Remarks: Thomas F. Farrell II
Chairman, President & CEO – Dominion
IHS CERA Week
March 8, 2012
"Transforming the Landscape: Toward a National Energy Policy for the 21st Century"
Come this September, it will be an even 130 years since Thomas Edison stood in J.P. Morgan’s Manhattan office and flipped the switch, thereby closing the circuit and illuminating 136 electric lights.
Come this November, with the Presidential election, another century will stretch out ahead of us, and we will have an historic opportunity to determine whether America will have the electric power it needs – to provide, grow and sustain this country's economic might.
The electric utility industry has come a long way since the days of Edison. Electric power that reached, at best, a few blocks, now covers a continent coast to coast, lighting the homes and enterprises of more than 300 million people.
My company has been a part of that history – a proud part of that history – and, if you know anything about Virginia – and Virginians – you know that we take history very seriously.
Our industry has been a success.
A mixed success.
We have been very successful at holding it together. The people of this country wanted safe, reliable and affordable electric power – and they have gotten it.
But here is a key thought I ask you to take away:
In terms of how we power this country, the next hundred years is going to look very different from the past hundred years.
I think we all know that. There is no getting around it.
But have we come to grips with this reality – as a nation – in any serious way?
I do not believe so.
As I see it, here is the problem:
The electricity utility industry has been too successful. We made electricity reliable and safe and cheap.
But, in the process, we took the subject off the table. We deliberately let people take electricity for granted.
The default position in this country – the default mentality – is juice on. Lights on demand. All the time.
There is air to breathe; water to drink; food to eat; and lights.
It is natural. It is a given.
But lights are not a given.
And, that, ladies and gentlemen, puts us in a precarious position when it comes to making big choices about electricity.
We are a democracy. And in case you have not noticed, we do not make choices easily or quickly.
China can spend $2 trillion to jumpstart its economy – as it has done since 2008 – and earmark 60 percent of it for energy-related projects.
And you know what? China just did it.
I prefer our system. It does a better job of protecting the individual. It also preserves freedom.
Including the freedom of individuals – to deceive themselves.
Here is what I see.
We face substantial and growing demands for electricity that will not abate.
My industry’s job is to generate it, transmit it over distance, and distribute it – all in a way that is environmentally responsible and still affordable.
At the same time we are doing that, we face public expectations that we will provide that power by means – other than those that got us to this point.
In other words, we are told to do what we have done before, only do it better and differently.
Keep the juice flowing.
Provide for economic growth.
Power the greatest technological society on earth.
Then add a few more things.
Make sure Facebook keeps a happy face – which means powering supercharged, massive data centers to support what has become, in less than 20 years, a key economic and social driver in this country – the Internet.
Prepare for a new era in transportation we are told. Because we may just ditch internal combustion –and use electricity in our vehicles.
And make sure that the flat-screen TVs, the refrigerators, washers and dryers and all the other assorted appliances, gadgets and conveniences powered by electricity stay on – at all times.
Just do it a different way. Do it cleaner. With less impact on the natural world.
The vast system that we have put in place to make electricity and move it – representing an investment that would humble the builders of the ancient pyramids … well, just do it differently and do it quickly. And don’t bother me while you do it by the way – I have a movie to download.
How we get there matters – we can and are, in fact, already doing it differently – but public expectations and hard physics must combine in something that approximates harmony.
We also need a strategy. We need to measure what we can do with which fuels. We need a strategy that does two things:
This double-edged challenge is not going to be easy to accomplish.
We are told by the International Energy Agency, for instance, that investment in technological innovation is crucial to further success.
We are also told that the bill could come in around $10 trillion over the next two decades.
The question is, can we actually re-engineer the entire national energy system – to move it to a better, cleaner, more efficient place – without also improving public understanding of the tradeoffs and costs involved and preparing a national blueprint to help get us there?
I do not believe so.
The people who understand and care about where their energy comes from – and at what cost – often do so very passionately. But their interests also tend to be highly focused and narrow. They crusade – with great fervor and absolute sincerity – over this piece or that piece.
Meanwhile, the “big picture” questions go unaddressed – and unanswered.
We are largely prisoners of our past – of how we got to this point – simply because the majority of the public does not understand how we got here.
Not understanding the path we took – makes it nearly impossible to map a new path forward.
Let me see if I can explain that – starting with the gentleman here on the stage with me, Dan Yergin.
Thanks to his books, Dan has made notable contributions to understanding our energy history.
"The Commanding Heights" published in 1998 – includes an early chapter that opens with a description of Sam Insull’s fatal heart attack on the steps of the Paris Metro.
