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Executive Speech

Remarks -- Thomas F. Farrell II
President & CEO - Dominion

Regent University
Executive Leadership Series
“Energy Debates, Past, Present and Future:
This Time Can We Be Honest With Ourselves?”
March 20, 2007

Dr. Robertson, ladies and gentlemen, I am delighted to join you today.

As I am sure many of your speakers have done, I took the opportunity to review the names of the people previously booked for this series as well as those who are scheduled in the future.  The list is very impressive.  It is an honor to be invited to join such illustrious ranks.

Of course, I am here partly out of gratitude. Dr. Robertson has been an important and successful broadcaster for quite a few years.  You might be surprised to learn how much electricity it takes to run a modern TV studio, not to mention an entire network. So on behalf of Dominion, I want to thank Dr. Robertson for his business and encourage him to keep those lights burning and those cameras rolling.

There are those of us who remember his father – for many years, a distinguished member of the Virginia General Assembly, the U.S. House of Representatives and the U.S. Senate.

Senator A. Willis Robertson was an exemplary conservationist and sportsman without peer.  He played a seminal role in the creation of the federal Duck Stamp program, which remains a most-valuable and useful tool for wetlands conservation.

I mention this because I have spent some time in the company of ducks – not I must say to the ducks’ regret – and have seen the lasting and beneficial effects of this program.  It is worth remembering those who helped create it.

Now, I have several things on my mind … about Dominion, in particular … about the energy business, in general … and about the debate over energy that has moved into a new level of public awareness.  It is a debate, however, that I believe has not really begun – not in real terms, at least.

Now, I suppose the word “Iraq” may appear in more headlines these days, but the word “climate” must be running a close second.

Back at my office, we are interested in the world situation, but we draw a big circle around the news stories that refer to the “climate.”

Especially when the next word is “change.”

Or when the phrase “greenhouse gases” appears.

Or, “carbon.”

Or, “renewable.”

After all, coming to terms with these words – what they mean, what they represent, what they portend for the future – effectively outlines our future.

But at Dominion, we are preoccupied with other words, as well: Safety. Ethics.  Excellence.  Efficiency.  Reliability.  Teamwork.

Above all, safety, reliability, and ethics.  We must keep the lights on at a reasonable cost and do so without harm or injury to anyone.  That is our job. We must do so within the quilt work of laws and regulations that govern our business and our conduct.

But how we do our job seldom drifts far from the public consciousness … at least when the lights go out.

Dominion is a fascinating company, not only for what it does, but also for the place it occupies in society.  I joined Dominion in 1995.  Before that, I practiced law for many years.  While I learned a lot as a lawyer, my years at Dominion have been an even greater education.

Not an education about the company so much, but about the relationship the company holds with the people and businesses it serves.  It is interesting, challenging and complicated … all at the same time.

First, ours is a company that people rely on to produce its product 24 hours a day, seven days a week.  Under the best of circumstances, a power outage is a huge inconvenience – and a nagging source of anxiety.

You sit there, staring into your computer or television set and realize that you are dealing with what has become a totally useless machine – at least for the time being.

Then, after a few minutes, your mind turns to the food in the freezer and the 10 pounds of fish you caught last week.

Did you buy any batteries?  Are there matches to light the candles?

Then comes the worst experience of all:  The sound of your neighbor’s generator cranking up and knowing that he is probably watching TV now.

All of that, again, is what occurs under the best of circumstances.

There are other circumstances – with hospitals and retirement facilities and any number of other power-dependent entities – where the consequences can be profoundly serious.

We never, ever lose sight of that.

I mention all of this because the organic nature of what Dominion does … the central role it plays in our lives and our livelihoods … should never be discounted or underestimated.  We understand that part; it drives what we do.

And people by and large appreciate this.  How many businesses are there where the employees go out into the worst weather imaginable and work with highly charged electrical wires and equipment?

It requires a great deal of training, skill and caution.  And our customers by and large appreciate this fact.

Such is the nature of our business.  When it works well, nobody thinks anything about it. 

All of the billions and billions of dollars invested in power stations and transmission lines and transformers and other equipment are invisible . . . forgotten.  When the lights go out, everyone knows our name.  And when the lights come back on, the memory soon fades.  The concern is about the here and now – the immediate – when something is broken but not in mind at all when everything is running well.

I like to talk about what some call the tyranny of the immediate.  Worry about today and tomorrow will have to take care of itself.  We see it all the time when people outside our industry think about energy.  It is a trap that can compromise our future if we are not careful.

The single greatest challenge before us on the subject of energy is to break free of the immediate and do those things which will serve our long-term social and economic interests.

As I say, you cannot pick up the paper today and not read about some aspect of energy.  There is not a large commercial interest in America that does not have this subject front and center.

