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

Note 8.     Comprehensive Income

The following table presents total comprehensive income:

________________

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The following table presents selected information related to cash flow hedges included in accumulated other comprehensive income in the Consolidated Balance Sheet at June 30, 2003:

The actual amounts that will be reclassified to earnings during the next 12 months will vary from the expected amounts presented above as a result of changes in market prices, interest rates and foreign exchange rates. The effect of amounts being reclassified from accumulated other comprehensive income 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.

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Long-Term Debt

During the six months ended June 30, 2003, Dominion Resources, Inc. and its subsidiaries issued the following long-term debt:

In July 2003, Dominion Resources, Inc. issued $510 million of 5.25 percent senior notes due in 2033. Holders of the senior notes will have the right to require Dominion to repurchase all or a portion of the senior notes they hold on August 1, 2015 at a purchase price of 100 percent of the principal amount tendered by the holder.

During the six months ended June 30, 2003, Dominion Resources, Inc. and its subsidiaries repaid $1.25 billion of long-term debt securities. Dominion used the entirety of its $500 million escrow deposit, established in December 2002, to repay maturing debt in January 2003.

During the six months ended June 30, 2003, Dominion received proceeds of $190 million through Dominion Direct (a dividend reinvestment and open enrollment direct stock purchase plan), employee savings plans and the exercise of employee stock options. In addition, during the second quarter of 2003, Dominion received proceeds of $683 million through a public equity offering.

See Note 4 for a discussion of the impact of FIN 46 on reported debt amounts, effective July 1, 2003, related to assets leased from variable interest entities and preferred securities issued by subsidiary trusts.

The following table describes the changes to Dominion's asset retirement obligations during the six months ended June 30, 2003:

Dominion has established external trusts dedicated to funding the future decommissioning of its nuclear plants. At June 30, 2003, the aggregate fair value of these trusts, consisting primarily of debt and equity securities, totaled $1.8 billion.

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Had the provisions of SFAS No. 143 been applied for the following periods, the asset retirement obligations would have been as follows:

As permitted by SFAS No. 71, Accounting for the Effects of Certain Types of Regulation, Dominion accrues for future costs of removal for its cost-of-service rate regulated gas and electric utility assets, even if no legal obligation to perform such activities exists. At June 30, 2003 and December 31, 2002, Dominion's accumulated depreciation, depletion and amortization included $607 million and $596 million, respectively, representing the estimated future cost of such removal activities.

See Note 3 for further discussion of the adoption of SFAS No. 143.

Other than the matters discussed below, there have been no significant developments regarding the commitments and contingencies disclosed in Note 27 to the Consolidated Financial Statements for the year ended December 31, 2002, nor have any significant new matters arisen during the six months ended June 30, 2003.

Leases with Special Purpose Entities

As described more fully in Note 27 to the Consolidated Financial Statements for the year ended December 31, 2002, Dominion, through certain subsidiaries, has entered into agreements with special purpose entities (lessors) in order to finance and lease several new power generation projects, as well as its corporate headquarters and aircraft. The lessors have financing commitments from equity and debt investors totaling $1.9 billion, of which approximately $1.5 billion has been used for project costs incurred to date. At June 30, 2003, under existing accounting guidance, approximately $1.2 billion of project assets and related debt were not reported on Dominion's Consolidated Balance Sheets.

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As discussed in Note 4, effective July 1, 2003, Dominion will consolidate the variable interest lessor entities for which it has been determined to be the primary beneficiary under FIN 46. As a result, beginning July 1, 2003, annual future minimum lease commitments, as previously disclosed in Note 27 to the Consolidated Financial Statements for the year ended December 31, 2002, will be reduced by approximately $38 million. A similar amount will be recognized annually as interest expense associated with the newly consolidated debt obligations.

In June 2003, for one of the power generation projects under construction, Dominion entered into a new arrangement with a non-affiliated voting interest entity. The voting interest entity will not be consolidated by Dominion. Project costs totaled $478 million at June 30, 2003 for this project, of which $424 million was advanced by Dominion. This project is expected to be completed in 2004 and will result in estimated annual lease commitments of approximately $47 million.

