Remarks – Thomas F. Farrell
II Chairman, President & CEO Dominion
First Annual Energy Summit
Southwestern Virginia Technology Council
Wise, VA
April 7, 2008
Thank you, Don (Pippin). And thanks to Don Purdie and the
Technology Council for inviting me to join you. I appreciate the opportunity
to share my views at this first annual energy summit.
It is always a pleasure to return to the UVA-Wise campus.
The College is growing rapidly, and the campus looks great. Two years ago, in
my previous incarnation as Rector of the University of Virginia, I had the privilege
of standing down in the Grear Gym to inaugurate Chancellor Prior… and
on a different trip, to dedicate the statue of Thomas Jefferson behind us here
on top of the Hill. I have a picture of the inauguration hanging prominently
in my office.
Dominion has longstanding connections to UVA – connections
that go well beyond my personal affinity for “The University.” For
instance, we currently have more than 250 active employees who graduated from
UVA. Of that total approximately 80 went to school here in Wise.
With baby boomer retirements staring us in the face, I can
assure you that we are going to cultivate that particular connection even more
in the years ahead.
As someone who lives and breathes energy issues – sounds
exciting, doesn’t it – I welcome the chance to talk with you about
the challenges we face in developing, obtaining and using energy in a carbon-constrained
world.
Those challenges are many, and they are complex. We are the
world’s largest energy consumer and one of its largest producers. The
choices we make and the actions we take as a nation will shape not only the
future cost and availability of energy, but also our national security, our
economic prosperity and our environmental quality.
The debate about carbon and climate change has been in the
national spotlight for some time now. But we should not overlook other important
issues that are shaping today’s energy landscape. Some of the more challenging
ones include:
A dangerous imbalance between tightening energy supplies
and skyrocketing consumer demand...
Volatile and escalating fuel costs…
An aging energy infrastructure straining to meet customer
needs at an affordable price…
And a serious and growing shortage of skilled scientists
and engineers – the people who drive technological innovation and productivity
gains in our free-market economy.
Confronting any one of these concerns calls for a major commitment
of time and resources. Together, they present a public policy challenge worthy
of the very best ideas that government, business, the environmental community
– all segments of society – can muster.
As I have said on other occasions, if our nation does not
come to grips with these and other issues, we could experience an “energy
train wreck.” And the wreckage could include jobs, tax revenue, income
growth, energy reliability, national security and economic competitiveness.
So why is progress on the energy front so difficult?
We could start with inertia, partisan politics and the failure
of America’s leaders to articulate a long-term energy vision for the nation.
All of these factors play a role.
But even more fundamental, in my view, is a deeply troubling
gap between what is real knowledge and imagined knowledge of energy issues.
We see this all the time in the often disjointed, confused and polarized congressional
debate about energy policy.
Too many Americans are woefully uninformed about energy. What
they know – or think they know – frequently comes from the media,
typically in 30-second sound bytes or video clips sandwiched between TV commercials.
Many of these messages are grounded in longstanding myths
and misperceptions that are wired into our cultural mindset. The media perpetuate
them, many politicians reinforce them, the public often buys into them, and
the energy industry has done an inadequate job of refuting them.
The myths I am talking about are deeply embedded in the American
psyche. Their effect is to distort the way we think about energy. They underlie
the gridlock that has prevented us from developing a rational, coherent national
energy strategy with economic, environmental and political integrity.
Allow me to identify some of the most flagrant:
Myth #1: Cheap and abundant energy is an American
birthright, along with life, liberty and the pursuit of happiness. I
challenge anyone to find a place in the Constitution or in Mr. Jefferson’s
Declaration of Independence where it says energy is an entitlement.
Myth #2: Multi-national oil companies control the
flow of oil and are responsible for today’s high prices at the gas pump.
The truth is, oil is a global commodity. Its price fluctuates according to supply
and demand. Almost 80 percent of the world’s oil reserves are controlled
by state-owned oil companies in Saudi Arabia, Russia, Venezuela and elsewhere.
