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Executive Speech

Remarks of Thomas N. Chewning
Executive VP & CFO, Dominion
Environment Virginia 2006 Symposium
Lexington, Va.

April 19, 2006

My compliments to Cabell Brand and those who helped him organize this event. And, my thanks for the opportunity to share my views. I’ve titled my talk "Energy and the Environment: Changing the Terms of the Debate."

I have always believed that it’s better to debate an issue without settling it than it is to settle an issue without debating it. Better still would be to debate and settle. But as with any complex issue, consensus is elusive.

It’s an unfortunate fact that the environmental debate has been rooted in a "we versus them" mindset for as long as I can remember. It has not served us well. It has only served to heighten mistrust and resentment among those with opposing points of view.

Disagreements typically arise, not over goals, but over the means to achieve them. After all, who doesn’t want clear air, reliable and affordable energy, and an improved quality of life for all Virginians?

It’s when we begin to ask "how much?" … and "who pays?" … and "what trade-offs will be made?" … that things begin to get dicey.

So our challenge is — as it always has been — to balance the benefits of environmental protection with the costs of obtaining those benefits in such a way that Virginia’s economy and its environment can flourish.

As you know, I am here representing Dominion, a Virginia-based Fortune 200 company. Most Virginians know Dominion as VEPCO, the provider of electricity to a large portion of the state. As such, we are always in the spotlight when environmental issues are raised, debated and legislated.

What many of you might not know is that Dominion is also one of the nation’s largest producers of oil and natural gas.

We also have investments in electric transmission and natural gas pipelines, a liquefied natural gas facility on the Chesapeake Bay, and power stations fueled by coal, gas, oil and nuclear energy in the Midwest and in New England.

We know firsthand that energy production and usage have environmental consequences. Dominion spends a great deal of time, attention and money to be a good steward of the environment. We have a vested interest in the important relationship between the environment and the economy.

I am also here as a native Virginian who values the great natural beauty of our state. And as a grandfather, I am concerned with the Earth’s environment far beyond my expected life span.

I don’t view these perspectives as being mutually exclusive. Just like I don’t view a strong economy and a healthy environment as being mutually exclusive. On the contrary, I see them as being mutually supportive and interdependent.

I think any environmental issue is ultimately everyone’s concern. Any business that doesn’t see the need for a healthy environment undermines its basis for long-term survival. And energy is a fundamental component of economic growth. A robust economy improves the standard of living and gives the private sector the financial means to protect vital ecosystems.

I would hope all parties agree, we need to move the environmental debate beyond its current grounding in stereotype, emotionalism and political opportunism. Too many otherwise-intelligent people have the equivalent of a tabloid-level understanding of energy and environmental issues. Sound science and solid research should be the building blocks of the discussion.

We can no longer afford to allow sensationalism, fear mongering and manipulation to win out over common sense and realism.

Typically, when energy and the environment intersect, the rules of engagement are not unlike those of a boxing match.

The opposing camps square off, throwing a few punches at each other, and occasionally draw blood. One round follows another. Someone is eventually declared the winner. But both sides emerge bruised and battered. Victory is short-lived. The opponents are already looking ahead to a rematch – a chance to even the score. It’s a brutal and unending cycle of one-upmanship.

There’s plenty of blame to go around. All segments of society share varying degrees of responsibility, including politicians, regulators, the media, consumers, environmentalists, and industry.

For too long, the consuming public has lived under the illusion that energy is an entitlement. Flip a switch, the lights go on. Turn up the thermostat, the house gets warmer. Step on the gas, the car goes faster.

We Americans want an abundant supply of energy — and we expect it to be cheap…

We want reliable, on-demand electricity — and we want it cheap…

We like our mobility. We need plenty of gasoline to fuel our big cars and trucks — and we want it cheap…

We want energy independence, but we don’t want to explore for oil and gas in Alaska or off our coastlines…

And we want a clean, even pristine environment — but we want someone else to pay for it.

The truth is, policymakers and regulators have shielded consumers for too long from the true costs of energy production and delivery. Without meaningful price signals from the market, consumers have little incentive to conserve energy — or even care.

We have watched as elected officials at all levels of government have become increasingly subject to intimidation and manipulation by narrowly focused extremist groups, whose demands are often irrational and emotional.