But I contend that we have not even begun to discuss it in real terms yet.

We take too much for granted.  Moreover, we take too much for granted at a time when the demand for electricity … for energy, generally … continues to grow at an astounding, even alarming, pace.

We should have learned in the months and years that followed October 6, 1973 … Yom Kippur … the day Syria and Egypt invaded Israel. Within two weeks, representatives of OPEC gathered in Kuwait and hiked the price of crude from $3 a barrel  to $5 a barrel.

Seems like the good old days – doesn’t it?

Soon the oil embargo was on and America was facing an energy crisis.  Lines of cars started forming at the pumps … hoarding began … fights broke out.

And a great national debate ensued.

I will give you another date: April 20, 1977.  That is the day when President Jimmy Carter, standing before a joint session of Congress, unveiled his National Energy Plan and called for the “moral equivalent of war.”

Do any of you remember the strategy behind that declaration of war?

Basically, Carter’s plan was to reduce reliance on imports … move the public away from a heavy reliance on oil and toward more use of – guess what -- coal … all in the hope that we could develop clean and renewable resources and avoid environmental damage.  Give America energy independence.

That was 30 years ago next month.

We lost that “moral equivalent of war,” as you well know.  A Congress, controlled by his own party, largely rejected Carter’s proposals, and a national energy policy was sacrificed for the benefit of parochial concerns. 

The cards, as Duke University economist Crauford Goodwin wrote back in 1981, were “stacked heavily in favor of the status quo.  The public and media memory was short, the tyranny of the immediate decisive.”

Do not think I mean to hold President Carter solely to blame.  In Pogo’s immortal words – “We have met the enemy, and he is us.”

Now, here we are in 2007.  Are we about to do the same dance we did in 1977?

Will we wave our arms a lot, but end up just chasing each other in a circle until we get tired and then go do something else?  Will we end up making no progress in terms of a substantive and realistic energy policy?  Unfortunately, not a lot has changed since 1977.

It is a problem of democracy, in part.

It is a problem of the media, in part, too … meaning the tendency to dramatize a big problem in the most simplistic terms possible.

Much of what people know – or think they know – comes from the media, typically in 30-second sound bites or video clips sandwiched between TV commercials.

The gap between what is real knowledge and imagined knowledge of energy issues is stunning sometimes – and I am not just talking about an everyday, uninformed average citizen.  We see it most clearly in the often disjointed, confused and polarized debate about energy policy.

This low level of literacy stems in part from some longstanding misperceptions. 

The media perpetuates them, some politicians reinforce them, the public frequently buys them, and the energy industry has not done an adequate job of refuting them — largely because of poor credibility with the public.

We have had plenty of opportunity to learn.

Greg Easterbrook is a writer who has been around a long time.  I do not always agree with his conclusions, but he often asks the right questions.

Easterbrook wrote the cover story for the most-recent issue of Atlantic Monthly.  It is about climate change.

“If the Earth’s climate changes meaningfully,” he writes, “there could be broad-based disruption of the global economy unparalleled by any event other than World War II.”

“Economic change means winners as well as losers,” he says.

That is blunt, but about right.

Big public choices are hard to make under the best of situations … because there are consequences when changes are made.

These changes, no matter how necessary, are made far more difficult, however, when we are not being honest with ourselves.

I hear the word “conservation” quite a bit.  I like conservation.  It is a great concept and a worthy, necessary objective.

But is conservation something you do?

Conservation is about choices.

How many of you were the beneficiaries of a big-screen plasma TV last Christmas?  You do not have to raise your hands. I know you are out there.

A big-screen plasma TV takes about two and half times more electricity than a regular, old-fashioned TV.

I like plasma TVs.  My stockholders like plasma TVs.

But do plasma TVs and conservation join in perfect harmony?

Not easily.

As I said, it is about choices. It is about winners and losers and potentially living differently.

That is the implication of a let’s-get-serious energy debate.

I do not mean to depress you, but do you know how the debate over energy broke down 30 years ago?

  • Exploration of offshore oil and gas reserves fell prey to arguments over states’ rights.
  • Increased coal usage clashed with concerns over environmental damage.
  • Issues over national security and economic growth arose.

And, no one … and, I mean, no one … spoke up on behalf of the long-term.

It all fell victim to the tyranny of the immediate. 

Does that sound familiar?

Will we ever have total energy independence?

Absolutely not.

We live in a global economy, and many energy markets are interconnected, especially oil, and increasingly natural gas.  International energy trade is one of the few forces capable of bringing nations together.

Of course, the expansion of our domestic energy supply base makes good sense.  But complete independence from the world market is simply not possible.  Energy interdependence is a more realistic and compelling goal.