The ExxonMobils of the world control only six percent of the worldwide reserves.
Myth #3: America can and should achieve energy independence.
This one has a nice ring to it, especially in today’s political climate.
But we live in a global economy. Energy markets are interconnected, especially
oil and increasingly natural gas. And more recently – even coal. International
energy trade is one of the few forces capable of bringing nations together.
That is not to say we should not expand our domestic energy supply base. We
should. But complete independence from the world market is not possible or even
desirable. Energy interdependence is a more realistic and compelling goal.
We could add yet another myth to our list – one that
has gained currency in light of today’s concerns about climate change.
Myth #4: Renewable power and conservation programs
can meet all of our future energy needs – at little or no additional cost.
Shangri-La. Utopia. Maybe one day, but not in the foreseeable future. So-called
alternative sources – wind, solar, fuel cells, tidal and geothermal power,
bio-diesel fuels – should more accurately be called “supplemental”
energy sources.
The next time someone tells you we can meet our energy needs
with conservation and renewable resources, ask them to take you to the country
that does so today. Other than perhaps Iceland, they cannot. There is no such
place.
Wind and solar power, for example, require large amounts of
land and are located in remote areas. Their operations are intermittent and
unpredictable. They are not suitable for 24-hour-a-day energy production.
Last month, for example, the grid operator in Texas –
the nation’s leader in wind generation – had to take emergency precautions
to avoid rolling blackouts when wind production plummeted by 1,400 megawatts
one afternoon. Industrial production had to be shut down temporarily to protect
the reliability of the grid. What happened? The wind died down.
Moral of the story: Wind is not always there when we need
it, in the amount we need it.
Renewable power faces a number of hurdles. The single greatest
long-term barrier to the sector’s growth is probably congestion on the
power grid. You may hear more about this problem during the afternoon presentations
on solar and wind power.
In a nutshell, we need to build more electric transmission
capacity in order to bring more renewable energy to market.
As promising as renewables may be for the future, they remain
expensive and useful only in limited applications. In fact, government forecasts
predict that the renewable share of the total energy pie will rise only from
six percent today to seven percent by the year 2030.
At this stage, they are not ready for prime time. The fossil
fuels – oil, coal and natural gas – will continue to drive global
economic growth, supplying about 80 percent of the world’s energy supply
for at least the next 25 years.
As for conservation and efficiency programs, the jury is still
out. A wide range of utility conservation programs and government mandates introduced
during the 1980s and 1990s achieved mixed results, at best.
Utilities can help educate consumers and offer them incentives
to conserve. We are doing that – and will do more in the future. But keep
in mind that consumers – and consumers alone – will decide the degree
to which they are willing to alter their lifestyles to reduce energy demand.
Bottom line: Renewable energy should not be viewed as a magic
bullet. Nor can we expect to conserve our way to energy security.
There is no quick fix or free lunch. Energy issues are complex.
The American people need to hear that message – loud and clear. We must
level with them about the rising costs of energy production and use –
and the price tag that goes with a cleaner environment.
The average citizen has little understanding of how immense
– or how immensely capital-intensive – the energy business is. Siting,
designing, permitting, engineering and building pipelines, power stations and
transmission lines requires a time horizon measured in decades, not years.
To give you some idea, analysts estimate that U.S. utilities
will have to invest 900 billion dollars in new energy infrastructure over the
next 15 years to meet the nation’s growing energy needs. That does not
include any costs related to potential carbon regulation.
Realistically, it will take decades and a huge commitment
of resources from government, industry and the educational community to change
America’s notions about energy.
Obviously, we cannot wait decades to act. We need an integrated
national strategy now – a strategy that works both sides of the energy
equation – supply and demand, production and consumption – if we
are going to achieve sustainable and cost-effective reductions in emissions
and lay the foundation for a more secure energy future.
The linchpin of this strategy is diversification.
Diversification offers the most viable approach to greater
energy security. As any good financial adviser will tell you, the best hedge
against a market is a diversified portfolio. The same is true for energy.
