Disclaimer: Student Research. Dominion Resources. Research Presentation As of March 1, 2017

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1 Dominion Resources Research Presentation As of March 1, 2017

2 DISCLAIMER All information contained in this document is the opinion of, and the result of analysis by, one or more Marist College students. It is not intended and should not be construed as offering investment advice. The analysis is not the work of professionals, is not a recommendation of any particular security, strategy or investment product, and should in no way be used to make financial decisions or investments. The opinions of the author(s) are subject to change without notice. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed to be accurate or complete.please consult your financial and tax advisors before engaging in any transactions. MARIST COLLEGE, MARIST COLLEGE SCHOOL OF MANAGEMENT, AND MARIST COLLEGE S TRUSTEES, FACULTY, STAFF, AND STUDENTS MAKE NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, ABOUT THE ACCURACY OR SUITABILITY FOR ANY USE OF THIS REPORT, AND EXPRESSLY DISCLAIM RESPONSIBILITY FOR ANY LOSS OR DAMAGE, DIRECT OR INDIRECT, CAUSED BY USE OF OR RELIANCE ON THIS REPORT, OR FURTHER COMMUNICATION PROVIDED IN RELATION TO THIS DOCUMENT. 2

3 Agenda 1 Executive Summary 5 Financial Analysis 2 Company Overview 6 Valuation 3 Investment Drivers 7 Risks 4 Industry Analysis 8 Conclusion 3

4 Share Price ($) Executive Summary Trailing Twelve Month Performance 62 Mar-16 Apr-16 May-16 Jul-16 Aug-16 Oct-16 Nov-16 Dec-16 Feb-17 Market Data Downside (9.5%) Price $76.25 Average Volume 2,629,826 Market Cap 47.8B Enterprise Value 84.8B P/E Ratio 22.16x LTM EV/EBITDA 14.60x Source: Bloomberg 1. Return inclusive of dividend, share price data as of 3/1/2017 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Recommendation: SELL Price Target: $66 (-9.5%) 1 Thousands of Shares Investment Thesis Macro drivers impede sector performance Margins threatened as energy-linked commodities rebound Rising rates will likely trigger institutional capital outflows, depressing sector performance Valuation Method Bear Base Bull DCF (Monte Carlo) 11.46x x EV/EBITDA $53.89 $65.05 $ % % WACC Comparable Companies 8.41x x Forward EV/EBITDA $44.31 $59.90 $ x x Forward P/E $68.11 $72.28 $80.10 Valuation Estimate $55.05 $65.57 $79.24 Price Target $55 $66 $79 Current Stock Price $76.25 $76.25 $76.25 Price Return Potential -27.9% -13.4% 3.6% Dividend $3.02 $3.02 $3.02 Total Return Potential -23.9% -9.5% 7.6% 4

5 Dominion Resources Becomes Dominion Energy Evolving Corporate Strategy Significant Events Name change Dominion Energy Natural Gas Projects Questar Acquisition ($5.9b, completed Feb. 2016) New gas distribution and storage assets Cove Point Liquefaction Project (~$3.5b, mid 2017) Liquefied natural gas Atlantic Coast Pipeline (~$2.6b, Late 2018) Interstate natural gas transmission Valuation Implications Uncertain future earnings Potential change in discount rate New capex may adversely impact credit Dominion above all else is an energy company. -Thomas Farrell, CEO Source: Company Filings, Moody s Investors Service (See Appendices B-1, B-2) 5

6 Company Overview 10,000 8,000 6,000 4,000 2,000 0 Revenue By Segment ($ in MM) Dominion Virginia Power Dominion Energy Dominion Generation 23.50% 19% Dominion Virginia Power Regulated electric distribution and transmission serving 2.5 million customers $8+ billion invested to upgrade/construct electric transmission lines and improve infrastructure since 2008 Dominion Generation Consists of regulated and merchant power stations Provides over 24,000 megawatts of electric generation Housing starts down 8.7% from 2015 in Virginia Heavily impacted by clean power regulation Dominion Virginia Power Dominion Generation Dominion Energy 57.50% Dominion Energy Over 12,000 miles of natural gas pipelines and one of the world s largest storage systems Increasing investment in natural gas and renewable energy generation Rising commodity prices Source: Bloomberg 4

7 Investment Concerns - Rising Input Costs U.S. Crude Oil Inventory Energy Prices Thousands of Barrels WTI Crude $/BBL Natural Gas ($/MMBtu) Depressed commodity prices have driven record operating margins for the industry As commodity prices rebound, diminishing margins reduce attractiveness Source: Bloomberg, Team Estimates (See Appendices A-10, A-12, F-2) Inventories E 2018E 2019E WTI Natural Gas 0 6

