___________________

   ____    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to_____

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 October 31, 2002, 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 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 Consolidated Balance Sheet at December 31, 2001 has been derived from the audited Consolidated Financial
    Statements at that date.
**Debt securities issued by Virginia Electric and Power Company 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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Note 1. Nature of Operations

Virginia Electric and Power Company (Virginia Power), a Virginia public service company, is a wholly-owned subsidiary of Dominion Resources, Inc. (Dominion). The Company is a regulated public utility that generates, transmits and distributes electric energy within a 30,000 square-mile area in Virginia and northeastern North Carolina. It 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. The Virginia service area comprises about 65% of Virginia's total land area but accounts for over 80% of its population. The Company has trading relationships beyond its retail service territory and buys and sells wholesale electricity, natural gas and other energy commodities. Within this document, the term "Company" refers to the entirety of Virginia Electric and Power Company, including its Virginia and North Carolina operations, and all o f its subsidiaries.

The Company manages its daily operations through two operating segments, Energy and Delivery. In addition, the Company also presents its corporate and other operations as an operating segment. See Note 13.

Note 2. Significant Accounting Policies

As permitted by the rules and regulations of the Securities and Exchange Commission (SEC), the accompanying unaudited consolidated financial statements contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles). These unaudited consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

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

The accompanying unaudited consolidated financial statements represent the accounts of the Company 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 revenue and expenses for the periods presented. Actual results may differ from those estimates.

The Company 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, the Company 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2001 for a more detailed discussion of the Company'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 and other factors.

During the second quarter of 2002, the Company extended the useful lives of most of its fossil fuel stations and distribution property based on depreciation studies that indicated longer lives were appropriate, after considering the effects of aging and current and planned environmental expenditures. The new estimated useful lives of the Company's property, plant and equipment are as follows: generation 20-65 years, transmission 30-70 years, distribution 23-53 years, and other 5-25 years. These changes in estimated useful lives reduced depreciation

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expense by $16 million and $24 million for the three months and nine months ended September 30, 2002, respectively. These changes are expected to reduce depreciation expense by approximately $40 million for the entirety of 2002 and approximately $60 million on an annual basis thereafter.

Certain amounts in the 2001 consolidated financial statements have been reclassified to conform to the 2002 presentation.

Note 3. Recently Issued Accounting Standards

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. The Company has identified certain retirement obligations that will be subject to the standard and will adopt the standard effective January 1, 2003. These obligations include the decommissioning of its nuclear generation facilities and removal of certain facilities. At this time, management anticipates no adverse effect on the Company's 2003 net income or its financial position as a result of adopting the standard. Mana gement's expectations are based on its interpretation of the standard and determination of underlying assumptions, such as discount rates and engineering estimates of the future cost and timing of removal activities to be performed, as of the date of this quarterly report. Further refinement of engineering estimates or changes in assumptions underlying the required calculations may be deemed appropriate before the standard is implemented. For more discussion, see Note 4 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

Energy Trading Contracts

In October 2002, the EITF rescinded EITF Issue No. 98-10, Accounting for Contracts involved in Energy Trading and Risk Management Activities, (EITF 98-10). The effect of this decision is that certain energy-related contracts, held for trading purposes, will no longer be subject to fair value accounting. Generally, the affected contracts are those energy-related contracts, held for trading purposes, that are not considered derivatives under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Under EITF 98-10 accounting, the fair value of energy contracts was measured at each reporting date, with changes in fair value, including unrealized amounts, reported in earnings. Energy-related contracts affected by the rescission of EITF 98-10 will be subject to accrual accounting and thus recognized as revenue or expense at the time of contract settlement or termination. The EITF's decision is effective for all affected contracts initiated after October 25, 2002. However, for all affected contracts initiated earlier, the change is to be implemented as the cumulative effect of a change in accounting principle effective January 1, 2003.

The results of the Company's trading operations will be impacted by the EITF's decision. However, the impact of the change is generally limited to the timing of recognition in earnings for those contracts affected; also, such contracts will no longer be reported at fair value on the Company's balance sheet. Although the Company has identified the types of contracts that are affected, it has not yet completed the assessment of the individual contracts involved.

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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.

The Company adopted SFAS No. 142 on January 1, 2002. The Company does not have any goodwill; thus the provisions of SFAS No. 142, requiring the discontinuance of goodwill amortization, did not have an impact on the Company's results of operations in the first nine months of 2002.