We do not have the luxury of limiting ourselves to a few
sources of energy and excluding others. We need to draw on every resource at
our disposal – coal, nuclear, oil, natural gas, renewable power and more
aggressive and smarter conservation and efficiency programs.
Dominion has a diversified and integrated plan to meet our
customers’ future energy needs and simultaneously reduce or offset our
carbon emissions.
On average, we are adding about 50,000 electric customers
to our Virginia regulated system every year. In terms of power generation, we
will require more than 4,000 megawatts of new capacity just to keep pace with
rising demand over the next decade. That is the equivalent of adding more than
one million new homes to our customer base.
The integrated strategy we have adopted is called Powering
Virginia. It is part of a 12-billion-dollar investment and building program
– the largest in company history.
On the demand side, we are ramping up our investment in conservation
and efficiency programs. Our goal is to give customers the information and technology
they need to manage and reduce their energy consumption, especially when demand
is highest – and most expensive.
We are currently testing nine conservation programs that complement
existing load-reduction initiatives for commercial and industrial customers.
These new programs will gather data and evaluate consumer acceptance of technology-based
energy management techniques.
In addition, we are partnering with Home Depot to sell energy-efficient
compact fluorescent light bulbs – CFLs – in Northern, Central and
Eastern Virginia.
CFL bulbs consume about 75 percent less energy than
incandescent bulbs and can last up to 10 times longer. We crossed the “first
million sold” milestone last month. Our goal is to sell five million bulbs
by the end of 2009. That would translate into 280 million dollars in savings
for our customers and nearly 1.5 million tons of reduced carbon dioxide emissions
– the equivalent of removing about 270,000 vehicles from the road for
one year.
These efforts will provide a foundation for even larger conservation
initiatives down the road. They also support Governor Kaine’s 10-Year
Energy Plan, one goal of which is to achieve a 10 percent reduction in electricity
demand by 2022.
Even with effective customer conservation, we must build new
power stations – baseload, intermediate and peaking – to produce
the amount of electricity our customers will need.
Slightly more than half of our current electric production is fossil-fired.
The rest is emissions-free nuclear and renewable, mostly hydropower and biomass.
We also have a significant amount of wind power under development.
This diversity of supply helps balance our customers’
need for reliable and affordable electric service with sound environmental stewardship.
In Virginia alone, we will spend more than 2.5 billion dollars
to reduce air emissions at our existing facilities by more than 80 percent on
average. These projects are all but completed. Dominion was the first major
utility to agree on a remediation plan with the U.S. Environmental Protection
Agency almost 10 years ago.
We are also in the process of expanding our renewable
energy portfolio to help Virginia reach its 12 percent renewable energy target
by 2022. Dominion is currently a partner in two major wind energy developments,
one in West Virginia and one in Indiana. The Indiana project will be one of
the largest wind developments in the United States.
By 2009, we expect to have about 900 megawatts of planned
renewable capacity in our generating portfolio. That is enough to supply about
225,000 typical homes.
Also in our mix of new generation construction are nuclear,
natural gas and coal – the real workhorses of the utility fleet.
Nuclear power is the only major power source that is virtually
emissions free. If we as a nation are serious about confronting global warming,
new nuclear stations must be part of the solution.
Dominion has filed an application to possibly build and operate
a third nuclear reactor at our North Anna Power Station in Central Virginia.
We have not yet committed to build this reactor. But if we receive all federal
and state approvals and decide to proceed, a new, advanced-design reactor could
be in service at North Anna by 2015. The new unit would generate enough clean
energy to serve 375,000 households.
Natural gas is a clean-burning fossil fuel that currently
accounts for about a quarter of Dominion’s generating capacity. We recently
announced a major gas-fired project in Buckingham County west of Richmond. We
have also purchased a site for another potential project in Warren County near
Front Royal. Together, these two facilities should produce enough power to supply
about 300,000 households when they begin commercial operation in the coming
decade.
Finally, there is coal.