8 Investment Concerns - Rising Rate Environment Interest Rate Threats Market Implies 16.9% Chance of 100bps Increase in Fed Funds Target Rate 8,000 Debt Maturity ($ in millions) Bloomberg consensus implies a 99.4% chance of at least one rate hike in 2017 An increase in interest rates may lead to refinancing risk Capital rotation into fixed income securities threatens utility performance 6,000 4,000 2, Bond Principal Term Loan Outstanding Muni Bond Principal Amount Available in Revolvers Meeting Prob. Of Hike Prob. Of Cut 0.5%-.75% 0.75%-1.00% 1.00%-1.25% 1.25%-1.50% 1.50%-1.75% 3/15/ % 0.0% 6.0% 94.0% 0.0% 0.0% 0.0% 5/3/ % 0.0% 5.3% 84.3% 10.4% 0.0% 0.0% 6/14/ % 0.0% 2.8% 47.4% 44.9% 4.9% 0.0% 7/26/ % 0.0% 2.6% 42.8% 45.2% 8.9% 0.5% 9/20/ % 0.0% 1.4% 25.1% 44.1% 24.9% 4.2% 11/1/ % 0.0% 1.3% 22.2% 41.8% 27.3% 6.8% 12/13/ % 0.0% 0.6% 11.8% 32.1% 34.5% 16.9% Source: Bloomberg, Interest rate data as of 3/1/2017 (See Appendix D) 8

9 STEEPLE Analysis Appendix Social Demographic changes, consumer preferences (renewables) C-2 Technological Energy-efficiency, rate of change, cybersecurity E-4 Economic Growth, interest rates, inflation, general climate D Environmental Weather (heating Vs. cooling days), regulation (Clean Power Plan) A-12, G Political Policy-driven regulation G-2 Legal Tax reform, coal ash litigation F-18, E-3 Ethical Pricing, corporate governance G-2, E 9

10 Porter s 5 Forces Threat of New Entrants Bargaining Power of Customers Intensity of Competitive Rivalry Impact 0 Not applicable 1 Insignificant 2 Low 3 Moderate 4 Significant 5 High Threat of Substitutes Bargaining Power of Suppliers 10

11 Porter s 5 Forces Threat of New Entrants Bargaining Power of Customers New Strategy Changes Competitive Environment Intensity of Competitive Rivalry Impact 0 Not applicable 1 Insignificant 2 Low 3 Moderate 4 Significant 5 High Threat of Substitutes Bargaining Power of Suppliers Current strategy New strategy 11

12 Regulatory Constraints Federal Energy Regulatory Commission Nuclear Regulatory Commission Environmental Protection Agency State Commissions Customer base rates Authorized ROE Federal, state, & local agencies Variability in earnings from rate adjustment clauses reflects changes in the authorized ROE and the carrying amount of these facilities, which are largely driven by the timing and amount of capital investments, as well as depreciation. Environmental regulation Increased generation capacity Dominion Resources Annual Report Source: Company Filings (See Appendix G) 12

13 Significant Industry Trends U.S. Net Electricity Generation by Fuel ( ) billion kilowatthours 2,500 2,000 History AEO2016 Reference Case (includes Clean Power Plan) natural gas No Clean Power Plan natural gas Increasing commodity prices Credit deterioration 1,500 1,000 renewables coal renewables coal Uncertain future for coal 500 nuclear nuclear Push toward renewables 0 other other Plateauing electricity demand Source: U.S. Energy Information Administration 13

14 Financial Analysis Rising commodity price pressure margins Increasing debt burden reduces financial flexibility Z-Score reflects credit deterioration Altman's Z-Score Dominion Resources Peer Group Median Ratio Analysis Profitability Analysis Gross Margin 55.4% 59.4% 57.5% 58.9% 69.1% 75.4% Return on Equity 12.0% 2.7% 15.3% 11.3% 15.7% 15.6% Return on Assets 3.2% 0.7% 3.5% 2.5% 3.4% 3.3% Liquidity Analysis Current Ratio Quick Ratio Total Debt/Equity Credit Analysis EBITDA to Interest Expense 4.77x 2.95x 5.37x 3.59x 5.76x 5.42x Total Debt/EBIT 7.23x 18.59x 6.87x 9.54x 8.19x 9.68x Other Payout Ratio 81.4% 373.1% 72.9% 106.8% 80.8% 81.3% Altman's Z-Score Source: Bloomberg, Moody s Investors Service (See Appendices A-4 through A-7) 14

15 Financial Analysis: Credit Rating Concerns S&P Moody s Fitch BBB+ Baa2 BBB+ We Believe Dominion is Effectively a BBB Company 5.0% 4.5% Dominion Vs. Sector Yield Curves 1 Recent issuances rated BBB Issuer 1 Year Default Probability (bps) 5 Year Default Probability (bps) Model CDS (bps) Market CDS (bps) American Electric Power Co Dominion Resources Duke Energy n/a Edison International NextEra Energy n/a PG&E Average [40.5] 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 1Y2Y3Y4Y5Y 7Y8Y9Y10Y 12Y 15Y 20Y 25Y 30Y Dominion BBB+ Utilities BBB Utilitities Utilities Source: Bloomberg 1. Sum squared deviations from Dominion Yield curve: BBB+ Utilities 0.275% 2, BBB Utilities 0.168% 2 indicating Dominion is consistently closer to BBB across various tenors. (See Appendices A-4 through A-7) 15

