Paul D. Koonce
CEO - Dominion Energy
at the
Knight Center For Specialized Journalism
Sept. 7, 2006
Dominion Cove Point
Good morning and welcome to Dominion Cove Point —
one of our nation’s most exciting and important energy projects —
and a very fitting site for this seminar topic, “Energy, Cost and Crisis.”
I am pleased that we had the opportunity to conduct our LNG
demonstration and have been able to help you see first-hand how safely our product
is handled and managed. Too often safety becomes the last “grab”
for those working against construction of an energy project. Almost on cue,
when all other attempts fail at stopping needed infrastructure — be it
to preserve unobstructed views, complain about increased traffic flows through
neighborhoods, or raise environmental concerns — safety becomes a final
act.
And, while these dramas play out routinely in local, regional
and sometimes even the national media, the most pressing issue does not get
much play — namely, that our nation’s major energy projects are
not moving forward as quickly as they should be and will not be in commercial
operation when they are needed.
That is my message today, and it has serious implications
for our long-term national economic health and quality of life.
Our nation’s appetite for energy grows without reference
to our future production timetables or our public debates.
Before I elaborate, let me be clear on safety. It is our
company’s top corporate value. Conducting ourselves safely and in full
accordance with existing laws and regulations is first among all other factors
when constructing or operating energy facilities. Safety is our life, our profession.
Today, I invite each of you to form your own initial judgements
about LNG and safety based on today’s demonstration. In all candor, operational
safety is not the greatest issue confronting America’s energy users.
In a discussion of our nation’s Energy needs, “Energy,
Cost and Crisis” is, in my opinion, a far more realistic subject. It is
not alarmist to include the word “crisis” in the title.
Consider the heat wave back in mid-summer. For the second
consecutive year, New England, New York, California and my home state, Virginia,
set new peak demands for power consumption. Dramatic new records were also set
in Texas, as well as throughout The Tennessee Valley Authority and the Midwest
ISO.
In the environmental world, Al Gore turned the phrase “inconvenient
truth” into something of a buzzword.
In the world of energy infrastructure development, the inconvenient
truth for cities, towns and communities all across America is that all this
dramatic new demand for power is not ending. Demand is projected to grow by
20 percent by 2015. The proliferation of big-box stores, longer hours and energy
intensive equipment will drive the commercial sector. The electronics revolution
in the home will drive the residential sector. The increasing number of televisions
per household combined with larger, higher resolution plasma screens exemplifies
the electronic revolution that is taking place. In our Virginia electric service
area, about 43 percent of growth in demand is from existing homes.
Industry experts who have done the numbers report that this
US demand growth implies the need for more than 80,000 megawatts of new generation
capacity over the next 10 years, or the equivalent of 80 new nuclear plants.
This might be conservative when you consider that, in the Eastern Interconnect
alone, nearly a quarter of all base load coal generation will be more than 50
years old by 2015.
And, the news for natural gas is much the same. Natural gas-fired
generation helped us meet our summer cooling loads. Generation of electricity
grew by 6 percent nationally between 2000 and 2005. Generation from units fueled
by natural gas increased by 64 percent during the same period. For the first
time on record, the federal government’s Weekly Natural Gas Storage Report
recorded a net withdrawal of natural gas from the nation’s storage facilities
during the summer months.
The Energy Information Administration forecasts demand for
natural gas to grow by 10 billion cubic feet per day by 2015, well before the
time anyone expects new natural gas supplies from Alaska. If this growing demand
is to be met though LNG, we’ll need nearly 1,500 LNG tankers landing U.S.
terminals. This is a significant increase over the 270 tankers landed in the
last year.
As Americans, we’re proud of the strength of our economy.
Over the last 15 years, the U.S. economy has expanded by 3.8 percent per year
on average while total energy consumption grew by 1.2 percent. Sustaining that
economic health requires important initiatives in the areas of demand-side management,
conservation, distributed generation and renewable generation projects such
as windmills and solar power. And it requires that we keep building new energy
supply and infrastructure.
This includes expanded LNG terminals and pipeline projects
to move regassified LNG to the existing pipeline network. Also needed are new
pipelines to move supply from growing basins in the western United States, as
well as Arctic gas. We’ll require the expansion of existing power transmission
lines to connect growing demand centers to regions with excess capacity. It
will be instrumental in meeting future electricity demand and insuring system
reliability.
So against this backdrop, I pose an honest question:
Are we moving the siting, permitting and construction of major
projects forward on reasonable and realistic timelines while hearing and accommodating
the legitimate interests of community stakeholders? I say no. I speak from my
experience at this critical facility and from my company’s experiences
elsewhere. We can and must improve our existing government and regulatory processes
in a manner that yields three universal benefits:
Transparency for all stakeholders up front;
Sooner-rather-than-later determinations of economic, technical
and political project viability;
Investor confidence and certainty, without which we won’t
need to worry about transparent siting processes or project viability. We
won’t have any money to build in the first place.
An Interstate Natural Gas Association of America study in
2004 showed that the nation needed to invest $60 billion in new natural gas
infrastructure to meet demand by 2020. What strikes me was a study conducted
one year later that showed a two-year delay in natural gas infrastructure construction
will cost U.S. gas consumers in excess of $200 billion by 2020.
Here at Cove Point, Dominion had more than $150 million at
risk while waiting for the necessary approvals. We spent that $150 million-plus
to fund the needed environmental, detailed engineering and safety studies for
our approved plan — and to conduct those same studies for the proposed
alternatives.
Statoil plans to spend $9 billion to bring LNG from the Barents Sea to facilities
such as Dominion Cove Point. When a company like Statoil decides whether to
commit to this facility or a terminal in Spain or the United Kingdom, it looks
at the regulatory process to see if it there is a reasonable length of time
for all the necessary approvals.
