds being paid to Dominion as consideration for the purchase of stock under the stock purchase contracts. Alternatively, holders may choose to continue holding the senior notes and use other resources as consideration for the purchase of stock under the stock purchase contracts.

Dominion makes quarterly interest payments on the senior notes and quarterly payments on the stock purchase contracts, at the rates described below. Dominion has recorded the present value of the stock purchase contract payments as a liability, offset by a charge to common stock in shareholders' equity. Interest payments on the senior notes are recorded as interest expense and stock purchase contract payments are charged against the liability. Accretion of the stock purchase contract liability is recorded as interest expense. In calculating diluted earnings per share, Dominion applies the treasury stock method to the equity-linked debt securities. These securities did not have a significant effect on diluted earnings per share for the three and six months ended June 30, 2002.

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

Selected information about Dominion's equity-linked debt securities is presented below (amounts are in millions):

The 1935 Act prohibits registered holding companies and their subsidiaries from paying dividends out of capital or unearned surplus except when they have received specific SEC authorization. In January 2002, Dominion filed an application with the SEC for relief from the restriction on paying dividends out of unearned surplus of the subsidiary into which Louis Dreyfus was merged. The request was for relief up to an amount equal to Louis Dreyfus' retained earnings before the merger. As of June 30, 2002, the application was still pending with the SEC.

There have not been any changes to other subsidiary dividend restrictions disclosed in Note 21 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001.

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Other than the environmental matter discussed below, there have been no significant developments regarding the commitments and contingencies disclosed in Note 27 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001, nor have any significant new matters arisen during the six months ended June 30, 2002.

FASB expects to issue a new accounting standard regarding the accounting treatment for special purpose entities. The final provisions of this new standard may affect the accounting of these lease arrangements. If the special purpose entities were to be consolidated into Dominion's financial statements, Dominion would record both the project assets and related debt and minority interests on its balance sheet. Dominion is monitoring this FASB project and may consider other financing structures for these projects in the future.

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As part of normal business, Dominion Resources, Inc. and certain subsidiaries are party to various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees, stand-by letters of credit, and surety bonds. The amounts subject to certain of these agreements will vary depending on the covered contracts actually outstanding at any particular point in time. Guarantees and stand-by letters of credit are used, when necessary, to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis. Accordingly, Dominion and certain subsidiaries entered into guarantees and stand-by letters of credit so the third parties will be willing to enter into contracts with the subsidiaries and to extend sufficient credit to facilitate the subsidiaries' accomplishment of intended commercial purposes. In such instances, guarantees may be used to limit exposures resulting from subsidiary busin ess activities to pre-defined amounts. To the extent a liability, subject to a guarantee, has been incurred by a consolidated subsidiary, such liability is included in Dominion's consolidated financial statements. Only in those limited instances where Dominion or certain subsidiaries enters into a guarantee on behalf of a related party that is not consolidated in the preparation of Dominion's consolidated financial statements would performance under the agreement result in the recognition of additional liabilities in Dominion's consolidated financial statements.

Guarantees

At June 30, 2002 and December 31, 2001, outstanding guarantees totaled $4.9 billion and $4.4 billion, respectively. Outstanding guarantees as of December 31, 2001 include $3.3 billion issued by Dominion Resources, Inc. and $1.1 billion issued by CNG. Dominion believes it unlikely that it would be required to perform or otherwise incur any losses associated with guarantees.

As of June 30, 2002, outstanding guarantees include $3.5 billion issued by Dominion Resources, Inc. and $1.4 billion issued by CNG and represented the following types of guarantees:

Guarantee of Consolidated Subsidiary Debt -- Dominion Resources, Inc. has guaranteed the payment of interest and principal of $852 million of subsidiary debt primarily for Dominion Capital, Inc. (DCI) and certain subsidiaries of DEI. CNG has guaranteed the payment of interest and principal on the $288 million of debt of Dominion Oklahoma Texas Exploration & Production, Inc. These debts are included in Dominion's consolidated balance sheet at June 30, 2002. In the event of default by the subsidiaries, Dominion Resources, Inc. or CNG, as applicable, would be obligated to repay such amounts.