16 Valuation Methodology Sell Recommendation Based on DCF and Relative Valuation Monte Carlo Enhanced DCF 6 Sensitive Variables 5,000 Trials 50% weight $65.05 Forward Enterprise Value/EBITDA $5, EBITDA Forecast Modeled multiple of 12.16x 25% weight $ year Price Target $66.00 Forward Price/Earnings $ EPS Forecast Modeled multiple of 19.48x 25% weight $72.28 Source: Bloomberg, Team Estimates 1. Modeled multiples inclusive of a mean historical premium (See Appendix F) 16

17 Valuation Range Bear $55 Imputed Per Share Value (Share Values in $) Target $66 Bull $79 Relative Valuation (50%) Forward P/E Forward EV/EBITDA Monte Carlo Enhanced DCF (50%) Discounted Cash Flow Source: Team Estimates 17

18 Monte Carlo DCF Price Distribution 300 Monte Carlo Results (5,000 Trials, Share Values in $) Trials Bear: 21.78% Base: 52.50% Bull: 25.52% (See Appendix F-1 for a list of sensitive variables and rationale) 18

19 Investment Risks Significant Risks Probability Low Moderate High Coal Ash Litigation Weather Risk Reduced Energy Demand Counterparty Exposure Questar Underperformance State level Rate Regulation Fiscal Policy Uncertainty Unfavorable Commodity Prices Cybersecurity (See Appendices F-16, A-10) Low Moderate High Impact Business/Operational Regulatory Market/Industry 19

20 Significant Risks Cybersecurity Cyber attacks may threaten Dominion s operations and have significant national security implications Unfavorable Commodity Prices Rising natural gas prices may threaten Dominion s margins Fiscal Policy Uncertainty Expected corporate tax rate cut may be unfavorable to the regulated utility business model Potential Questar Underperformance Failure to meet financial guidance may elicit a negative market reaction (See Appendix 17) 20

21 Conclusion Confluence of Factors Leads to Sell Recommendation Recent analyst EPS estimates lowered to match Team B Increasing debt burden Rising interest rates Recommendation: SELL Target Price: $66.00 Total Return: -9.5% 1 Political & regulatory uncertainty Increasing commodity prices Source: Bloomberg 1. Return inclusive of dividend, share price data as of 3/1/2017 Uncertainty surrounding corporate strategy shift 21

22 Appendices A

23 Table of Appendices A Price Charts E Corporate Governance B Natural Gas Assets F Valuation C Generation and Capacity G Regulatory Environment D Economic Environment H 8 Dominion Midstream Partners, LP 23

24 Appendix A Price Charts A

25 Appendix A-1: Dominion Relative Performance 30% 25% 20% Cumulative Returns Recent underperformance in utilities is likely to continue 15% 10% 5% 0% -5% -10% Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 Dominion S5UTIL S&P500 Source: Bloomberg, Data as of 3/1/2017 A-1

26 Appendix A-2: Dominion 10-year Note Yield Spreads Vs. Benchmark Indices 4.75 Dominion 10-year Note Vs. Sector 10-year Indices 60 Dominion Spread to Sector 10-year Indices (bps) Dominion 10-year BBB Utilities 10-year BBB+ Utilities 10-year D - BBB D - BBB+ Source: Bloomberg, Data as of 3/1/2017 A-2

27 Appendix A-3: Interest Rate Risk Utilities Vs. 10-Year Note Yield % % % % % % % 200 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov % S&P Utilities Index 10-Year US Treasury Yield Source: Bloomberg, Data as of 3/1/2017 A-3

28 Dominion Consistently Trades Wider to Peers Appendix A-4: Dominion Yield Curve Versus Comparables 4.8% Comparable Yield Curves 4.3% 3.8% 3.3% 2.8% 2.3% 1.8% 1.3% 1Y 2Y 3Y 4Y 5Y 7Y 10Y 15Y 20Y 25Y 30Y Duke PG&E Dominion NextEra BBB Utilities BBB+ Utilities Source: Bloomberg, Data as of 3/1/2017 A-4

29 Appendix A-5: Key Metric Correlations to US 10-year Note Yield Correlation to United States 10-Year Note Since 1995 Pre-2008 Post-2008 Dominion Stock Price Dominion Free Cash Flow Yield Dominion Dividend Yield Dominion EBITDA Dominion EPS Dividend Yield Spread to 10- year S&P Utilities Index A-5

30 Appendix A-6: Dominion Price and Yield Versus US 10-Year Note Yield Dominion Stock Price Vs. US 10 Year Dominion Dividend Yield Vs. US 10 Year Dominion Stock Price US 10-year Index Dominion Dividend Yield US 10-year Index Source: Bloomberg A-6