In February 2003, pursuant to the terms of its lease agreement, Dominion purchased the electric generation facility under construction in Dresden, Ohio for $266 million. Dominion expects to complete construction in 2005 at an estimated cost of $432 million.

As previously reported in Note 27 to the Consolidated Financial Statements for the year ended December 31, 2002, Virginia Power received a Notice of Violation in 2000 from the United States Environmental Protection Agency related to some specified construction projects at the Mt. Storm Power Station in West Virginia. Thereafter, New York State filed a suit against Virginia Power alleging similar violations, and the suit was stayed. Virginia Power reached an agreement in principle with the federal government and the state of New York to resolve the matter, and the states of Virginia, West Virginia, Connecticut and New Jersey joined the United States and the state of New York in seeking to reach a final agreement with the Company. A settlement agreement in the form of a proposed Consent Decree was agreed to on April 21, 2003, by the U.S. Department of Justice and the U.S. Environmental Protection Agency for the United States of America, by the states of Virginia, West Virginia, Conne cticut, New Jersey and New York and by Virginia Power. In accordance with the settlement, the United States filed an action in the Eastern District of Virginia against Virginia Power and the Consent Decree was lodged with that court to settle that action. Virginia and West Virginia also filed complaints in intervention in the Virginia federal district court. The New York State federal district court action has been transferred to the Virginia federal district court, and it is anticipated that, in addition to New York, Connecticut and New Jersey will join as plaintiffs in that proceeding. The EPA public comment period has now closed. It is anticipated that in the near future the Virginia federal district court will be asked to enter the Consent Decree finalizing the settlement and resolving the underlying actions, but retaining jurisdiction pursuant to the terms of the Consent Decree. The settlement is consistent with the previously reported agreement in principle and includes payment of a $5 million civil pe nalty, an obligation to fund $14 million for environmental projects and a commitment to improve air quality under the Consent Decree estimated to involve expenditures of $1.2 billion. Dominion has already incurred certain capital expenditures for environmental improvements at its coal-fired stations in Virginia and West Virginia and has committed to additional measures in its current financial plans and capital budget to satisfy the requirements of the Consent Decree. As of June 30, 2003, Dominion had accrued $19 million for the civil penalty and the funding of the environmental projects, substantially all of which was recorded in 2000.

FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others-An Interpretation of FASB Statements No. 5, 57 and 107 (FIN 45), requires disclosures related to the issuance of certain types of guarantees. It also requires the recognition of liabilities for the fair value of guarantees issued or modified after December 31, 2002.

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For purposes of consolidated financial statements, guarantees issued by a parent on behalf of its consolidated subsidiary, guarantees issued by a consolidated subsidiary on behalf of its parent or guarantees issued by a consolidated subsidiary on behalf of a sister consolidated subsidiary are not subject to the FIN 45 disclosure and recognition requirements. Nevertheless, Dominion is providing the following information about the guarantees that it and certain of its subsidiaries may issue in the ordinary course of business to provide financial or performance assurance to third parties on behalf of certain subsidiaries. On behalf of consolidated subsidiaries, as of June 30, 2003, Dominion and its subsidiaries had issued $6.0 billion of guarantees, including: $2.7 billion to support commodity transactions of subsidiaries; $1.3 billion for subsidiary debt; $1.1 billion related to leasing obligations for new power generation projects, corporate headquarters and aircraft; and $0.9 billion f or guarantees supporting other agreements of subsidiaries. Dominion had also purchased $125 million of surety bonds and authorized the issuance of standby letters of credit by financial institutions of $778 million. Dominion enters into these arrangements to facilitate commercial transactions by its subsidiaries with third parties. To the extent a liability subject to a guarantee has been incurred by a consolidated subsidiary, that liability is included in Dominion's Consolidated Financial Statements. Dominion believes it is unlikely that it would be required to perform or otherwise incur any losses associated with guarantees of its subsidiaries' obligations.