About one-third of Dominion’s generating capacity comes
from coal. Those who seek to demonize coal or eliminate its use are, quite honestly,
disconnected from reality. They are placing “pie in the sky” above
practicality.
Coal is by far our most abundant and economic domestic energy source. If we
are serious about improving the nation’s energy security, we must maintain
its use while protecting the environment at the same time.
As many of you know, Dominion is currently seeking regulatory
approval to build an advanced clean-coal station at a reclaimed surface coal
mine site here in Wise County. The State Corporation Commission issued a permit
last week. Now we await only the Air Board.
The station is called the Virginia City Hybrid Energy Center.
It will use circulating fluidized bed technology – a proven, flexible
clean-coal technology that can burn run-of-the-mine coal, waste coal and up
to 20 percent renewable biomass.
Runoff from waste coal piles has been an environmental issue
in Southwestern Virginia for some time. The use of waste coal will help prevent
that runoff from leaching into nearby streams, such as the Clinch River. The
station will also meet or exceed all federal standards designed to protect public
health and the environment.
The Virginia City facility has been designed to accommodate
cutting-edge carbon capture and storage technology when that new technology
becomes commercially available.
The coal seam carbon sequestration project that Dr. Karmis described before
lunch holds great interest for Dominion and other regional utilities. As one
of the project’s industrial partners, we are committed to help advance
this important research.
Environmental and technical issues aside, the proposed Virginia
City station will bring some major economic benefits to this part of the state
as well. Those benefits include 800 construction jobs, 75 permanent jobs and
an annual payroll exceeding four million dollars. Once in operation, the station
will consume two million tons of locally mined coal, create 350 mining jobs
and provide up to six million dollars in local tax revenues.
The final piece of Dominion’s Powering Virginia strategy
involves new transmission construction.
All the power supply in the world does little good without
the means to deliver it when and where customers need it.
Dominion currently has a dozen transmission projects under
development around Virginia – especially in Northern Virginia, where growth
and power demand are the strongest in the state. We are prepared to invest more
than four billion dollars to upgrade these vital electron highways.
I would like to close with a few thoughts about carbon regulation.
Then I will take any questions, if time permits.
As you heard earlier from Chairman Boucher, it now appears
that Congress will pass a carbon bill, if not during this election year, then
most likely in 2009 or 2010.
In our view, the best means of controlling greenhouse gas
emissions is through an economy-wide cap-and-trade system similar to the one
that has been effective in reducing acid rain.
That endorsement comes with several caveats, however. Most
critical is a realistic compliance schedule that will not be ruinous to the
economy or to consumers’ pocketbooks.
A word of caution: Do not be duped by anyone who tells you
the U.S. can become a low-carbon society at little or no cost. That is part
of the mythological thinking I discussed earlier. Every segment of society has
contributed to this problem, and every American will have to pay to remedy it.
There is no escaping that hard truth.
And carbon regulation alone will not get the job done. We
also need to significantly boost our research and development investments, especially
with regard to renewable energy and carbon capture and sequestration.
I firmly believe that our ability to develop and deploy new
technologies could spell the difference between success and failure in our efforts
to transform America’s energy equation.
A balanced and well-crafted national energy policy would recognize
this imperative and provide the necessary investment incentives.
We can avoid the “train wreck” to which I alluded
at the outset. We have the ingenuity – and we have the means to achieve
the cleaner, more secure energy future we all want.
What we have not had so far is a workable long-term vision
and the will to make it happen. We could begin by acknowledging the fact that
de-carbonizing the U.S. economy will cost Americans a huge amount of money.
Environmental improvements inevitably come at a cost –
and with carbon regulation, those costs will show up in higher electricity bills,
higher automobile sticker prices, higher air fares, higher building maintenance
costs, and so on. The list is virtually endless.
If we can find a way to inject more candor and straight talk
into the national energy debate, we will have taken an important step in moving
from the realm of mythology to 21st Century reality.
With any luck, we also might succeed in shaping our energy future – instead
of letting it shape us.