The Company has concluded that all of its intangible assets have finite lives and, therefore, are subject to amortization. Amortization of intangible assets expense was $6 million and $4 million for the three months ended September 30, 2002 and September 30, 2001, respectively, and $17 million and $14 million for the nine months ended September 30, 2002 and September 30, 2001, respectively. There were no material acquisitions of intangible assets during the first nine months of 2002. The components of intangible assets were as follows as of September 30, 2002:

Annual amortization expense for intangible assets is estimated to be $23 million for 2002, $24 million for 2003, $22 million for 2004, $17 million for 2005 and $16 million for 2006.

Note 5. Restructuring Activities

In the fourth quarter of 2001, after fully integrating Dominion's existing organization and operations, including those of the Company, with those of Consolidated Natural Gas Company (CNG), management initiated a focused review of Dominion's combined operations. As a result, the Company recognized restructuring costs which included employee severance and related benefits.

Under the 2001 restructuring plan, the Company identified 124 salaried positions to be eliminated and recorded $16 million in employee severance-related costs. Through September 30, 2002, the Company had eliminated 86 positions.

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

For additional information on restructuring activities, see Note 5 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

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Total comprehensive income was $314 million and $279 million for the three months ended September 30, 2002 and 2001, respectively. Total comprehensive income was $648 million and $420 million for the nine months ended September 30, 2002 and 2001, respectively.

Note 7. Derivatives and Hedge Accounting

The Company adopted SFAS 133 effective January 1, 2001. In connection with this adoption, the Company recorded an after-tax charge to accumulated other comprehensive income (AOCI) of $14 million, net of taxes of $9 million, in the first quarter of 2001.

The portion of the Company's other comprehensive income (loss) associated with the effective portion of the change in fair value of cash flow hedging derivatives, net of taxes, and amounts reclassified to earnings is as follows:

Based on balances at September 30, 2002, the Company expects to reclassify approximately $2 million of net losses from AOCI 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 purchases) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies. As of September 30, 2002, the Company is hedging its exposure to the variability in future cash flows for certain forecasted transactions over periods of one to five years. The Company did not recognize any hedge ineffectiveness during the three and nine month periods ended September 30, 2002. For the three months ended September 30, 2001, the Company recognized a pre-tax decrease i n earnings of approximately $1 million for hedge ineffectiveness. Hedge ineffectiveness recognized in the nine month period ended September 30, 2001 was not significant.

Note 8. 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 for the Company exceeding agreed-upon credit limits. Amounts reported as margin deposit liabilities represent funds held by the Company 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 International Swap Dealers Association master agreements in place between the Company and the counterparties. As of September 30, 2002 and December 31, 2001, the Company had margin deposit assets of $70 million and $10 million, respectively. Margin deposit liabilities were $8 million at September 30, 2002, and there were no margin deposit liabilities at December 31, 2001.

In May 2002, Dominion, CNG and the Company entered into two joint credit facilities that allow aggregate borrowings of 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 three-year revolving credit facility that terminates in May 2005. These credit facilities replaced the $1.75 billion 364-day joint 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

PAGE 11

capital, as support for the combined commercial paper programs of Dominion, CNG and the Company and for other general corporate purposes. The three-year facility can also be used to support up to $200 million of letters of credit. At September 30, 2002, total outstanding commercial paper supported by these facilities was $1.7 billion, of which $398 million was issued for the Company. At September 30, 2002, total outstanding letters of credit supported by the three-year facility were $65 million, which were issued by Dominion on behalf of its other subsidiaries.

Extendible Commercial Notes

In addition to commercial paper, the Company has, from time to time, sold extendible commercial notes (ECNs) to meet working capital requirements. ECNs are unsecured notes that the Company sells in private placements. Any ECNs would have a stated maturity of 390 days from issuance and may be redeemed earlier at the Company's option. At September 30, 2002, $50 million of ECNs were outstanding.

During the first quarter of 2002, the Company redeemed its $200 million, 6.75 percent 1997-A mortgage bonds due February 1, 2007. The Company completed the redemption by issuing $650 million of 5.375 percent senior notes due 2007. The redemption included a direct exchange of senior notes for $117 million of the mortgage bonds. The Company used the remaining cash proceeds from the issuance of the senior notes to redeem the remaining $83 million of the mortgage bonds and for general corporate purposes, including the repayment of other debt.

Also, in the first quarter of 2002, the Company repaid $220 million of maturing medium-term notes.

In the third quarter of 2002, the Company repaid its maturing $155 million, 7.375 percent 1992-E mortgage bonds and $100 million, 6.0 percent 1993-F mortgage bonds.

