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Fitch Rates Virginia Electric and Power Co. Senior Unsecured Offering 'A-'

February 4, 2014

NEW YORK --(BUSINESS WIRE)-- Fitch Ratings has assigned an 'A-' rating to Virginia Electric and Power Co.'s (VEPCo) offering of 2014 series A senior notes due 2024 and 2014 series B senior notes due 2044. Proceeds will be used for general corporate purposes, including the repayment of short term borrowings. The notes will rank on parity in right of payment with all the existing and senior unsecured debt and will be senior in right of payment to all the existing and future subordinated debt. The Rating Outlook is Stable. Stable Outlook: The utility's rating and Stable Outlook reflect strong financial metrics driven largely by balanced regulatory treatment. VEPCo is engaged in a multi-year large growth capital plan, focused largely on new electric generation and transmission projects. The utility's credit profile benefits from good returns on, and timely recovery of capital costs during this large capex cycle. VEPCo operates an electric distribution, transmission, and generation system within two state regulatory jurisdictions, Virginia and North Carolina . KEY RATING DRIVERS: --Strong financial metrics; --Large utility growth plan; --Completion of the 2013 biennial earnings review in Virginia ; --Balanced regulatory treatment in North Carolina ; and --Sufficient liquidity. Financial Profile: Financial metrics, as calculated by Fitch, are strong relative to guidelines for the rating category and risk profile, with EBITDA-to-interest and funds from operations (FFO)-to-debt at 7.5 times (x) and 26.6% respectively for the latest 12-months (LTM) ended Sept. 30, 2013 . Fitch forecasts EBITDA-to-interest to remain at approximately 7x through 2015 and FFO-to-debt to drop to around 23% in 2015 reflecting the absence of bonus depreciation. In Fitch's opinion, VEPCo is exposed to lower sales volumes due to energy efficiency programs within the service territory diminishing otherwise good growth prospects. Utility Capital Plan: VEPCo's sizeable multi-year growth plan is focused largely on new generation and electric transmission. The capital plan is supported by positive service territory dynamics, specifically in Virginia which established a need for new generation to meet expected load growth this decade, even after any potential impact from either sequestration or efficiency programs. Current capital spending levels are intended to not only meet load growth needs but to replace units either retired or shut-down. Capital Cost Recovery: Utility rate constructs include features designed to facilitate timely recovery of utility capital costs, as well as incentive returns on equity (ROEs) in Virginia for already approved rider projects (up to and including Brunswick County ). Fitch's rating forecast assumes timely execution of the capital plan, commensurate with performance to date, and assumes the utility will access the debt capital markets for any additional funding. The utility capital structure can sustain additional leverage minimizing leverage concerns, in Fitch's opinion. Fitch views the regulatory environment in Virginia and North Carolina as balanced, and continues to expect supportive treatment for timely recovery of fuel and capital costs. Virginia 2013 Biennial Review: In November 2013 , the Virginia State Corporate Commission (VSCC) completed its biennial review of VEPCo for fiscal years 2011 and 2012. The outcome was consistent with Fitch expectations as the utility had not sought an increase in base rates having earned an average ROE for the combined test period (2011-2012) which was within the earnings sharing band of 10.9% plus or minus 50 basis points. The biennial review established an authorized ROE of 10% with an allowed earnings range of 10% to 10.7%. A 10% base ROE is to be used for existing generation rate riders. Notably excluded from Virginia legislation are incentive ROEs for any new generation projects that are neither sourced by nuclear or off-shore wind energy. Sufficient Liquidity: VEPCo is a joint borrower with parent company Dominion Resources, Inc. (IDR 'BBB+', Stable Outlook) on two separate revolvers for total consolidated borrowing capacity of $3.5 billion , of which $1.56 billion was available at fiscal year ended (FYE) Dec. 31, 2013 . Total liquidity at the FYE was $1.88 billion , including $316 million in cash balance. The revolvers mature in September 2018 and are sized at $3 billion and $500 million , respectively. VEPCo sub-limits are currently set at $1 billion and $250 million , respectively, and can be changed on an as-needed basis. RATING SENSITIVITIES: --Maturation of VEPCo's large utility capital plan with sustained credit metrics near current levels could result in a positive rating action. --Less supportive regulatory treatment in Virginia and North Carolina and/or the FERC could limit the ability of VEPCo to earn an adequate and timely return on investments. Additional information is available at ' www.fitchratings.com' . Applicable Criteria and Related Research : --'Recovery Ratings and Notching Criteria for Utilities', Nov. 19, 2013 ; --'Corporate Rating Methodology: Including Short-term Ratings and Parent and Subsidiary Linkage', Aug. 5, 2013 ; --'Rating North American Utilities, Power, Gas and Water Companies', May 16, 2011 ; --'Short-Term Ratings Criteria for Non-Financial Corporates', Aug. 5, 2013 . Applicable Criteria and Related Research : Short-Term Ratings Criteria for Non-Financial Corporates http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714415 Recovery Ratings and Notching Criteria for Utilities http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085 Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139 Rating North American Utilities, Power, Gas, and Water Companies http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=819484 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Ratings Primary Analyst Lindsay Minneman , +1 212-908-0592 Director Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 or Secondary Analyst Rob Hornick , +1 212-908-0523 Senior Director or Committee Chairperson Glen Grabelsky , +1 212-908-0577 Managing Director or Media Relations: Brian Bertsch , +1 212-908-0549 brian.bertsch@fitchratings.com Source: Fitch Ratings


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