31 Appendix A-7: Performance Relative to US 10-Year Note Yields 8 Dominion Yield Spread Vs. US 10 Year 300 S&P Utilities Vs. 10 Year Dividend Yield Spread to 10-year US 10-year Index s5util USGG10YR Source: Bloomberg A-7

32 Appendix A-8: 30 Years of a Bull Market for Bonds Year Note Yield Yield (%) Source: Bloomberg, Data as of 3/1/2017 A-8

33 Appendix A-9: Industry Performance S&P Energy Index Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 S5ENRS 50-Day MA 200-Day MA 2400 S&P Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Source: Bloomberg S&P Day MA 200-Day MA S&P Utility Index 200 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 S5UTIL 50-Day MA 200-DAY MA Dominion Share Price (Price in $) Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Dominion 50-Day MA 200-Day MA A-9

34 Appendix A-10: Commodity Prices Uranium $/lb Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan Uranium 50-Day MA 200-Day MA Natural Gas ($/MMBtu) 1 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan Crude Oil (WTI) ($/BBL) WTI 50-Day MA 200-Day MA Coal $/Short Ton 40 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Source: Bloomberg Natural Gas 50-Day MA 200-Day MA Coal 50-Day MA 200-Day MA A-10

35 Appendix A-11: MLP Performance: Volatile But Inline with Dominion Resources 50% Dominion Resources Vs. Dominion Midstream 40% 30% 20% 10% 0% -10% -20% Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Dominion Dominion Midstream Source: Bloomberg, Data as of 3/1/2017 A-11

36 Heating Degree Days Drives Incremental Natural Gas Demand Appendix A-12: Heating Degree Days and Natural Gas Heating Degree Days Temperature Vs. Natural Gas Demand (Incremental demand correlation = 0.78 Vs. baseline = 0.02) , , , ,000 80,000 60,000 40,000 20,000 - Demand for Natural Gas (MMcf/Day) Heating Degree Days Temperature Vs. Natural Gas Price (3-week lagged correlation = 0.69) Natural Gas Prices ($/MMBtu) Heating Degree Days Demand for Natural Gas Heating Degree Days Natural Gas Price Source: Bloomberg, NOAA A-12

37 Appendix B Natural Gas Assets A

38 Appendix B-1: Significant Natural Gas Investments Distribution & Pipeline Questar $5.9B acquisition 3,400 miles of natural gas transmission Western US 1 million new customers Currently operating Transmission Atlantic Coast Pipeline Pipeline $2.6B project 45% ownership c.600 Miles of pipeline Virginia & North Carolina 1.5B cubic ft. per day Construction starts Q Processing Processing Cove Point Cove Point $3.6B project 78% complete 14.6B cubic ft. storage capacity Maryland Estimated completion Q Source: Company Filings B-1

39 Appendix B-2: Significant Natural Gas Investments Transmission Forward P/E Forward EV/EBITDA Enterprise Products Partners (EPD) 22.18x 14.63x Kinder Morgan Inc (KMI) 32.23x 12.08x Plains All American Pipeline (PAA) 18.61x 10.69x Energy Transfer Partners (ETP) 30.12x 9.99x Distribution Forward P/E Forward EV/EBITDA Center Point Energy (CNP) 21.83x 9.02x Chesapeake Energy (CHK) 7.08x 7.53x Eversource Energy (ES) 18.61x 10.69x PPL Corp (PPL) 17.00x 11.02x Processing Forward P/E Forward EV/EBITDA DCP Midstream (DCP) 25.79x 7.69x The Williams Company (WMB) 32.40x 12.29x Energy Transfer Partners (ETP) 30.12x 9.99x Targa Resources Corp. (TRGP) x 13.57x Source: Bloomberg, Data as of 3/1/2017 B-2

40 Appendix C Generation and Capacity A

41 Appendix C-1: Fuel Type Used in Generation Source: Bloomberg New Energy Finance - US energy overview C-1

42 Dominion s Sales Volume Has Remained Constant Appendix C-2: Electricity Sales Volume by Customer Type Volume 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Sales Volume by Customer Type (MM kwh) Residential Commercial Industrial Other Source: Bloomberg C-2

43 Appendix C-3: Dominion Generation by Fuel Type: % Dominion Capacity by Fuel Type (% of Total Capacity) 35.00% 30.00% % of Total Capacity 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Coal Gas Uranium Oil Hydro Wind Biomass Other Source: Bloomberg C-3

44 Appendix C-4: Dominion Capacity by Fuel Type 2015 Dominion Capacity by Fuel Type (FY2015) 9.46% 1.26% 1.05% 0.05% 19.67% 9.64% 23.88% 34.98% Total Generation Capacity: 25,700 MW Source: Bloomberg Coal Gas Uranium Oil Hydro Wind Biomass Other C-4