With a few notable exceptions, including Representative Joe Barton of Texas, members of Congress have shown an amazing lack of political will and an inability to level with the American people about energy use and costs. This has contributed mightily to the perception that energy is and always should be cheap and abundant.

The public has been conditioned — by politicians, the media, environmental extremists, and even industry when it remains silent — to look for easy answers and to believe that the principles governing our free market economy shouldn’t apply to the business of energy.

Somewhere along the way, our nation seems to have forgotten those pearls of wisdom that mothers used to pass along to their kids: “You can’t have your cake and eat it too.” Or, “There’s no such thing as a free lunch.”

I often wonder, is anyone out there talking to the American people about the meaning of “trade-offs” — especially when it comes to energy issues and the price tag that goes with a cleaner environment?

We are, for better or worse, a reactive rather than a pro-active society — especially when it comes to energy issues. We respond when a crisis strikes, but we don’t plan ahead very well.

It’s clear that we need to shift the terms of the environmental debate and move it to a different level. The status quo doesn’t work. We need to inject a healthy dose of economic realism and honesty into this dialogue.

There’s no time like the present to begin changing ingrained attitudes and behaviors that, if left to their own devices, will only obstruct the path to progress.

We need a more thoughtful and balanced process. We need a debate that transcends political grandstanding, emotion and media hype. That’s our best hope for resolving the environmental challenges we face — and at the same time, meet the ever growing demand for energy.

Finger pointing and name calling do get people’s attention — and ink in the press, too. But they don’t help us quantify environmental problems and the resources needed to remedy them.

We need more cost/benefit analysis for that. We have the tools and the expertise. Let’s use them — before laws and regulations are promulgated – so our environmental policies have a stronger basis in hard data.

And it’s not about putting a price tag on someone’s health or life. It’s coming to the realization that if we spend large amounts of money to achieve small or questionable environmental benefits, we’re diverting resources that otherwise could be creating jobs, funding research or paying for better schools.

The American public is woefully uninformed about who is paying for environmental programs. Again, consumers lack clear price signals about energy costs. But ultimately, the public is paying for environmental improvements — whether they know it or not.

We need to know — both as individuals and as a nation — what we can expect to pay — or sacrifice — in order to have a better environment.

Fundamental questions must be asked — and answered — each time we are confronted with an environmental dilemma:

  • What evidence is there that a problem exists?
  • How do we define it?
  • What are the options for fixing it?
  • What are the costs, and who pays?

Too many Americans mistakenly think that industry alone will — and should — bear the financial burden for environmental improvements. That’s pure fantasy.

Dominion and other investor-owned companies have explicit fiduciary responsibilities to protect the economic interests of their shareholders. Of course stewardship and social responsibility matter, but so does the bottom-line.

A profitable corporation is the only corporation that has the means to fulfill its social and environmental commitments.

I’m not here to be a cheerleader for Dominion, but my company has a strong environmental track record, and I’m proud of what we’re doing. Our corporate roots go back to the days of George Washington and James Madison. Virginia is our home state, and we have a vested interest in the Commonwealth’s well being.

When we address environmental issues, we look for long-term solutions that are consistent with sound science and economic sense.

Dominion’s landmark 2003 agreement with the U.S. EPA and the Commonwealth of Virginia is a case in point. Under terms of this collaborative agreement, we are investing more than one billion dollars to improve regional air quality. The agreement includes clear emission reduction targets, timetables for compliance, and emissions credits that provide an economic incentive to reduce emissions below the set targets.

It’s the most ambitious and far-reaching environmental commitment ever made by a Virginia corporation. And, I might add, we’re achieving it without raising our customers’ base rates, which are capped through 2010.

This major investment in clear air follows other major expenditures we have made since the 1990s for environmental controls at our Virginia and West Virginia fossil stations — well ahead of compliance deadlines. These improvements have brought significantly cleaner air to the Shenandoah National Park and other wilderness areas.

In New England, where we acquired two major coal stations last year, we are investing more than 500 million dollars to help those facilities meet the strictest emissions standards in the nation.

There are people who want us to stop operating those stations entirely. If we did that, a lot of lights would go out, and a lot of businesses would be forced to close. The economic cost to the people of New England would be steep.

Last fall, Dominion announced plans to spend an additional 500 million dollars to meet new EPA rules governing sulfur dioxide, nitrogen oxide and mercury emissions at our Virginia generating units.