It is the sort of image that gives a utility executive pause.
Insull is remembered for having been handed the reins of Edison General Electric Company and then trying to corner the market on electricity.
He came pretty close. He nearly latched all the pieces together – vertically, horizontally and every other way.
He had the vision to see that the steam turbine would revolutionize power generation and that capital would be king.
Insull’s influence was enormous.
But we do not do business in the world that Insull imagined.
We do not have one "common source," as Insull put it.
We do not have one grand privately operated and owned national electric utility. That was Dan Yergin’s point.
We have something else.
Dan calls it "Regulatory Capitalism."
Insull’s downfall – along with the Great Depression and its aftermath – shaped the electricity world we live in today.
It is a fragmented, disjointed, often contradictory world that enjoys abundant regulation – horizontally, vertically and every other way.
The true scope of this regulatory abundance is either a very well-guarded secret … or one of the great mysteries of the universe.
Because nowhere, to my knowledge, is there a central repository for the myriad federal rules that apply to energy – not at EPA, not at DOE, not at FERC or anywhere else.
In the past, I have used the term "train wreck" to describe the potential here. The phrase, I realize, has been used by others in other settings.
But it still captures a menacing situation. Too many things are converging – multiple moving objects, moving toward each other.
Eventually, they are going to collide.
To avoid a train wreck … to fulfill the expectations and aspirations of this nation, we must do three things.
But maybe not in that order.
Let me start at the top and move quickly to the bottom.
Americans love electricity.
And, as true as ever, love is blind.
We have to open their eyes. We have to take on that responsibility ourselves.
And it will take a different industry mindset.
Call it the Corporate Syndrome. Corporations, when faced with a challenge, instinctively try to avoid confrontation.
We have to summon the courage and present the cold, hard facts.
We must speak out about the seriousness of the problem – and develop a realistic and integrated vision of what a secure energy future would look like.
Improving energy literacy. This is not about Nikola Tesla. Or Michael Faraday.
It is more about Steve Jobs. And Mark Zuckerberg.
Americans have to understand the scale of their electricity demands and how fundamentally they rely upon what our industry does.
If we can get the demands across, then we can walk them through what it takes to satisfy that demand.
Fortunately, I think we are slowly, steadily shaping things in a positive way. The idea that we need everything on the table – meaning all fuel sources – has begun to take the form of a consensus.
But there are still wide spread misconceptions. The myth that aggravates me the most concerns renewable electricity and energy independence. Let’s get one fact crystal clear. Oil produces 1% of the electricity in the United States. Building windfarms is a perfectly good thing to do – but it will not get America off of middle Eastern oil. I just wish politicians would quit saying it. They know better and it poisons the debate. If they don’t know better, then we are in more trouble than I think.
But we are making progress.
Energy literacy is a long-term proposition, but we must start now.
Without energy literacy there is no reason – no rational debate.
And without reason at the core of our national discussions, we will continue to make expensive, self-defeating mistakes.
I am not talking just about the public.
I am also talking about those charged with safeguarding the public.
The regulatory apparatus – the enduring legacy of the post-Insull era, when big was deemed bad – is not going away. I understand and accept that part.
But the apparatus – such as it is – has to be internally consistent and coherent.
We have created in America – often with the right motives – an entanglement, a virtual web of authorizations, jurisdictions, rules and powers.
These arose largely independent of each other and find their logic and justification within their own separate object of interest – within their own universe of daily activity.
But taken together, their cumulative effect is burdensome and expensive.
Just look at Congress itself, where 16 Senate committees and 14 committees in the House have jurisdiction over energy programs.
In the Executive Branch, we counted seven cabinet-level departments with jurisdiction over energy matters – including Defense, Interior, Agriculture, etc. – seven –not including the Department of Energy or the EPA who you would think between them would have virtually all of it.
Then there is the U.S. Office of the Trade Representative…
Independent agencies such as FERC and the NRC…
In a cursory – but revealing research effort – conducted by some of our folks, we were able to identify more than 600 energy-related rulemakings issued at various times over the past decade by just three agencies – the NRC, FERC and NERC.
Three agencies and 600-plus rulemakings over just 10 years. There are more, of course. Many more. Just imagine what the total, all-inclusive number of regulations must be. It boggles the mind.
But we stopped counting. I think you get the point. I don’t believe anyone in our federal government has a clue as to how many different agencies are working on their own energy issues – all at the same time.
And, despite its name, the Department of Energy pales in influence to some of the other federal agencies empowered to act on energy and environmental concerns.