Are there any quick fixes or silver bullets to remedy our energy woes?

No.

Changing America’s notions about energy will take a huge commitment of time, money and cooperation among government, industry and the educational community. It could take decades to accomplish.

So what do we need to do?

Get real.

And know this – it is not going to be easy.

First, more of the same old energy politics will not do.  Lawmakers are like many people they represent: Energy is not an issue until there is none available.

Or, when the price goes up.

Watching the media watch oil prices will give you whiplash.  They go from panic to indifference to panic and back to indifference again … all according to price at the pump … and frequently within a week’s news cycle.

Allow me to describe what we see:  In Northern Virginia alone, demand for power has grown 40 percent over the last decade and is projected to grow another 8 percent by 2011. 

Here in Hampton Roads, you are getting what generations of regional business leaders have sought. World Trade.  Globalization.  And Virginia’s great harbor as the portal.

It has huge implications.  The demand for power in Hampton Roads will rise sharply.  The machinery of international trade that decorates your piers will not run themselves.  They will need energy.

All told, our nation will need about 300 gigawatts of new electric generating capacity by 2030.  That is an industry measure.  A gigawatt is a thousand megawatts, or enough to power about 800,000 new homes. It is a tremendous amount any way you describe it.

Just here in Virginia, we will experience about 4,000 new megawatts in added demand just over the next 10 years.  Dominion needs to meet that demand.

Add it all up nationwide, translate it into dollars, and the industry estimates that it could cost more than $275 billion to meet this growth. 

Additional tens of billions will be required for new transmission, facilities and expansions in distribution – what we call our “big wires” and “small wires.”

And there is more:  Environmentally, the emissions limits continue to tighten.  The industry projects about $50 billion in compliance costs for NOx, SO2 and mercury from now through 2025. 

We realistically expect the regulation of greenhouse gases in the not-too-distant future, a view reinforced by policy statements from the leadership of both major political parties.  Controlling carbon dioxide emissions from fossil fuels will be expensive. 

The bottom-line impact on power generation in the United States may range from $70 billion to $300 billion.  Total industry spending for environmental improvements and new energy infrastructure could be anywhere from $400 billion to $650 billion.

That, by the way, is more than the entire amount of the market capitalization of all the electric utility companies in the United States. 

In other words, we as an industry need to spend more on new generating plants than the entire value of all electric companies in the United States.  A daunting challenge.

So you will not be surprised for me to predict that treatment of these expenses will be a challenge for the regulatory community.  We will need to get the money to meet these demands.

There are some signs that merit optimism.

The actions taken by the Virginia General Assembly in recent weeks are a good sign.  The electric utility re-regulation bills that are waiting to become laws provide the right kind of incentives to help keep customer bills down and reliability up.

So, too, are commendable items included in the Energy Policy Act.  For example, the Act provides production tax credits for new nuclear facilities using advanced technologies. 

However, the bill specifies that only the first 6,000 megawatts of the nation’s new nuclear capacity will be eligible for the credits.

So the Energy Policy Act was a step in the right direction, but only one step. 

We still need an effective national policy that allows us to tap all of our energy supply options, promotes conservation and efficiency, and fosters a business environment that is conducive to timely investment in new energy infrastructure.

In stark terms, the competition for capital is intense – and the stakes are high.

And we, in the industry, are racing in our role as protagonists to influence the outcome in a constructive way – one that promotes mutual consumer-investor benefit and the economic needs of America.  As a work in progress, the ending has yet to be written.

Somehow, some way, we must look beyond the horizon, the immediate.  Over the next 25 years, the overall demand for electric power in the U.S. is expected to jump by 50 percent. 

The commercial sector will lead the way, propelled by the growth of big-box stores, longer hours and more energy-intensive equipment.

The global appetite for power is even greater.  Worldwide electricity consumption will double over the same period.

Understand that the challenge does not end with the demand for power nor the manner in which we make it, but also in how we move it.

The nation’s overtaxed network of high-voltage electric lines – the national grid – was not built to handle the demands we place upon it.

The interconnected power grid was quilted together in the 1930s and was designed to move power relatively short distances.  It is now common to see transactions occur in regional markets that cover hundreds of miles.

In short, the grid – the national infrastructure we rely upon to move power about the country – faces unprecedented problems delivering power, especially when demand soars during periods of extreme heat or cold.

Finally … and this goes back to the core issue … when we talk about climate change, greenhouse gases and the threat to the global environment, do not think for a moment that this energy debate will be any easier than the one 30 years ago.

There is now widespread agreement that the climate is changing.

There is not widespread agreement about what to do about it.

Or even how we should begin.

Here is a clue:  Have you heard the expression.--“local warming”?