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Guarantees Supporting Other Agreements -- Dominion Resources, Inc. has also guaranteed the following transactions:

• $176 million related to the future nuclear decommissioning obligations of certain DEI subsidiaries for the Millstone Power Station and $264 million related to potential retrospective premiums that could be assessed under Dominion's nuclear insurance programs for the Millstone Power Station, if there is a nuclear incident. The liability for future nuclear decommissioning is included in Dominion's consolidated balance sheet at June 30, 2002. See Note 16 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001 for more information on nuclear operations.
• $90 million related to certain leases (fleet vehicles and computer hardware and software), primarily for Dominion Resources Services, Inc. (DRS) and CNG. To the extent such leases qualify as capital leases, the assets and related lease obligations are included in Dominion's consolidated balance sheet at June 30, 2002. For information on commitments for Dominion's leases, see Leases under Note 27 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001.
• $1.2 billion related to the leasing obligations of certain subsidiaries of DEI for several new power generation projects, as well as those of DRS for corporate headquarters and aircraft. See Leases with Special Purpose Entities above and Leases under Note 27 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001.

Standby Letters of Credit

At June 30, 2002, CNG and DEI had authorized the issuance of standby letters of credit by a financial institution in the amounts of $175 million and $10 million, respectively, for the benefit of certain counterparties that had extended credit to these subsidiaries. In the unlikely event that CNG or DEI do not pay amounts when due under the covered contracts, any covered counterparty may present its claim for payment to the financial institution, which would then request payment from CNG or DEI, as applicable. The letters of credit are backed by the 3-year revolving credit facility that matures in May 2005. See Note 12. As of June 30, 2002, no amounts had been presented for payment under these letters of credit.

Note 15.     Concentration of Credit Risk

Credit risk is the risk of financial loss to Dominion if counterparties fail to perform their contractual obligations. Dominion engages in transactions for the purchase and sale of products and services with major companies in the energy industry and with commercial and residential energy consumers. These transactions principally occur in the Northeast, Midwest and Mid-Atlantic regions of the United States. Management does not believe that this geographic concentration contributes significantly to Dominion's overall exposure to credit risk.

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Credit risk associated with trade accounts receivable from energy consumers is limited due to the large number of customers. Dominion maintains credit policies with respect to its counterparties that management believes minimize overall credit risk. Such policies include the evaluation of a prospective counterparty's financial condition, collateral requirements where deemed necessary and the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. Dominion also monitors the financial condition of existing counterparties on an ongoing basis. Dominion maintains a provision for credit losses based upon factors surrounding the credit risk of its customers, historical trends and other information. Management believes, based on Dominion's credit policies and the June 30, 2002 provision for credit losses, that it is unlikely that a material adverse effect on its financial position, results of operations or cash flows would occur as a result of counterparty nonp erformance.

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

Dominion Delivery manages Dominion's electric and gas distribution systems, as well as customer service and electric transmission.

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Dominion Exploration & Production manages Dominion's onshore and offshore gas and oil exploration, development and production operations. Operations are located on the outer continental shelf and deep water areas of the Gulf of Mexico and in selected regions in the lower 48 states and Canada.

Corporate and Other includes:

• corporate expenses of the Dominion and CNG holding companies (including interest not allocated to other segments);
• termination of certain long-term power purchase contracts in 2001 (see Note 27 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001); and
• the financial services operations of DCI. Through 2001, Dominion presented DCI as a separate operating segment. As Dominion substantially completed its exit strategy of this business in 2001, it no longer reports DCI as a separate operating segment beginning in 2002.

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

Dominion makes forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ are often presented with the forward-looking statements themselves. In addition, other factors could cause actual results to differ materially from those indicated in any forward-looking statement. These factors include changes to financial or regulatory accounting principles or policies imposed by governing bodies; industry conditions in the regulated, unregulated and transition energy markets; completing the divestiture of Dominion Capital, Inc. and CNG International Corporation; collective bargaining agreements and labor negotiations; political and economic conditions (including inflation rates); and financial market conditions, including availability and cost of capital and credit ratings. Some more specific risks are discussed below.

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

Dominion's Operations Are Weather Sensitive

Dominion's results of operations can be affected by changes in the weather. Weather conditions directly influence the demand for electricity and natural gas and affect the price of energy commodities. In addition, severe weather can be destructive, causing outages, property damage and requiring Dominion to incur additional expenses.

Dominion Is Subject to Complex Government Regulation Which Could Adversely Affect Its Operations

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

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Dominion is subject to rising costs that result from a steady increase in the number of federal, state and local laws and regulations designed to protect the environment. These laws and regulations can result in increased capital, operating, and other costs as a result of compliance, remediation, containment and monitoring obligations, particularly with laws relating to power plant emissions. In addition, Dominion may be a responsible party for environmental clean up at a site identified by a regulatory body. Dominion's management cannot predict with certainty the amount and timing of all future expenditures related to environmental matters because of the difficulty of estimating clean up costs and compliance and the possibility that changes will be made to the current environmental laws and regulations. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all potentially responsible parties.