In August 2002, Virginia Power Capital Trust II (Trust), a trust subsidiary of the Company, issued $400 million of 7.375 percent trust preferred securities, representing preferred beneficial interests and 97 percent beneficial ownership in the assets held by the Trust. In exchange for the $400 million realized from the sale of the trust preferred securities and $12 million of common securities that represent the remaining 3 percent beneficial ownership interest in the assets held by the Trust, the Company issued $412 million of its 2002 7.375 percent Junior Subordinated Notes (the Junior Subordinated Notes) due July 30, 2042. The Junior Subordinated Notes constitute 100 percent of the Trust's assets. The Trust must redeem the trust preferred securities when the Junior Subordinated Notes are repaid or if redeemed prior to maturity.

In September 2002, Virginia Power Capital Trust I redeemed all outstanding trust preferred securities for $135 million and the Company redeemed $139 million Junior Subordinated Deferrable Interest Notes Series A held by the trust. For more discussion, see Note 15 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

In September 2002, the Company purchased and redeemed all shares of its variable rate preferred stock September 1992A Series, September 1992B Series, and October 1988 Series for $175 million, representing a price of $100 per share. In October 2002, the Company redeemed its outstanding June 1989 Series variable rate preferred stock for $75 million, representing a price of $100 per share. For more discussion, see Note 16 to the Consolidated Financial Statements in the Company'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 commitments and contingencies disclosed in Note 19 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, nor have any significant new matters arisen during the nine months ended September 30, 2002.

During 2000, the Company received a Notice of Violation from the Environmental Protection Agency (EPA), alleging that the Company failed to obtain New Source Review permits under the Clean Air Act prior to undertaking specified construction projects at the Mt. Storm Power Station in West Virginia. The Attorney General of New York filed a suit against the Company alleging similar violations of the Clean Air Act at the Mt. Storm Power Station. The Company also received notices from the Attorneys General of Connecticut and New Jersey of their intentions to file suit for similar violations. Management believes that the Company has obtained the necessary permits for its generating facilities. The Company has reached an agreement in principle with the federal government and the state of New York to resolve this situation. The agreement in principle includes payment of a $5 million civil penalty, a commitment of $14 million for environmental projects in Virginia, West Virginia, Conne cticut, New Jersey and New York, and a 12-year, $1.2 billion capital investment program for environmental improvements at the Company's coal-fired generating stations in Virginia and West Virginia. The Company had already committed to a substantial portion of the $1.2 billion expenditures for sulfur dioxide and nitrogen oxide emissions controls. The negotiations over the terms of a binding settlement have expanded beyond the basic agreement in principle and are ongoing. As of September 30, 2002, the Company has recorded, on a discounted basis, $18 million for the civil penalty and environmental projects. In May 2002, the EPA issued a Section 114 request for information about whether projects undertaken at the Company's Chesterfield, Chesapeake, Yorktown, Possum Point and Bremo Bluff power stations were properly permitted under the Clean Air Act's New Source Review requirements, to which the Company responded in a timely manner.

At September 30, 2002, the Company had $57 million of surety bonds associated with the financial assurance requirements imposed by the Nuclear Regulatory Commission with respect to the decommissioning of the Company's nuclear units. Under the terms of the surety bonds, the Company is obligated to indemnify the respective surety bond company for any amounts paid.

The Company, through an unregulated subsidiary, exchanges certain quantities of natural gas with other Dominion affiliates in the ordinary course of business. The affiliated commodity transactions are presented below:

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Through the same unregulated subsidiary, the Company is involved in facilitating Dominion's enterprise risk management strategy. In connection with this strategy, the Company enters into certain commodity derivative contracts with other Dominion affiliates. These contracts, which are principally comprised of commodity swaps, are used by Dominion affiliates to manage commodity price risks associated with purchases and sales of natural gas. As part of Dominion's enterprise risk management strategy, the Company generally manages such risk exposures by entering into offsetting derivative instruments with non-affiliates. The Company reports both affiliated and non-affiliated derivative instruments at fair value, with related changes included in earnings. The Company's consolidated balance sheets include derivative and energy trading assets of $44 million and $159 million with Dominion affiliates at September 30, 2002 and December 31, 2001, respectively, and derivative and energy trading lia bilities of $61 million and $77 million with Dominion affiliates at September 30, 2002 and December 31, 2001, respectively. The Company's income from operations includes the recognition of the following derivative gains and losses on affiliated transactions:

Dominion Resources Services, Inc. (Dominion Services) provides certain administrative and technical services to the Company. The cost of services provided by Dominion Services to the Company in the third quarters of 2002 and 2001 was approximately $67 million, and in the first nine months of 2002 and 2001 was approximately $198 million and $206 million, respectively. The cost of services provided by the Company to Dominion Services was approximately $8 million and $6 million, respectively, in the third quarter of both 2002 and 2001 and, in the first nine months of 2002 and 2001, was approximately $22 million and $16 million, respectively.