Statoil management must then make a decision based on cost
— as well as on timing. Time is money in our business. They are drilling
offshore wells, building pipelines to shore, constructing a liquefaction terminal
in Norway, building LNG ships in the Far East and negotiating contracts on several
continents. They need to have a reasonable expectation about when Dominion Cove
Point will be able to accept its shipments.
Our experience here illustrates that the certainty and reliable
timelines for up-or-down decisions on major projects are not yet in place —
the second of my three points.
As an energy developer, Dominion speaks from experience across
many energy sectors. In addition to our activities here, we are looking at a
reclaimed surface coal mine site in western Virginia for a 500- to 600- megawatt
clean coal power station.
And we are one of several companies exploring the possibility
of building a new nuclear reactor. Ours would be at an existing nuclear generation
site in Louisa County, Virginia, and like Cove Point, originally designed for
expansion.
On the E&P side, we plan to drill about 1,000 wells this
year.
We have proposed three new high voltage transmission lines
for our Northern Virginia market, one of the fastest growing regions in the
country.
Here in Maryland, this expansion was the closest thing to
a slam-dunk in the energy industry — a plant designed to be expanded to
provide natural gas to one of the largest natural gas markets in the world,
the Northeast/Mid-Atlantic region.
Our dock is just off the shipping lane, but not on a river
or in a busy port. The project has the support of the environmental community
and the local community.
In short— a process begging to be reviewed swiftly so
investors can put their money to work.
But get this: We held our first community outreach meeting
in September 2003, filed the project in February 2004 and have only recently
begun work. We have scheduled the official groundbreaking for next month. That’s
37 months — from outreach to shovels in the ground — for an expansion
that had little-to-no opposition. Construction will take more than two years.
We expect to be ready for new shipments in the second half of 2008, or five
years from our initial outreach.
Much has been made about the Energy Policy Act and how ultimate
authority rides with the Federal Energy Regulatory Commission. But state and
local permits are also needed.
For the plant itself, we needed seven federal permits, 13
Maryland permits and 6 Calvert County permits. For the Maryland portion of the
pipeline we needed nine federal, 17 state and six county permits.
For the Pennsylvania pipeline, compressor stations and underground
storage, we needed four federal and 37 state and local permits, for a total
of 93 permits in all.
I applaud FERC. The Office of Energy Projects, working with
the full Commission has worked very hard to define the process at its agency.
They have taken the lead to execute interagency MOU’s attempting to bring
some order to the vast interagency federal conflict.
I applaud Calvert County for its constructive and professional
consideration of our proposed expansion.
But, these are only two institutions of the many involved
at all levels of government. Too often stakeholder groups are free to lay low,
watching one agency deal with a particular issue, only to attempt a different
tack at another agency. This leads to developers arguing the same issue in multiple
venues. Very often, the opposition group is hoping a new route or a new technology
will take the project out of their backyard. Meanwhile, consumers pay for every
higher energy costs.
By way of example, our company has owned one electric transmission
right-of-way in Virginia since the 1960s. Now, after this transmission route
has been carefully re-examined and all alternative routes thoroughly considered,
a local group has — surprise, surprise —found a new “expert.”
This expert does not have a better route.
Yet, he says there is – quote— “always a
different way and always a better way.” Not surprisingly, the expert wants
to start the whole process all over again with a series of stakeholder meetings.
What we thought was a clear, community-involved process for providing electricity
to a growing community could be lengthened and obscured. A rehash of the consideration
process might also be providing a false hope to those simply wishing a project
would go away.
This example makes one point very clear:
Each regulatory or political jurisdiction should establish
clear statutory deadlines for all stakeholders to follow. Establishing one record
— it’s a more efficient use of our government tax dollars and will
lead to greater transparency and more certain decision-making.
Unfortunately, since 2004, the industry has made little progress
in getting infrastructure started. Two gas transmission projects to bring more
natural gas to the New York-New Jersey area are stalled. Two new LNG projects
have been approved for the Northeast. Yet, neither has begun construction. Neither
is certain.
I was pleased when The New England Public Policy Center issued
a report this past April calling on states throughout New England to consider
economic incentives for energy infrastructure; or, in the alternative, to provide
a clear means for siting and permitting. The New England Public Policy Center
is not a disguised name for an energy lobby; it’s an offshoot of the Federal
Reserve Bank of Boston.
As a project developer, Dominion believes that problems with
large facilities should be vetted up front. We believe in analyzing a site with
local community and state and federal officials at an early stage. If there
is a fatal flaw in a project, we want to walk away and go to the next project
before we spend a lot of money.
But once a project is deemed good for the region, the project
should go forward on a defined path with a defined timetable.
We are not whining. Look around. We are doing anything but.
What we are doing is pointing to an obvious and fixable problem slowing a critical
national priority.
It is important to talk about our concerns. This meeting
with you is an important step in public education. The public needs to know
what it takes to keep the lights on. The public needs to know that energy is
essential to our economy. The public needs to know our infrastructure needs
upgrades. This will take enormous investments by industry. The role of NIMBY
activists must be defined, but they can not be indulged in the way they have
sometimes been indulged in the past through the manipulation of multiple jurisdictions.
Get this across in your coverage and you’ll be upholding the finest traditions
of the Fourth Estate and public service journalism.
When you go home and see major energy infrastructure projects
proposed in your region, remember that the need is urgent. Our industry is not
expecting a free pass to build wherever it wants. Safety, security and needs
of the community all need to be addressed. Companies should address those concerns
upfront and then proceed at reasonable speed.
It’s our job to keep the lights on, the houses warm
and industry working — and provide energy at a reasonable cost. We must
have a political/regulatory process to facilitate just that.
Thanks for letting me share my thoughts. I look forward to
answering your questions.
