DCUC Dominion Energy VA New 2014 Series A Corp Unit

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2016 AND 2015, AND FOR THE YEAR ENDED DECEMBER 31, 2016

The following description of the Dominion Salaried Savings Plan (the Plan) provides only general information. Participants should refer to the Summary Plan Description for a more complete description of the Plan’s provisions.

Employees hired on or after January 1, 2008 are enrolled automatically into the Plan at a 4% tax-deferred contribution rate approximately 45 days after the date of hire, rehire, or transfer unless an alternative election is made. Certain rehires and transfers are generally auto-enrolled depending on criteria such as, but not limited to, their hire date, enrollment status, and whether they have incurred a break-in-service. This Plan also provides an employee directed auto-save feature. The auto-save feature is elective and increases the contribution percentage each year in 1% increments, up to a maximum percentage.

Individual participant accounts invested in the Common Collective Trust Funds and the separately managed accounts are maintained on a unit value basis. Participants do not have beneficial ownership in specific

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underlying securities or other assets in the various funds, but have an interest therein represented by units valued as of the last business day of the period. The various funds earn dividends and interest, which are automatically reinvested within the funds. Generally, contributions to and withdrawal payments from each fund are converted to units by dividing the amounts of such transactions by the unit values as last determined, and the participants’ accounts are charged or credited with the number of units properly attributable to each participant.

Dominion Money Market Fund

Real Estate Fund

Intermediate Bond Fund ⁽³⁾

S&P 500 Index Fund ⁽³⁾

Small/Mid Cap Equity Index Fund ⁽³⁾

Multi-Asset Class Inflation Managed Collective Investment Trust ⁽³⁾

Target Retirement Income Trust I ⁽⁴⁾

Target Retirement 2015 Trust I ⁽⁵⁾

Target Retirement 2020 Trust I ⁽⁵⁾

Target Retirement 2025 Trust I ⁽⁵⁾

Target Retirement 2030 Trust I ⁽⁵⁾

Target Retirement 2035 Trust I ⁽⁵⁾

Target Retirement 2040 Trust I ⁽⁵⁾

Target Retirement 2045 Trust I ⁽⁵⁾

Target Retirement 2050 Trust I ⁽⁵⁾

Target Retirement 2055 Trust I ⁽⁵⁾

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International Equity Fund ⁽⁶⁾

Emerging Markets Equity Fund ⁽⁷⁾

International Bond Fund ⁽⁸⁾

1-3 Year Bond Fund ⁽⁹⁾

The loans are interest-bearing at the prime rate of interest plus 1%. The rate is determined at the beginning of each month if a change has occurred in the prime rate. However, the rate is fixed at the inception of the loan for the life of the loan.

Participants make principal and interest payments to the Plan through payroll deductions. Any defaults in loans result in a reclassification of the remaining loan balances as taxable distributions to the participants.

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Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.

Income from Master Trust includes dividend income and realized and unrealized appreciation (depreciation).

Investment management fees and operating expenses charged to the Plan are deducted from income earned on a daily basis and are not separately reflected. Consequently, investment management fees and operating expenses are reflected as a reduction of investment return.

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The Plan’s investments in the Dominion Money Market Fund, the Real Estate Fund, the Intermediate Bond Fund, the S&P 500 Index Fund, the Small/Mid Cap Equity Index Fund and the Multi-Asset Class Inflation Managed Collective Investment Trust are held in a Master Trust that was established for the investment of assets for the Plan and other employee benefit plans of Dominion Energy and its subsidiaries. Northern Trust held the assets of the Master Trust as of December 31, 2016 and 2015.

Dominion Money Market Fund — As of December 31, 2016 and 2015, the Plan’s interest in the net assets of the Fund was approximately 76% and 77%, respectively. Investment income and administrative expenses relating to the Fund are allocated to the individual plans based upon average monthly balances invested by each plan. The Fund invests primarily in short-term securities.