During the third quarter of 2002, Dominion advanced funds to certain unregulated subsidiaries of the Company pursuant to a zero percent interest, short-term demand note (Demand Note). At September 30, 2002, the net outstanding borrowings under the Demand Note totaled $73 million.

For information about the Company's agreement with Dominion Equipment II, Inc. to develop, construct, finance and lease a new power generation facility at its Possum Point station in Prince William County, Virginia, see Note 19 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

For additional information on transactions with related parties, see Note 21 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

Credit risk is the risk of financial loss to the Company if counterparties fail to perform their contractual obligations. The Company sells electricity and provides distribution and transmission services to a diverse group of customers, including residential, commercial and industrial customers as well as rural electric cooperatives and municipalities. In addition, the Company enters into contracts with various companies in the energy industry for purchases and sales of energy-related commodities, including natural gas, electricity in its energy trading, hedging and arbitrage activities. 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 the Company's overall exposure to credit risk. Credit risk associated with trade accounts receivable from energy consumers is limited due to the large number of customers.

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Dominion and its subsidiaries, including the Company, maintain credit policies with respect to its counterparties that management believes minimize overall credit risk. Where appropriate, such policies include the evaluation of a prospective counterparty's financial condition, collateral requirements, and in the case of energy trading, hedging and arbitrage activities, the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. On behalf of the Company, Dominion also monitors the financial condition of existing counterparties on an ongoing basis. The Company 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 September 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 co unterparty nonperformance.

_______________________

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The Company manages its operations through the following operating segments:

Energy includes the Company's portfolio of generating facilities and power purchase contracts and its energy trading and marketing activities.

Delivery includes bulk power transmission, distribution and metering services and customer service and continues to be subject to the requirements of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.

Corporate and Other includes certain expenses which are not allocated to the Energy and Delivery segments, including those related to the following: 1) corporate operations and assets; and 2) an after-tax charge of $136 million related to the termination of certain long-term power purchase contracts in 2001. See Note 19 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

For more information, see Note 23 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

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Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) discusses the results of operations and general financial condition of Virginia Power. MD&A should be read in conjunction with the Consolidated Financial Statements. "The Company" is used throughout MD&A and, depending on the context of its use, may represent any of the following: the legal entity, Virginia Electric and Power Company, one of Virginia Power's consolidated subsidiaries or the entirety of Virginia Power and its consolidated subsidiaries. The Company is a wholly-owned subsidiary of Dominion Resources, Inc.

Risk Factors and Cautionary Statements That May Affect Future Results

This report contains statements concerning the Company'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.

The Company 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 weather conditions; fluctuations in energy-related commodities prices and the effect these could have on the Company's earnings, liquidity position, and the underlying value of its assets; trading counterparty credit risk; capital market conditions, including equity price risk due to marketable equity securities held as investments in trusts and benefit plans; changes in rating agency requirements; changes in accounting standards; the risks of operating businesses in regulated industries that are in the process of becoming deregulated; transfe r of control over the Company's transmission facilities to a regional transmission entity; collective bargaining agreements and labor negotiations; and political and economic conditions (including inflation rates). Some more specific risks are discussed below.

The Company bases its forward-looking statements on management's beliefs and assumptions using information available at the time the statements are made. The Company 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. The Company undertakes no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

The Company's Operations Are Weather Sensitive-The Company's results of operations can be affected by changes in the weather. Weather conditions directly influence the demand for electricity and affect the price of energy commodities. In addition, severe weather, including hurricanes, winter storms and droughts, can be destructive, causing outages, property damage and requiring the Company to incur additional expenses.

The Company Is Subject to Complex Government Regulation Which Could Adversely Affect Its Operations-The Company's operations are subject to extensive regulation and require numerous permits, approvals and certificates from various federal, state and local governmental agencies. The Company must also comply with environmental legislation and other regulations. Management believes the necessary approvals have been obtained for the Company's existing operations and that its business is conducted in accordance with applicable laws. However, the Company 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 the Company to incur additional expenses.