45 Appendix C-5: System Average Interruption Duration Index (SAIDI) Outage (Time in Minutes) Outage Time Inclement weather & natural disasters More frequent adverse weather events have increased Dominion s outage response time over the last 3 years Dominion Industry Average Source: Bloomberg, Company Filings C-5

46 Appendix C-6: EIA Net Generation C-6

47 Appendix C-7: 2016 Net Generation for Electric Utility (% of Total) 2016 U.S Net Generation for Electric Utility Percent of Total Generation Other 0.01% Hydro-electric Pumped Storage -0.24% Other Renewables 1.86% Conventional Hydroelectric 10.70% Nuclear 18.42% Other Gasses 0.01% Natural Gas 28.41% Petroleum Coke 0.39% Petroleum Liquids 0.38% Coal 40.07% Source: Bloomberg -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% C-7

48 Appendix C-8: 2016 U.S. Net Generation All Sectors (% of Total) 2016 U.S. Net Generation (All Sectors) Percentage of Total Generation Other 0.34% Hydro-electric Pumped Storage -0.16% Other Renewables Conventional Hydroelectric 6.52% 8.42% Nuclear 19.74% Other Gasses 0.32% Natural Gas 33.84% Petroleum Coke Petroleum Liquids 0.28% 0.31% Coal 30.40% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% Source: Bloomberg C-8

49 Appendix D Economic Environment A

50 Appendix D-1: Economic Indicators (2017 Forecasts) CPI 2.4% YoY Unemployment 4.6% YoY Housing Starts 1,250,000 (monthly average) Real GDP 2.3% YoY Case for Fed Rate Hike Non Farm Payrolls 171,000 (monthly average) Source: Bloomberg, Data as of 3/1/2017 D-1

51 Appendix D-2: Economic Indicators 5.1 United States % Unemployment (U-3) United States Non-Farm Payrolls (Monthly Average) 5 350,000 % Unemployment Average Non Farm Payrolls 300, , , , ,000 50, Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Quarter 0 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Quarter Source: Bloomberg, Data as of 3/1/2017 D-2

52 Appendix D-3: Economic Indicators 3 United States CPI (YoY%) 3 United States Real GDP (YoY%) CPI % Real GDP % Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Quarter 0 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Quarter Source: Bloomberg, Data as of 3/1/2017 D-3

53 Appendix D-4: Federal Reserve Dot Plot Waiting too long to remove accommodation would be unwise. -Janet Yellen (Feb. 1, 2017 meeting) D-4

54 Appendix E Corporate Governance A

55 Appendix E-1: Corporate Governance: Comparison to Peers Dominion Resources American Electric Power PG&E Duke Energy Edison International NextEra Energy Peer Median Independent Directors % Board Size (members) Women Directors % Director Meeting Attendance % Board Average Age 90% 91.67% 91.67% 93.3% 88.9% 92.3% 91.7% % 25% 25% 20% 33.3% 23.1% 25% 75% 98% 92% 98% 75% 75% 97% Source: Bloomberg, Data as of 3/1/2017 E-1

56 Appendix E-2: Corporate Social Responsibility Invested more than $30 million in education since 1985 Reduced carbon emissions by 25% since 2000 Formal volunteer programs with strong management support EnergyShare help eligible customers pay energy bills Source: Dominion Resources, Bloomberg E-2

57 Appendix E-3: Litigation Gas Producers Litigation Pending, Material impact to cash flows expected Appalachian Gateway Pipeline Contractor Litigation Pending, Accrued liability $6 million Other, 29 LITIGATION CASE TYPES Land, 20 FERC Rules Violation Combustion turbine offers, Investigation underway Ash Pond and Landfill Closure Costs EPA programs in progress, Incremental costs for coal ash sites expected Insurance, 4 Employment, 4 ERISA, 11 General, 15 Source: Bloomberg, Company Filings, WestLaw E-3

58 Appendix E-4: Solar Headlines Old U.S. Solar Program Hints That Demand Could Spike in Bloomberg Intelligence Dominion Solar Investment in Virginia Approaches $1 Billion -PR Newswire Dominion Completes 56 Megawatts of Solar Projects -Renewables Now Solar, Wind Industry May Be Trump-Proof Despite Fossil-Fuel Tilt -Bloomberg Intelligence Source: Bloomberg E-4

59 Appendix F Valuation A

60 Appendix F-1: Valuation Assumptions - Monte Carlo Sensitive Variables (FY 2017 FY 2020) Uniform Distribution Variable Low High WACC Low value in range of relevered historical beta High value in range of relevered historical beta Normal Distribution Variable Mean Standard Deviation Terminal EV/EBITDA Premium Mean peer EV/EBITDA with 25% premium Standard deviation of premium to peer multiple Other Gas Revenue Team projections Historical standard deviation Fuel Cost Mean fuel cost change Historical based on fuel input futures Purchased Power Cost Team projections Historical standard deviation Purchased Gas Cost Note: WACC only applies to terminal year discounting Median contributor composite of the Bloomberg Natural Gas Commodity Price Forecast (Appendix F-2) 10-Year historical based on front month natural gas futures F-1