I am absolutely not being critical of DOE or its leadership. It is their mandate that concerns me – not how they have carried it out.
The very emblem of the Department of Energy itself I think symbolizes the core problem. You probably never noticed it.
DOE’s emblem embodies the complex, outmoded, and disjointed nature of energy regulation.
Unlike many other federal departments whose emblems feature a single unifying symbol – the tree of knowledge for Education … an American bison for Interior … a bald eagle for Defense – the emblem for Energy has six different elements scattered across a green shield under an eagle’s head – an eagle who doesn’t look very happy by the way:
This may seem like a minor detail. But it serves to demonstrate my point: Every President and every administration is forced to confront a tangled energy regulatory web – a snare, in every sense – and does what it can either to sort through it – or maneuver around it.
President George W. Bush formed the National Energy Policy Task Force in 2001, an effort to integrate our economic, environmental and energy needs into a coordinated national policy.
The outcome found some individual pieces of legislation passed, but nothing close to the overall reforms in domestic production and environmental policy envisioned.
Perhaps taking a lesson from that, President Obama narrowed his focus to renewable power, energy storage and other "clean" energy resources.
Some of those efforts, largely through the stimulus legislation, gained support.
Meanwhile, the bureaucracy churns on, in a seemingly endless loop of frantic activity: Rules are proposed, modified, rescinded and reinstated by government and then by the courts.
The editors of "The Economist" recently characterized America’s regulatory structure as "unpredictable and inconclusive."
They were being charitable.
The energy regulatory structure borders on chaos.
Policies are layered upon policies.
The intended, cumulative outcome never becomes clear.
This arrangement has all the disadvantages of a Soviet-style command-and-control regime – and none of the benefits.
The vast Washington political apparatus – the President and executive departments, Congress, interest groups, industry groups, lobbyists of all kind – tend to cluster around these silo-like, regulatory-specific set-ups.
It all constitutes a test for democracy and whether our political system can produce policies that serve our nation’s long-term interests.
And that is where leadership dramatically enters the picture – the third item on my list of "must do’s."
Congress has failed to get the job done –over and over and over again – whoever is in charge. And the intensely partisan atmosphere on Capitol Hill does not bode well for the future.
So it falls to the next President to lead the way in rallying the national will to confront difficult energy choices.
Whoever is President in 2013 must engage the American people in a dialogue about national and global energy issues – costs and availability, tradeoffs, national security implications, economic growth, environmental quality and all the rest.
Failure to do so will heighten our vulnerability to a host of economic and geopolitical threats.
At different times and places, I have called for a blue-ribbon, Presidential Commission to map out a long-range energy strategy for our nation.
The problem is, the track record of these things is … something less than stellar.
So, I now offer a different approach. I propose the creation of the position of National Energy Adviser to the President. This individual would coordinate with the National Security Adviser and the Chief Economic Adviser on energy issues of national and international importance.
Within the White House, there currently exists the position of Deputy Assistant to the President for Energy and Climate.
I would push that position up a few notches. If there is a small office, perhaps right off the Oval Office – some place the President has to pass by every day – that would be good.
The important thing is to keep this issue front-of-mind in the presidential mentality, so that it never becomes a lesser thought.
Should energy be up there with foreign affairs and national defense?
I find it hard to believe otherwise. If we fail to get energy right, how do we get anything else right?
The form is incidental. The Russians lost their enthusiasm for czars, and I appreciate the sentiment.
The vital part is to have a person not only close to the President, but with the President at his or her back.
Because only the President can elevate energy security to the level of a core national goal.
The terms of the energy debate must shift to fit with today’s national and international realities.
The choices we make, the policies we adopt, will shape the 21st century energy landscape.
But the truth is, we cannot expect to solve our 21st century energy challenges with 20th century thinking.
We did not achieve the present power system – the very basis of our technological society – by happenstance or divine intervention.
Generations of Americans – relying on ingenuity and determination – built it.
So, what is the worst-case scenario?
We proceed ahead, as we have before, assuming everything will all work out, and the lights will glow as usual. Taking electricity for granted.
Whatever challenges we may face in addressing large, public issues, we still possess a system capable of resolving them.
A clear-headed but insistent presentation of the facts must come first. As John Adams said "Facts are stubborn things." Americans must appreciate the stakes at issue.
Individual companies cannot solve this. The electric utility industry cannot solve this. But our nation can solve this.
In the end, it is leadership – real, sustained leadership – that will determine – as it always does – whether we muddle along, lose ground or fulfill the potential of what remains the most productive and innovative society on earth – the United States.
Thank you very much.