How about “national warming”?

No – global warming.  China, India, South America, Africa and yes, the United States.

We can make incremental contributions at all levels whether we should, how, and what cost is the great debate that lies ahead – but it seems clear that only the last two questions are left open.

But this is the grand challenge of our times, on a scale never seen previously.  Climate change is a global issue that calls for global cooperation.

At a minimum, the U.S. needs a policy that is national in scope – one that embraces energy in its totality and does not look for convenient villains.

Again, it has to be honest.  We have to be honest. About ourselves.  About what we want.  About what we are willing to change.

The expense of regulating carbon dioxide will be enormous.  There are currently no viable CO2 control technologies on the market, and it could take decades and huge R&D investments to develop them.

The big question that lurks behind the debate right now?

"Who is going to pay?"

The answer is all of us … because the huge costs involved will be either reflected in the price of energy products or the taxes we pay the government.

Diversification is the linchpin.  We must utilize all of our energy sources – coal, nuclear, oil, gas, hydro, and renewable sources – together with much more aggressive conservation and energy efficiency efforts.

We do not have the luxury of limiting ourselves to a few sources of energy and excluding others.

We also must keep the proper perspective about our energy supplies.  So-called "alternative sources," including wind, solar, fuel cells, ethanol and bio-diesel fuels, hold great promise for the future.

But they are expensive.  A single wind turbine can cost $2 million.  In fact, present investments in wind turbine technology are largely a bet that federal policy will change and essentially subsidize them.

The push is on for renewable sources of energy.  I understand that and I agree with it … so long as we talk about it in realistic terms.

Solar, like wind, provides intermittent and unpredictable power.  Because electricity cannot be stored on a large scale, wind and solar are unsuitable as 24-hour-a-day sources of energy.

At this stage, it would be more accurate to call these "supplemental" rather than alternative energy sources. 

They are simply not ready to replace the fossil fuels – coal, oil and natural gas – that currently account for about 80 percent of the world’s energy supply.

We also must have realistic expectations about conservation and energy efficiency – despite our recent success in reducing the energy intensity of the economy – which is the amount of energy used per dollar of gross domestic product.

Current U.S. energy policy restricts development of our domestic oil and gas resource base, including the Atlantic and Pacific outer continental shelves and federal lands in Alaska and the Rocky Mountain Basin.

This, in my view, is the Achilles heel of America’s energy dilemma.  The value we Americans place in self-sufficiency is oddly absent when it comes to energy.  We are a nation rich in natural resources, yet we restrict access to large tracts of it.  I know of no other country with similar limitations.

Coal and nuclear power must be part of the solution, too.

Coal is our most abundant domestic fuel source.  It produces half of our electricity and its price is less subject to volatility.

Along with several other companies, Dominion is currently exploring construction of a new clean-coal station in southwestern Virginia that will work.  Congress must do its part by channeling more federal research funds into the commercialization of these high-efficiency advanced technologies.

There is currently renewed interest in nuclear power, as well there should be.  As you may be aware, Dominion is exploring the option of building a third nuclear unit at our North Anna Power Station, about 40 miles northwest of Richmond.

New nuclear plants will solve many of the nation’s energy problems.  It is a safe and clean energy source.

Utilities and their investors need adequate financial rewards to bring the electric grid into the 21st Century and support our high-tech economy.

The recent policy changes passed by the General Assembly and now before Governor Kaine for signature represent a departure from the norm … a highly encouraging departure.

The legislature resisted the tyranny of the immediate and voted to enact a policy based on what is coming… namely, a future where Virginia homes and enterprise continue to demand more power.

Ladies and gentlemen, more than a half century ago, a blue-ribbon study was commissioned by then-President Harry Truman, with the purpose of taking stock of American resources and energy needs.  The final report, called “Resources for Freedom,” urged Americans to start preparing for the energy demands of the 1970s.

“As a nation,” the report said, “we have always been more interested in sawmills than seedlings.”

Well, we know what happened from that point on. The sawmills prevailed, and the ’70s arrived. Back then, a great debate ensued.  We talked a lot about energy.  Then we got over it.  Any effort to prepare over the long-term was lost in the rush to accommodate the hear-and-now. 

Flash forward, here we are today – more than 30 years after the great energy crisis of the 1970s.

Once again, we are in the midst of a great debate.  There are some new aspects – climate change being the most prominent – but we are largely faced with the same challenge: Can we free ourselves from the tyranny of the immediate?  Can we actually look ahead, see what is headed directly at us and act in our own best interest?  Can we do it differently this time?

I believe we can and we must.

Thank you for allowing me to address you today.  I will be happy to take any questions.

NYSE : (April 17, 2014) D 70.67 -0.86

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