61 Appendix F-2: Valuation Assumptions - Bloomberg Natural Gas Commodity Price Forecast Median Contributor Composite Year $/MMBtu Change 2013A 3.73 n/a 2014A % 2015A % 2016E % 2017E % 2018E % 2019E 2.9-4% 2020E % Source: Bloomberg Natural Gas Commodity Price Forecast F-2

62 Appendix F-3: Monte Carlo DCF - Cumulative Probability of Simulation Results Cumulative Probability of DCF Valuation (Share Price in $) 100% 90% Bear Case Base Case Bull Case 80% 70% 60% 50% 40% 30% 20% 10% 0% Share Value F-3

63 Appendix F-4: Valuation Assumptions - WACC Build-up WACC Calculation A) Target Capital Structure Debt-to-Total Capitalization 39.1% Equity-to-Total Capitalization 60.9% B) Current Cost of Debt Cost-of-Debt 2.3% Tax Rate 40.0% After-tax Cost of Debt 1.38 D) Cost of Equity Risk-free Rate 2.5% Market Risk Premium 6.6% Relevered Beta 0.20 Cost of equity 3.87 WACC % C)Credit Adjusted Cost of Debt US 10 Year Treasury 2.5% BBB Utilities Spread 1.33% Pre Tax Cost of Debt 3.8% Tax Rate 40% After-tax Cost of Debt 2.27 Source: Bloomberg, Team Estimates 1) WACC based on Synthetic Cost of Debt. This results in a WACC of 3.25%. The WACC computed using the actual Cost of Debt is 2.9% F-4

64 Appendix F-5: Valuation Assumptions - Shares Outstanding Treasury Stock Method ($ in millions, except per share data, shares in millions) Assumptions Share Price $66.00 Basic Shares Outstanding In-the-Money Options 0.26 Weighted Average Exercise Price $13.14 Calculation of Fully Diluted Shares Option Proceeds $3.38 Current Share Price $66.00 Shares Repurchased from Option Proceeds 0.05 Shares from In-the-Money Options 0.26 Less: Shares Repurchased from Options Net New Shares from Options 0.31 Plus: Basic Shares Outstanding Fully Diluted Shares Outstanding Source: Company Filings Note: Monte Carlo ran the implied share price through the TSM before concluding on a final price for that trial. This example calculates shares outstanding at our price target. F-5

65 Appendix F-6: Valuation Assumptions - Working Capital FY 2012 FY 2013 FY 2014 FY 2015 LTM Q E 2017E 2018E 2019E 2020E From Income Statement Revenue 13,093 13,120 12,436 11,683 11,207 12,418 13,119 14,111 15,270 16,551 Cost of Revenue 5,312 5,574 5,116 3,606 2,871 3,405 4,025 4,498 5,092 5,813 Current Assets Net Accounts Receivable 1,621 1,695 1,514 1,200 1,259 1,359 1,436 1,545 1,672 1,812 Supplies And Fuel 1,259 1,176 1,410 1,348 1,516 1,348 1,069 1, ,021 Other Current Assets 2,012 2,753 2,373 1, Current Liabilities Accounts Payable 1,137 1, ,128 Other Accounts Payable Other Current Liabilities 1,355 1,771 1,530 1,544 1, Non Cash Working Capital 1,764 2,076 2, ,047 1,725 2,021 1,589 1,705 Change (1,450) 1,248 (323) 296 (432) 117 Average Days Sales in Inventory Days Payables Out Days Sales Out Source: Bloomberg, Team Estimates Note: $ in MM, Non Cash Working Capital Projections based on historical DSI, DPO, and DSO F-6

66 Appendix F-7: DCF Summary Without Monte Carlo Historical Period LTM Projection Period Q Sales 13,120 12,436 11,683 11,207 12,418 13,119 14,111 15,270 16,551 % growth 0.2% -5.2% -6.1% 6% 6% 6% 8% 8% COGS 5,574 5,116 3,606 2,871 3,405 4,025 4,498 5,092 5,813 Gross Profit 7,546 7,320 8,077 8,336 9,013 9,094 9,614 10,178 10,738 % Margin 57.5% 58.9% 69.1% 74.4% 73% 69% 68% 67% 65% Operating Expenses 3,993 3,796 4,321 4,871 4,953 5,079 5,228 5,397 Operating Income 3,553 3,524 3,756 3,607 4,142 4,141 4,535 4,950 5,341 % Margin 47.1% 48.1% 46.5% 43% 47% 47% 47% 47% 47% EBITDA 5,084 5,084 5,425 5,338 5,892 5,966 6,560 7,175 7,766 % margin 38.8% 40.9% 46.4% 47.6% 46% 45% 45% 45% 45% Depriciation & Amortization 1,390 1,560 1,669 1,700 1,750 1,825 2,025 2,225 2,425 EBIT ,157 4,729 5,086 5,504 5,966 % margin 28.2% 28.3% 32.1% 33% 36% 36% 36% 36% Taxes ,663 1,891 2,034 2,201 2,386 EBIAT 2,802 3,072 2,851 2,922 2,494 2,837 3,052 3,302 3,579 Source: Bloomberg, Team Estimates Note: $ in MM F-7