Beginning in 2003, the issuance of a guarantee requires the recognition of a liability whenever Dominion or certain subsidiaries enter into a guarantee on behalf of a party that is not consolidated in the preparation of Dominion's Consolidated Financial Statements. Furthermore, any performance required by Dominion under such guarantees would result in the recognition of additional liabilities in Dominion's Consolidated Financial Statements. As of June 30, 2003, Dominion has guaranteed $60 million related to officers' borrowings under executive stock loan programs, for which individual officers are personally liable for repayment. Substantially all of this guarantee is scheduled to expire in 2005. Because of new restrictions on company loans or guarantees under the Sarbanes-Oxley Act of 2002, Dominion has ceased its program involving the company guaranty for any new third party loans to executives for the purpose of acquiring company stock. Dominion has also guaranteed $24 million for obligations of certain e quity method investments - Morgantown Energy Associates and Elwood Energy. There are no liabilities recorded for these guarantees in accordance with FIN 45 as these guarantees were entered into prior to December 31, 2002.

At June 30, 2003 Dominion has provided $9 million of guarantees to third parties on behalf of several of its natural gas supply customers. For this and other financial support services, Dominion receives fees and has a security interest in the customers' assets. The arrangements terminate at various dates beginning in 2005 through 2007, subject to periodic renewal thereafter unless terminated by either party. The liability recorded for the fair value of these guarantees in accordance with FIN 45 is not material.

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Dominion calculates its gross credit exposure for each counterparty as the unrealized fair value of derivative and energy trading contracts plus any outstanding receivables (net of payables, where netting agreements exist), prior to the application of collateral. However, to the extent a counterparty has fully prepaid transactions by transferring cash or posting letters of credit, Dominion has excluded such amounts from its gross credit exposure. In the calculation of net credit exposure, Dominion's gross exposure is reduced by collateral made available by counterparties, including letters of credit and cash received by Dominion and held as margin deposits, made available by counterparties as a result of exceeding agreed-upon credit limits. Presented below is a summary of Dominion's gross and net credit exposure as of June 30, 2003. The amounts presented exclude accounts receivable for retail electric and gas sales and services, regulated transmission services and Dominion's provision for credit losses. See Note 29 to the Consolidated Financial Statements for the year ended December 31, 2002 for a discussion of the nature of Dominion's credit risk exposures.

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

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

As a result of this transaction, Dominion consolidated the results of DFV in its Consolidated Financial Statements beginning in February 2003. The DFV senior notes held by Dominion are eliminated in consolidation. After the transaction, $21 million of the DFV senior notes remain outstanding in the hands of third parties. Dominion recognized a pre-tax charge of $57 million on the effective extinguishment of the acquired DFV senior notes. The charge primarily consisted of the premium paid to acquire the notes, the consent fee paid to the note holders and the write-off of unamortized debt costs related to the original issuance of the DFV senior notes and was reported as other expense on the Consolidated Statement of Income. Furthermore, since Dominion holds substantially all of the DFV senior notes, it is unlikely that the remarketing of the Dominion convertible preferred stock held in trust, discussed above, would ever occur.

During the first quarter of 2003, Dominion also recognized a pre-tax charge of $60 million associated with its DFV investment and reported the charge as other expense on the Consolidated Statement of Income. This included a $27 million charge related to a revision to the allocation of equity losses on DFV between the Investor Trust and Dominion. Based on current projections of expected DFV net losses, Dominion and Investor Trust revised the allocation of equity losses, using cash allocations and liquidation provisions of the underlying limited liability company agreement rather than voting interests. The charge also included a $33 million impairment charge in connection with certain DFV assets that will no longer be used under DFV management's current business plan. Dominion's share of the impairment, after allocation of the minority interest share to Investor Trust, was $17 million.

During the second quarter of 2003, Dominion recognized an impairment loss of $40 million ($25 million after-tax) related to certain assets classified as held-for-sale and reported in other current assets. The assets included a small generation facility located in Kauai, Hawaii and an equity investment in a pipeline business located in Australia. The impairment loss represented an adjustment to the assets' carrying amounts to reflect Dominion's current evaluation of the fair value less estimated costs to sell.