Under the Virginia Utility Restructuring Act, Dominion's electric base rates (excluding fuel costs and certain other allowable adjustments) remain unchanged until July 2007 unless modified consistent with that Act. The capped rates and wires charges that, where applicable, will be assessed to customers opting for alternative suppliers allow Dominion to recover certain generation-related costs and fuel costs; however, Dominion remains exposed to numerous risks of cost-recovery shortfalls. These include exposure to potentially stranded costs, future environmental compliance requirements, changes in tax laws, inflation and increased capital costs. See Future Issues and Outlook-Regulated Electric Operations of MD&A and Note 27 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001.

The Electric Industry is Increasingly Subject to Competition

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

There Are Inherent Risks in the Operation of Nuclear Facilities

Dominion operates nuclear facilities that are subject to inherent risks. These include the ability to dispose of spent nuclear fuel, the ability to maintain adequate reserves for decommissioning and potential liabilities arising out of the operation of these facilities. Dominion maintains decommissioning trusts and external insurance coverage to minimize the financial exposure to these risks. However, it is possible that damages could exceed the amount of Dominion's insurance coverage. In addition, in today's environment there is a heightened risk of a terrorist attack on the nation's nuclear plants. Dominion expects to incur increased security costs at its nuclear facilities.

The Use of Derivative Contracts Could Result in Financial Losses

Dominion uses derivatives including futures, forwards, options and swaps, to manage its commodity and financial market risks. In addition, Dominion purchases and sells commodity-based contracts in the natural gas, electricity and oil markets for trading purposes. In the future, Dominion could recognize financial losses on these contracts as a result of volatility in the market values of the underlying commodities or if a counterparty fails to perform under a contract. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these financial instruments can involve management's judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the value of the reported fair value of these contracts. For additional information concerning Dominion's derivatives and commodity-based trading contracts, see Market Rate Sensitive Instruments and Risk Management of MD& amp;A and Notes 2 and 15 to the Consolidated Financial Statements in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001.

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The current strategy of Dominion's joint venture in the telecommunications business is based upon its ability to deliver lit capacity, dark fiber and colocation services to its customers. The market for these services, like the telecommunications industry in general, is rapidly changing. Dominion cannot assure that growth in demand for these services will occur as expected. If the market for these services fails to grow as quickly as anticipated or becomes saturated with competitors, including competitors using alternative technologies such as wireless, Dominion's investment in the telecommunication business may be adversely affected. Additionally, the current market values of assets in the telecommunications industry have been subject to depressed market conditions; if these conditions continue, it could adversely affect the underlying value of our telecommunications investment.

These factors include: price fluctuations in natural gas and crude oil prices; results of future drilling activity; Dominion's ability to identify and locate prospective geological structures and to drill and successfully complete wells in those structures; Dominion's ability to expand its leased land positions in desirable areas, which are often subject to competition; and other risks incident to the operations of natural gas and oil wells. In addition, Dominion follows the full cost method of accounting for gas and oil exploration and production activities prescribed by the Securities and Exchange Commission (SEC). Under the full cost method, all direct costs of property acquisition, exploration and development activities are capitalized. The principal limitation is that these capitalized amounts may not exceed the present value of estimated future net revenues from the production of proved gas and oil reserves (the ceiling test). If net capitalized costs exceed the ceiling test at t he end of any quarterly period, then a permanent write-down of the assets must be recognized in that period.

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

Operating Segments

In general, management's discussion of Dominion's results of operations focuses on the contributions of its operating segments. However, the discussion of Dominion's financial condition under Liquidity and Capital Resources is based on legal entities as Dominion transacts business in the financial markets on that basis. Dominion's three primary operating segments are Dominion Energy, Dominion Delivery, and Dominion Exploration & Production. In addition, Dominion also presents its corporate, financial services and other operations as an operating segment. For more information on Dominion's business segments, see Note 16 to the Consolidated Financial Statements.

See MD&A in Dominion's Annual Report on Form 10-K for the year ended December 31, 2001 for a detailed discussion of Dominion's critical accounting policies. These policies include the accounting for risk management and energy trading contracts at fair value, accounting for gas and oil operations and accounting for regulated operations.