67 Appendix F-9: Free Cash Flow Build-Up Without Monte Carlo Historical Period LTM Projection Period Q EBIAT 2,802 3,072 2,851 2,922 2,494 2,837 3,052 3,302 3,579 Plus: Depriciation & Amortization 1,390 1,560 1,669 1,700 1,750 1,825 2,025 2,225 2,425 Less: CapEx (4,104) (5,345) (4,104) (6,365) (6,910) (4,852) (4,253) (4,000) (4,000) Less: Increase in Non-Cash Working Capital (312) (173) 1,450 (1,248) 323 (296) 432 (117) Unlevered FCF (224) (886) 1,866 (3,914) ,959 1,888 WACC 3.25% Discount Period Discount Factor PV of FCF (3,852) ,752 1,635 Source: Bloomberg, Team Estimates Note: $ in MM F-8

68 Appendix F-10: DCF Calculated Share Price Without Monte Carlo Segment Enterprise Value Cumulative PV of FCF in Projection Period Terminal Value Terminal Year EBITDA (2020E) 7, Exit Multiple 11.86x Terminal Value 92,067 Discount Factor 0.82 PV of Terminal Value 75, % of Enterprise Value 99.8% Implied Equity Value Enterprise Value 75, Less: Total Debt (34,735) Less: Preferred Stock - Less: Minority Interests (607) Plus: Cash and Cash Equivalents 377 Implied Equity Value 40,564 Fully Diluted Shares Outstanding Enterprise Value 75,529 Implied Equity Value Per Share $64.69 Source: Bloomberg, Team Estimates Note: $ in MM, Except per share data F-10

69 Appendix F-11: DCF Sensitivity Analysis Without Monte Carlo Implied Perpetuity Growth Rate Terminal Year FCF (2020E) 1,888 WACC 3.25% Terminal Value 92,067 Implied Perpetuity Growth Rate 1.14% Implied EV/EBITDA Multiple Enterprise Value 75,529 LTM 9/30/2016 EBITDA 5,338 W A C C Implied Per Share Value Exit Multiple 10.0x 11.0x 11.9x 13.0x 14.0x 2.75% % % % % Implied EV/EBITDA 14.15x Source: Bloomberg, Team Estimates Note: $ in MM, except per share data F-11

70 Appendix F-12: Valuation Comparable Company Analysis 2017E EBITDA Implied Equity Value per Share Bear Base Bull 2017E EBITDA 5,966 5,966 5,966 Peer EV/EBITDA 8.41x 9.73x 11.76x Premium 25% 25% 25% Modeled EV/EBITDA 10.52x 12.16x 14.71x Implied Enterprise Value 62,749 72,523 87,730 Less: Total Debt (34,735) (34,735) (34,735) Less: Preferred Stock Less: Minority Interests (607) (607) (607) Plus: Cash E EPS Implied Value per Share Bear Base Bull 2017E EPS $3.71 $3.71 $3.71 Price to Earnings 16.39x 17.39x 19.28x Premium 12% 12% 12% Modeled P/E 18.36x 19.48x 21.59x Implied Share Price $68.11 $72.28 $80.10 Implied Equity Value 27,784 37,558 52,765 Fully Diluted Shares Outstanding Implied Value Per Share $44.31 $59.90 $84.15 Source: Bloomberg, Team Estimates 1) Premiums modeled based on Dominion s historical premium to peers. F-12

71 Appendix F-13: Forward Multiple Analysis Ticker FWD EV/EBITDA FWD P/E D 14.38x 19.87x AEP 9.40x 16.44x PCG 8.20x 16.35x DUK 10.05x 16.41x EIX 8.49x 18.35x NEE 10.89x 19.08x Mean 10.23x 17.48x Median 9.73x 16.44x Low 8.20x 16.35x High 14.38x 19.87x First Quartile 8.41x 16.38x Third Quartile 11.76x 19.11x Source: Bloomberg, Team Estimates F-13

72 Dominion P/E Multiple Diverges from Peer Index Appendix F-14: Dominion Price/Earnings Vs. Comparable Indices 32.0x 29.0x 26.0x Price/Earnings Vs. S&P Utilities Dominion has become more richly valued than its peers 23.0x 20.0x 17.0x 14.0x 11.0x 8.0x Average Spread S&P Time Period Utilities S&P x -6.18x x 0.18x x -4.20x Current 2.14x -1.58x 5.0x D US Equity S&P 500 Utilities Source: Bloomberg, Data as of 3/1/2017 F-14