Dominion manages its operations along three primary business lines:

Dominion Energy manages Dominion's electric generation portfolio, gas transmission and storage operations and certain gas production. It also manages Dominion's energy trading, marketing, hedging and arbitrage activities and its retail marketing of non-regulated energy services. Effective January 1, 2003, Dominion Energy also manages Dominion's electric transmission operations formerly managed by Dominion Delivery. Amounts for 2002 have been restated to reflect the management of electric transmission by Dominion Energy effective January 1, 2003.

Dominion Delivery manages Dominion's electric and gas distribution systems as well as Dominion's investment in DFV, described in Note 16. Amounts for 2002 have been restated to reflect the management of electric transmission by Dominion Energy effective January 1, 2003.

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

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In addition, Dominion also reports the operations of Dominion Capital, Inc., a financial services subsidiary, and Dominion's corporate and other operations as a segment. Amounts included in the Corporate and Other segment for the three and six months ended June 30, 2003 and 2002 include corporate expenses of the Dominion and CNG holding companies (including interest and other expenses not allocated to other segments) as well as the following items:

• cumulative effect of changes in accounting principle (see Note 3);
• charges related to Dominion's investment in DFV, including amounts related to the reacquisition of DFV senior notes, reallocation of equity losses and impaired assets (see Note 16);
• severance costs of $29 million for workforce reductions and
• impairment of certain assets held-for-sale (see Note 17).

For more information, see Note 32 to the Consolidated Financial Statements for the year ended December 31, 2002.

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On May 9, 2003, Dominion filed a current report on Form 8-K that included its Consolidated Financial Statements and Notes for the year ended December 31, 2002, as well as certain portions of MD&A, which were reformatted to reflect the transfer of electric transmission operations to the Dominion Energy segment from the Dominion Delivery segment effective January 1, 2003. References to the Consolidated Financial Statements and Notes for the year ended December 31, 2002 refer to those included in the May 9, 2003 current report on Form 8-K.

Risk Factors and Cautionary Statements That May Affect Future Results

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

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

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

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

Capped electric rates in Virginia may be insufficient to allow full recovery of stranded and other costs.    Under the Virginia Electric Utility Restructuring Act (the Virginia Restructuring Act), Dominion's electric base rates (excluding, generally, fuel costs and certain other allowable adjustments) remain unchanged until July 2007 unless modified or terminated consistent with that Act. The capped rates and wires charges that, where applicable, are being assessed to customers opting for alternative suppliers allow Dominion to recover certain generation-related costs; however, Dominion remains exposed to numerous risks of cost-recovery shortfalls. These include exposure to potentially stranded costs, future environmental compliance requirements, changes in tax laws, inflation and increased capital costs. See Management's Discussion and Analysis of Financial Condition and Results of Operations-Future Issues and Outlook-Regulated Electric Operations in Dominion's Annu al Report on Form 10-K for the year ended December 31, 2002 and Note 27 to the Consolidated Financial Statements for the year ended December 31, 2002.

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

The use of derivative instruments could result in financial losses.    Dominion uses derivative instruments, including futures, forwards, options and swaps, to manage its commodity and financial market risks. In addition, Dominion purchases and sells commodity-based contracts in the natural gas, electricity and oil markets for trading purposes. In the future, Dominion could recognize financial losses on these contracts as a result of volatility in the market values of the underlying commodities or if a counterparty fails to perform under a contract. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these contracts involves management's judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the value of the reported fair value of these contracts. For additional information concerning derivatives and commodity-based trading contracts, see Ma nagement's Discussion and Analysis of Financial Condition and Results of Operations-Market Rate Sensitive Instruments and Risk Management in Dominion's Annual Report on Form 10-K for the year ended December 31, 2002 and Notes 2 and 15 to the Consolidated Financial Statements for the year ended December 31, 2002.

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

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