Remarks – Thomas F. Farrell II
Chairman, President & CEO
First Annual Energy Summit
Southwestern Virginia Technology Council
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:
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.
Print Save trees. Print only when necessary.