Costs of Environmental Compliance, Liabilities and Litigation Could Exceed the Company's Estimates-The Company 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, the Company may be a responsible party for environmental clean up at a site identified by a regulatory body. Management cannot predict with certainty the

PAGE 17

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 Utility Restructuring Act, the Company's 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 the Company to recover certain generation-related costs and fuel costs; however, the Company 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 and Note 19 to the Consolidated Financial Statements in the Company's Annual Report on Form 1 0-K for the year ended December 31, 2001.

The Electric Generation Business is Increasingly Subject to Competition-Effective January 1, 2002, the generation portion of the Company's 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 the Company's 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 unknown. Therefore, it is difficult to predict the extent to which the Company will be able to operate profitably within this new environment.

There Are Inherent Risks in the Operation of Nuclear Facilities-The Company operates nuclear facilities that are subject to inherent risks. These include the ability to dispose of spent nuclear fuel, the disposal of which is subject to complex federal and state regulatory constraints, the cost of and the Company'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. The Company 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. In addition, in today's environment there is a heightened risk of a terrorist attack on the nation's nuclear plants. The Company expects to incur increased security costs at its nuclear facilities.

The Use of Derivative Contracts Could Result in Financial Losses-The Company uses derivatives including futures, forwards, options and swaps, to manage its commodity and financial market risks. In addition, the Company purchases and sells commodity-based contracts in the natural gas, electricity and oil markets for trading purposes. In the future, the Company 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 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 the Company's derivatives and commodity-based trading contr acts, see Management's Discussion and Analysis of Financial Condition and Results of Operations-Market Rate Sensitive Instruments and Risk Management and Notes 2 and 9 the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

The Company Is Exposed to Market Risks Beyond Its Control in Its Energy Clearinghouse Operations-The Company's energy clearinghouse and risk management operations are subject to multiple market risks including market liquidity, counterparty credit strength and price volatility. Many industry participants have experienced severe business downturns during the past year resulting in some being forced to exit or curtail their participation in the energy trading markets. This has led to a reduction in the number of trading partners, lower industry trading revenues and lower than expected revenues in the Company's energy clearinghouse operations. Declining credit worthiness of some of the Company's trading parties may limit the level of its trading activities with these parties and increase the risk that these counterparties may not perform under a contract.

PAGE 18

An Inability to Access Financial Markets Could Affect the Execution of The Company's Business Plan-The Company 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 the Company and its subsidiaries will maintain sufficient access to these financial markets based upon current credit ratings. However, certain disruptions outside of the Company's control may increase its cost of borrowing 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 changes to the Company's credit ratings. Restrictions on the Company's ability to access financial markets may affect its ability to execute its business plan as scheduled.

Changing Rating Agency Requirements Could Negatively Affect the Company's Growth and Business Strategy-As of October 2002, the Company's senior secured debt is rated A-, stable outlook, by Standard & Poor's and A2, stable outlook, by Moody's. Both agencies have recently implemented more stringent applications of the financial requirements for various ratings levels. In order to maintain its current credit ratings in light of these or future new requirements, the Company may find it necessary to take steps or change its business plans in ways that may adversely affect its growth and earnings. A reduction in the Company's credit ratings by either Standard & Poor's or Moody's could increase its borrowing costs and adversely impact its results of operations.

Potential Changes in Accounting Practices May Adversely Affect the Company's Financial Results-Recently discovered accounting irregularities in various industries have caused regulators and legislators to take a renewed look at accounting practices, financial disclosures and companies' relationships with their independent auditors. While it is still unclear what laws or regulations will develop, the Company cannot predict the ultimate impact of any future changes in accounting regulations or practices in general with respect to public companies, the energy industry or in its operations specifically.

In addition, new accounting standards could be enacted by the FASB or the SEC which could impact the way the Company is required to record revenues, expenses, assets and liabilities. These changes in accounting standards could lead to negative impacts on reported earnings or increases in liabilities, which in turn could affect the Company's reported results of operations.

PAGE 19

In general, management's discussion of the Company's results of operations focuses on the contributions of its operating segments. However, the discussion of the Company's financial condition under Liquidity and Capital Resources is for the entire Company. The Company's two operating segments are Energy and Delivery. In addition, the Company presents its corporate and other operations, including certain expenses, which are not allocated to the Energy and Delivery segments, as a segment. For more information on the Company's operating segments, see Note 13 to the Consolidated Financial Statements.

Critical Accounting Policies

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

Results Of Operations

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

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The following table provides data on electricity supplied by Energy and delivered by Delivery:</