73 Dominion P/E Multiple Diverges from Peer Index Appendix F-15: Dominion Price/Earnings Vs. Comparable Indices 90.0x 80.0x 70.0x 60.0x Dominion P/E Vs. Dow Jones Utilities 23.0x 21.0x 19.0x 17.0x 15.0x 13.0x 11.0x 50.0x 40.0x 30.0x 20.0x 10.0x 0.0x UTIL Index D US Equity Source: Bloomberg, Data as of 3/1/2017 F-15

74 Appendix F-16: Dominion Overpays for Questar Dominion Has Reduced Economic Value For Shareholders Price/Earnings 35x 30x 25x 20x 15x 10x 5x 0x Transaction Impact 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Goodwill Acquisition cost of $5.9B $1.6B in debt assumption Result in $3.1B in goodwill D s pre-acquisition P/E ~22x Post-acquisition drops to ~20x DM s pre-acquisition P/E 29.5x After pipeline transfer ~18x Questar pre-acquisition P/E ~16x Purchased at ~22.5x LTM EPS D commands higher multiples because of gas assets, yet DM coinvests in the same assets with lower P/E Dominion Resources P/E Dominion Midstream P/E Dominion Goodwill Source: Bloomberg F-16

75 Appendix F-17: Default Risk Scenario Analysis Share Price Effect on Default Risk Default Risk and 5-year CDS at LT Debt Levels Bear Base Bull Price $55 $66 $79 Default Risk IG7 IG6 IG6 1-Year Default Prob. 0.06% 0.05% 0.04% Modeled 5-year CDS 56bps 47bps 40bps 0.06% 0.06% 0.05% 0.05% 0.04% % % - 3 billion - 2 billion - 1 billion Current + 1 billion + 2 billion + 3 billion Debt Level 40 Source: Bloomberg, Team Estimates Note: Bloomberg Default Risk Model Default Risk Modeled CDS F-17

76 Appendix F-18: Tax Policy Implications Concerns Investment tax credits can be in jeopardy Interest expense write offs are threatened Energy will fare better if there are significant foreign earnings Utilities are likely to receive little benefit on corporate tax reform Growth Drivers Lower tax on domestic Earnings Source: Wells Fargo Securities, Bloomberg F-18

77 Appendix F-19: Dominion EVA Analysis 20 WACC Vs. ROIC Economic Value Added = $171.5MM Current EVA spread = 31bps Average EVA spread = -137bps Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 WACC ROIC Source: Bloomberg, Data as of 3/1/2017 F-19

78 Appendix G Regulatory Environment A

79 Appendix G-1: Federal Regulatory Environment Federal Energy Regulatory Commission Regulates wholesale sales and interstate transmission of electricity for public utilities Nuclear Regulatory Commission Regulates Dominion s operations and maintenance of all nuclear power stations Environmental Regulation Clean Power Plan aims to reduce carbon emissions by 32% from 2005 levels by 2030 in the electric power sector 30% business investment tax credit for solar extended through 2019 G-1

80 Appendix G-2: State Regulatory Environment Electric Gas Base Rates ROE Biennial Review Cost-of-service rate model Rate adjustment for recovery of costs for new projects, transmissions, environmental compliance, and other expenses) Rate adjustments to recover operating costs and return on investments In February 2015, Virginia legislators extended base rates through December Virginia Commission will rule in 2017 and 2019 for new authorized ROE. March 15 biennial review established that Virginia Power earned an ROE of 10.89% for the 2013 and 2014 exceeding the authorized ROE of 10%. Firm ordered to credit $20 million of its earnings to its customers. G-2

81 Appendix H Dominion Midstream Partners, LP (NYSE:DM) A

82 Appendix H-1: Dominion Midstream Partners Tax Benefit & Structure Must make 90% of income from qualified sources Tax-advantaged structure gives MLP s lower cost of capital Earnings are only taxed at capital gains rates Dominion Midstream Assets All membership interests of Dominion Carolina Gas All membership interests of Questar Pipeline 25.57% partnership interest in Iroquois L.P. Dominion Resources owns 24.07% Preferred equity & G.P. interest in Cove Point Market Data Closing Price $31.65 Average Daily Volume 219,031 Market Capitalization $3.12B P/E Ratio Enterprise Value $6.3B Distribution Yield 3.19% Source: Bloomberg, Company Filings, Data as of 3/1/2017 H-1

83 Appendix H-2: Dominion Midstream Partners Investment Risks Ability to generate stable cash flows Dependency on contractors and regulators Being treated as a non-entity Dominion Resources Ownership Dominion Resources owns 50.9% of the common & subordinated units 37.5% of convertible preferred equity interest Management Conflicts Thomas F. Farrell President, CEO, Chairman Diane G. Leopold President & CEO- Dominion Energy Mark F. McGettrick Executive VP & CFO David A. Wollard Former President Joseph M. Rigby Chairman Dominion Midstream Dominion Midstream Vs. Dominion Resources (Share Price in $) Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Dominion Resources Source: Bloomberg, Data as of 3/1/2017 Dominion Midstream Dominion Resources H-2