Results Of Operations

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

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Dominion earned $2.16 per diluted share in the first six months of 2002, reflecting net income of $593 million and an increase of $275 million and $0.89 per diluted share over 2001. The operating results of the segments reflected a lower contribution by Dominion's independent power production operations, reflecting comparably lower prices for electricity, offset by the impact of comparably higher gas and oil production volumes as a result of the Louis Dreyfus acquisition. Regulated electric and gas sales operations did not materially contribute to the increase in net income for the comparable six-month periods as a result of overall mild weather for each of the comparable periods. The increase in net income also included the impacts of: an after-tax charge of $136 million recognized in the first quarter of 2001 in connection with the termination of certain long-term power purchase agreements; a $25 million after-tax loss recognized on the sale of Saxon Capital in 2001; a $44 millio n benefit associated with the discontinuance of goodwill amortization; and an increase in net income of $21 million by DCI, reflecting primarily expense reductions due to divestitures in 2001. Interest and related

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charges decreased $31 million for the first six months of 2002 as compared to 2001, reflecting lower overall interest rates on outstanding debt partially offset by new issues of debt and trust preferred securities in late 2001 and the first six months of 2002. In addition, Dominion's income tax expense decreased reflecting a comparably lower effective rate for foreign earnings, the impact of discontinuing amortization of goodwill for book purposes, and other factors.

The decrease in operating revenue reflects primarily decreases in revenues for non-regulated electric sales and gas transportation and storage, partially offset by increases in regulated electric sales revenue. Non-regulated electric sales revenue decreased $59 million, reflecting a decrease of $50 million for sales by Dominion's independent power production and energy marketing operations. This decrease reflects the impact of lower prices of approximately $90 million, partially offset by an estimated $40 million increase related to comparably higher volumes. Non-regulated electric sales revenue, net of related cost of sales, for Dominion's electric trading and marketing operations decreased $9 million. Gas transportation and storage revenue decreased $15 million, reflecting primarily comparatively lower prices for these services. Higher temperatures, as compared with the second quarter of 2001, and customer growth are estimated to have contributed $22 million and $10 million, respectively, to the $45 millio n increase in regulated electric sales revenue. The increase also included approximately $10 million attributable to higher fuel recoveries. The increase in fuel recoveries is directly offset in electric fuel and energy purchases and does not contribute to net income.

The overall decrease in operating expenses was comprised of decreases in various expense categories that were not individually significant. The primary decrease for the quarter was an $11 million decrease in liquids, pipeline capacity and other purchases, reflecting comparably lower levels of rate recovery for certain transmission costs in the current year quarter. The difference between actual expenses and amounts recovered in the period are deferred pending future rate adjustments. Depreciation decreased $7 million reflecting primarily changes in the estimated useful lives of electric generation property. See Future Issues and Note 2 to the Consolidated Financial Statements for additional discussion.

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See Selected Information-Energy Trading Activities in the MD&A of Dominion's Annual Report on Form 10-K for the year ended December 31, 2001 for a detailed discussion of the energy trading, hedging and arbitrage activities of the Dominion Energy Clearinghouse (the Clearinghouse) and related accounting policies. For additional discussion of trading activities, see Market Rate Sensitive Instruments and Risk Management.

The Clearinghouse holds a portfolio of derivative financial contracts used by Dominion to manage the price risk of certain anticipated sales of Dominion Exploration & Production's 2002 natural gas production (economic hedges). Dominion has not designated these derivatives as hedges for accounting purposes and, as a result, its quarterly earnings will reflect the changes in their fair values until settled. Related to the economic hedges, for the second quarter of 2002, Dominion Energy recognized a net gain of $9 million, comprised of $22 million of unrealized gains, offset by $13 million of losses related to contract settlements. For the first six months of 2002, Dominion Energy recognized a net loss of $45 million comprised of $39 million of unrealized losses and $6 million of losses related to contract settlements. Although these derivative financial contracts are being used as economic hedges, they are included in the tables presented below with Dominion's portfolio of energy contracts held for trading purposes.

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During the remainder of 2002, individual quarterly earnings will reflect changes in fair value and financial settlement of the economic hedges as well as the anticipated gas sales at then current market prices. Differences in the timing of amounts recognized related to the economic hedges and the anticipated gas sales may result in net losses in certain quarters. However, for the entirety of fiscal year 2002, Dominion expects the combination of the anticipated gas sales and the economic hedges to result in a range of prices for those sales as contemplated by its risk management strategy.

The balance of net unrealized gains and losses in Dominion's energy trading contracts, including the economic hedges discussed above, at June 30, 2002 is summarized in the following table based on the approach used to determine fair value and the contract settlement or delivery dates:

Dominion Delivery