Remarks of
James K. Martin
Vice President - Business Development, Dominion
to the
Coal Marketing Days Conference
September 24, 2001
Thank you, and good afternoon.
It’s great to be back at Coal Marketing Days, talking
to old friends. I had hoped to be able to say friends and family. My dad was
planning to make the trip from Charleston, but wasn’t able to be here today.
I’ve changed jobs so many times I thought he would show
up just to make sure I’m still drawing a paycheck.
When I left Peabody about 18 months ago to join Dominion,
I took a lot of ribbing from my buddies. They stopped short of calling me a
Benedict Arnold, but not by much. They were sure I was leaving to go over to
the gas side and build gas-fired plants.
Granted, Dominion has moved into gas in a big way since our
merger with Consolidated Natural Gas two years ago. And you may have heard about
our recent acquisition of Louis Dreyfus Natural Gas in Oklahoma City.
Notwithstanding those facts, I’m here to tell you non-believers
what my boss, Tom Farrell, CEO of Dominion Generation, told me the first week
on the job.
He said, “Jim, I want you to go out and build new coal-fired
generation.” Now, Tom can be a man of few words, but he says what he means
– and he means what he says.
Why coal? Because Dominion is big believer in fuel diversity
– and we’re intent on being a market leader in developing new coal
generation.
Natural gas may at the top of every power generator’s
dance card right now. But experience teaches us that sooner or later, the dance
will change. You can be waltzing along, and all of a sudden, it’s time
to tango. If all you can do is waltz, you’re gonna have to take a seat
– or head for the punch bowl.
In the energy business, over-reliance on one fuel source
is risky, and it creates a dangerous imbalance. A diverse fuel mix helps protect
our company and our customers from fuel unavailability, price volatility and
changes in regulation. It also helps ensure stability and the reliability of
electricity supply.
Dominion’s 21,000-megawatt generation portfolio is diverse.
It includes coal, gas, nuclear and hydro facilities located throughout the Midwest,
Mid-Atlantic and Northeast.
And we’re going through a major growth spurt, too. We’ve
got an additional 7,000 megawatts of firm projects on the drawing board –
most of them gas-fired – and all expected to come on line by late 2004.
To maintain a balance between peaking, intermediate and baseload
generation, we’re committed to building new coal-fired units. In a room
full of friends like this, I hesitate to reveal locations. But rest assured,
we’re going to be developing a significant number of them.
Dominion’s existing coal-fired operations are centered
in Virginia, West Virginia and Illinois, with total generating capacity in excess
of 5,700 megawatts. Our units burned about 18 million tons of coal last year,
producing about 40 percent of our total generation. That makes coal our single
largest fuel source
My company is bullish on coal. To prove it, we announced
plans in June to partner with Anker Energy in developing a 450-megawatt, clean-coal
facility in West Virginia.
The site is in Upshur County and is located about 30 miles
southeast of Clarksburg. It was formerly an Island Creek Coal Company surface
mine. The site appealed to us because it has attractive surface coal reserves
and coal wastes capable of fueling the station for 40 years.
The Upshur County station would be Dominion’s 11th major
coal facility. It represents a potential $600 million investment that would
create 500 construction jobs and about 60 permanent jobs.
The station will tie into Allegheny Energy’s transmission
system and will sell its output into the western portion of the Pennsylvania--New
Jersey--Maryland wholesale grid. We expect commercial operations to begin in
late 2005.
We think the Upshur County project is highly innovative.
As you will see, its combined elements provide some compelling strategic advantages
for coal – as well as opportunities for creative partnerships, the use
of an environmentally-friendly technology, and regional economic growth.
Dominion will build, own and operate the Upshur facility,
which will use circulating fluidized-bed combustion – or CFB – a clean-coal
technology that Dominion has long supported.
We like the CFB technology for this particular project because
it’s clean and efficient. In addition to lower emissions, CFB boilers can
burn coal with low-heat content, something traditional boilers can’t do.
That gives us important fuel flexibility.
Anker Energy will supply the station’s two, 225-megawatt
CFB boilers with coal and coal waste from the mouth of an abandoned mine. Coal
waste will account for about 65 percent of the total burn. Anker also will provide
ash disposal services at the site.
With its on-site fuel source, we’re able to reduce transportation
costs, while using a technology that will bring real environmental benefits
to the site.
The Upshur facility’s integrated mining, power production
and ash utilization process is unique. It will allow us to recover the energy
value of existing coal and coal waste deposits… and correct an acid mine
drainage problem that dates back to conventional mining operations in the 1980s.
The project will take limestone-laden ash from the boiler
and place it in strategic areas around the property. That will help neutralize
past drainage problems. Together with the use of air-cooled condensers, this
process should help improve water quality in the region.
By building Upshur, we think we’re helping the nation
take a critical step toward needed fuel diversity. We believe that’s good
national policy, good corporate policy – and good common sense.
As I’ve already pointed out, the economic advantage
of the Upshur County site stems largely from the availability of fuel on site.
Obviously, not all locations will have that advantage. But
there are certain characteristics we look for in our site review process –
which has been reinvigorated by technological improvements and a more favorable
political landscape for coal.
Allow me to share some of the key things we look for in evaluating
locations for new coal facilities, some of which I’ve already mentioned.
Every site has to have some competitive advantage. And because
the capital costs are quite large relative to gas-fired plants, we have to make
sure the units can be dispatched economically – keeping in mind, of course,
our goal of maximizing shareholder value.
Several different characteristics can translate into competitive
advantage.
One is fuel availability. We look at geological issues and
the extent of remaining reserves. In many cases, the easy-to-get reserves have
already been harvested. Instinctively, a mine-mouth plant is going to be the
lowest-cost option – but that’s only if it’s a reliable, low-cost
and long-term option.
Second is fuel flexibility. If not located at a mine, is
there rail, barge and trucking optionality? Can the coal be delivered from several
different basins?
Dominion’s existing coal facilities are captive to one
rail shipper. As part of our new site review process, we look for at least two
modes of transportation and supply in order to minimize risks and maximize flexibility.
Third, availability of water resources. Innovative partnerships
like the one between Dominion and Anker could assess the potential of mine water
as a resource. And today’s technology makes dry cooling projects feasible
– an expensive process which must be offset by lower fuel prices or government
incentives to make the project economically viable for the developer.
Fourth, I want to know if my coal traders can optimize the
fuel position. We live in a world where coal is increasingly viewed as a commodity.
New coal stations must be able to take advantage of trading and hedging tools
in the marketplace.
Fifth, transmission constraints. Adequate and reliable transmission
capacity is critical to moving energy successfully across broadening interstate
markets. We think the establishment of Regional Transmission Organizations will
facilitate that process.
And finally, we look for innovative partnership opportunities
like the one we have with Anker Energy in West Virginia. Anker has been our
supplier at two of our coal stations in the Mountaineer State for more than
a decade. They know us, and we know them. Now we’re building on that relationship
to craft a structure that allows the parties to share the risks and rewards
of the market.
The Upshur County project will take our partnership with
Anker in a new direction beyond conventional thinking. By combining innovative
mining techniques and an advanced generating technology, we’re going to
create a project that’s both economically sound and environmentally friendly.
Henry Ford, the American automobile manufacturer, once said:
“Obstacles are those frightful things you see when you take your eyes off
the goal.”
If those of us interested in expanding opportunities for
coal can stay focused on that goal – and use creative thinking, innovative
partnerships and new clean-coal technologies to get there – I have no doubt
that coal will have a strong future.
At Dominion, we’re betting on it.
I look forward to hearing your comments and answering your
questions.