The following tables present the value of the undivided investments and related investment income in the Dominion Money Market Fund:

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Investment income for the Dominion Money Market Fund was as follows:

Real Estate Fund— As of December 31, 2016 and 2015, the Plan’s interest in the net assets of the Fund was approximately 86%. The Fund invests primarily in equity securities of real estate business companies, which are stated at fair value based on the closing sales price reported on the NYSE on the last business day of the Plan year. The Fund employs a value-driven approach to invest in equity securities of companies that are in the U.S. real estate business. The focus is on real estate investment trusts (REITs), as well as real estate operating companies. The Fund is diversified among property types and geographic regions primarily within the U.S. Investment income and expenses relating to the Fund are allocated to the individual plans based upon average monthly balances invested by each participant.

The following tables present the value of the undivided investments and related investment income in the Real Estate Fund:

Investment income for the Real Estate Fund was as follows:

Intermediate Bond Fund— As of December 31, 2016 and 2015, the Plan’s interest in the net assets of the Fund was approximately 83%. The Fund invests in privately held fixed income mutual funds that invest in U.S. government securities, corporate debt instruments, other debt instruments and money market investments which are stated at fair value based on the closing sales price reported on the pertinent exchanges on the last business day of the Plan year. The weighted average maturity of the portfolio is benchmarked to the Barclays U.S. Aggregate Bond Index, a proxy for the bond market. Investment income and expenses relating to the Fund are allocated to the individual plans based upon average monthly balances invested by each participant.

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The Intermediate Bond Fund consists of the following privately held mutual funds owned by the Master Trust, the strategies of which are stated below:

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The following tables present the value of the undivided investments and related investment income in the Intermediate Bond Fund:

Investment income for the Intermediate Bond Fund was as follows:

S&P 500 Index Fund— As of December 31, 2016 and 2015, the Plan’s interest in the net assets of the Fund was approximately 85%. The Fund attempts to replicate the S&P 500 Index by investing in the stocks that make up the S&P 500 Index, holding each stock in approximately the same proportion as its weighting within the Index. Investment income and expenses relating to the Fund are allocated to the individual plans based upon average monthly and quarterly balances, respectively, invested by each participant.

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The following tables present the value of the undivided investments and related investment income in the S&P 500 Index Fund:

Investment income for the S&P 500 Index Fund was as follows:

Small/Mid Cap Equity Index Fund— As of December 31, 2016 and 2015, the Plan’s interest in the net assets of the Fund was approximately 86%. The Fund seeks to approximate the risk/return objectives of the Dow Jones U.S. Completion Total Stock Market Index, an Index designed to represent all U.S. Equity issues with readily available prices, excluding the components of the S&P 500 Index. Investment income (loss) and expenses relating to the Fund are allocated to the individual plans based upon average monthly and quarterly balances, respectively, invested by each participant.

The following tables present the value of the undivided investments and related investment income in the Small/Mid Cap Equity Index Fund:

Investment income for the Small/Mid Cap Equity Index Fund was as follows:

Multi-Asset Class  Inflation Managed Collective Investment Trust— Effective October 1, 2016, the Neuberger Berman Multi-Asset Class Inflation Managed Fund, a mutual fund, was replaced by the Neuberger Berman Multi-Asset Class Inflation Managed Collective Investment Trust, a common collective trust. As of December 31, 2016, the Plan’s interest in the net assets of the Fund was approximately 82%. The Trust seeks to provide long term real returns across various markets, especially during stable to rising inflationary environments. The Trust can invest in equities, commodities, REITs, Master Limited Partnerships (MLPs), debt securities, fixed and floating rate debt as well as inflation-linked debt issued by governments and corporates both domestic and foreign and other asset classes that can offer the opportunity to outperform inflation over the long term. Investment income (loss) and expenses relating to the Fund are allocated to the individual plans based upon average monthly and quarterly balances, respectively, invested by each participant.

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The following tables present the value of the undivided investments and related investment income in the Multi-Asset Class Inflation Managed Collective Investment Trust:

Investment income for the Multi-Asset Class Inflation Managed Collective Investment Trust was as follows:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. Fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. Fair value measurements assume that the transaction occurs in the principal market for the asset or liability (the market with the most volume and activity for the asset or liability from the perspective of the reporting entity), or in the absence of a principal market, the most advantageous market for the asset or liability (the market in which the reporting entity would be able to maximize the amount received or minimize the amount paid). The Plan applies fair value measurements to the Plan’s investments in accordance with the requirements described above.

Inputs and Assumptions

The Plan maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring the fair value of its investments. Fair value is based on actively-quoted market prices, if available. In the absence of actively-quoted market prices, the Plan seeks price information from external sources, including broker quotes. When evaluating pricing information provided by brokers, the Plan considers whether the broker is willing and able to trade at the quoted price, if the broker quotes are based on an active market or an inactive market and the extent to which brokers are utilizing a particular model if pricing is not readily available. If pricing information from external sources is not available, or if the Plan believes that observable pricing is not indicative of fair value, judgment is required to develop the estimates of fair value. In those cases, the Plan must estimate prices based on available historical and near-term future price information and certain statistical methods that reflect market assumptions.

The inputs and assumptions used in measuring fair value for investments include the following:

The Plan regularly evaluates and validates the inputs used to estimate fair value by a number of methods, including review and verification of models, as well as various market price verification procedures such as the use of multiple broker quotes to support the market price of the various investments in which the Plan transacts.

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The Plan’s investments are stated at fair value. Mutual funds are valued at quoted market prices, which represent the value of shares held by the Plan at year-end. Investment in the Dominion Stock Fund is stated at fair value, which has been determined by the custodian based on the fair value of the underlying investments within the fund. The Dominion Stock Fund is made up of Dominion Energy common stock specific to the Plan and other employee benefit plans of Dominion Energy and its subsidiaries and a NT Collective Short Term Investment Fund which is a Common Collective Trust Fund. Common Collective Trust Funds are stated at fair value as determined by the issuer of the Common Collective Trust Funds based on the fair value of the underlying investments.

Levels

The Plan utilizes the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. In these cases, the lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset.

The Plan recognizes transfers among Level 1, Level 2 and Level 3 based on fair values as of the first day of the month in which the transfer occurs. Transfers out of Level 3 represent assets that were previously classified as Level 3 for which the inputs became observable for classification in either Level 1 or Level 2.

Recurring Fair Value Measurements

Fair value measurements are separately disclosed by level within the fair value hierarchy.

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The Plan is a qualified employees’ profit sharing trust under Section 401(k) of the IRC and, as such, is exempt from federal income taxes under Section 501(a). Pursuant to Section 402(a) of the IRC, a participant is not taxed on the income and pre-tax contributions allocated to the participant’s account until such time as the participant or the participant’s beneficiaries receive distributions from the Plan.

GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service (IRS). The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2016 and 2015, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions. The Plan administrator believes the Plan is no longer subject to income tax examinations for years prior to 2013.

The Plan obtained its latest determination letter on February 20, 2014, in which the IRS stated that the Plan, as then designed, was in compliance with the applicable requirements of the IRC. The Plan has been amended since applying for the determination letter; however, the Plan administrator believes that the Plan is currently designed and operated in compliance with the applicable requirements of the IRC. The Plan has identified certain immaterial operational and administrative issues. The Plan sponsor intends to take the necessary corrective action in accordance with the acceptable correction methods of the Employee Plans Compliance Resolution System (EPCRS) and has recorded an associated benefits payable at December 31, 2016. As the Plan sponsor is in the process of taking necessary corrective steps, the Plan administrator believes the Plan continues to maintain its tax-exempt status. Therefore, no provision for income taxes has been included in the Plan’s financial statements.

As of December 31, 2016, the Plan had an interest in the Master Trust and invested in shares of certain Common Collective Trusts that were managed by Northern Trust. At that date, Northern Trust was the trustee as defined by the Plan and, therefore, these transactions qualify as exempt party-in-interest transactions. Fees paid by the Plan for investment management services were included as a reduction of the return earned on each investment fund.

At December 31, 2016 and 2015, the Plan’s investment in the Dominion Stock Fund included 11,629,935 and 12,488,353 shares, respectively, of common stock of Dominion Energy, the Plan sponsor, with a cost basis of approximately $607 million and $609 million, respectively. During the year ended December 31, 2016, the Plan recorded dividend income related to Dominion Energy common stock of approximately $34 million.

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Although they have not expressed any intention to do so, the Participating Companies have the right under the Plan to discontinue their contributions at any time and to terminate the Plan subject to the provisions set forth in ERISA. In the event of any termination of the Plan, or upon complete or partial discontinuance of contributions, the accounts of each affected participant shall become fully vested.

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SUPPLEMENTAL SCHEDULE

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