We have been very proactive in supporting these new rules. In our view, their market-based, cap-and-trade approach will bring about the desired emission reductions in the most cost-effective manner.

These new rules also provide a degree of regulatory certainty that helps us plan ahead and have a better idea of what we’re going to be spending in the environmental area.

All told, when we complete these environmental enhancements in 2015, Dominion will have spent upwards of three billion dollars to clean the air since the 1990s.

At Dominion’s Virginia coal stations alone, sulfur dioxide emissions will drop by an average of more than 80 percent… nitrogen oxide emissions will decline by 74 percent… and mercury emissions will fall by 86 percent at our coal stations serving the Commonwealth.

Those reductions will be achieved even as the demand for power is projected to grow by 30 percent over the same period.

These investments will help safeguard public health and the environment. At the same time, they will put significant dollars to work in Virginia’s economy. That’s a win for everyone.

In general, all companies — and by extension their stakeholders — benefit when there is a clear understanding of the rules and regulations that govern their operations.

Regulatory certainty is good for planning, budgeting and managing risks – all essential functions of any viable business enterprise. Experience has shown that industry works best when regulators provide clear signals about what is expected… what the timetable for compliance is… and how costs are going to be allocated.

The next major environmental issue we are going to have to confront as a society is global climate change and carbon emissions.

This will require some hard choices. On the bright side, it gives us the opportunity we need to shift the terms of the environmental debate — and get it right this time.

The scientific community is largely in agreement that the climate is changing. But there’s still no consensus about the cause and effect relationship. Specifically, there is little agreement about the extent to which human activity and the use of fossil fuels are contributing to global warming.

We know that the earth has warming and cooling cycles. But we don’t know — with the emphasis on know — what impact CO2 and humans are having on the current warming cycle.

A recent public opinion poll showed that 85 percent of the Americans surveyed think global warming is real and must be addressed. Interestingly — and not surprisingly — when asked if they would be willing to drive smaller cars and pay more for energy to help solve the problem, the percentage answering “yes” was dramatically lower.

Nevertheless, Congress is sure to come under growing pressure from a concerned public to do something. Lawmakers aren’t likely to wait for science to reach consensus and deliver its verdict. At some point, the demand for action will force Congress’s hand, and the battle will be joined.

The question is, will it be politics as usual, driven by emotionalism and hype? Or will cooler heads prevail, allowing for the kind of rational, honest debate about costs and benefits that we need to have?

At this stage, we can only hope it’s the latter.

No matter what science determines about greenhouse gases, there is an urgent need for clear thinking and rational discussion — NOW.

It’s worth noting that with the exception of France, which relies primarily on nuclear, many countries that signed on to the Kyoto Protocol have not been able to meet their CO2 emissions targets. Because add-on CO2 control technologies aren’t commercially available yet, the challenge and expense of controlling carbon dioxide is going to be daunting.

It’s high time we started playing straight with the American public. Let’s “get real” about what’s at stake here. We need to identify potential solutions before we commit to one path or another — solutions that include new nuclear units, cleaner fuels for automobiles, greater energy efficiency and conservation, among others.

First of all, let’s be clear that we’re dealing with a global environmental issue that ultimately calls for global cooperation. At the very least, we need a public policy in the U.S. that is national in scope — one that spans the entire economy.

Power plants account for about one-third of U.S. carbon dioxide emissions. Close to 30 percent come from the transportation sector, and somewhere between 35-40 percent come from home heating, water heating and other sectors of the economy.

The point is, power companies should not be singled out. If we end up with a mandatory emissions program to control CO2, it must be comprehensive and economy-wide if it’s going to achieve the desired results.

And by the way, the three billion dollars that I told you Dominion will spend on emission controls will do nothing to curb CO2. That’s because a viable technology to cut CO2 emissions hasn’t been created yet.

It will take significant amounts of new R&D investment to develop these technologies. That could take decades and be very expensive. Remember that about half of the power produced in this country comes from coal.

So once again, we’re faced with the question, “Who is going to pay?”

That brings us back to the “no free lunch” theme.

Yes, we all want a cleaner environment, but we also want low-cost, reliable energy.

Yes, we want a cleaner environment, but are we prepared to support the construction of new nuclear stations, which produce no greenhouse gases? We need an approach that makes it financially feasible for companies to implement lower- and no-carbon alternatives — such as nuclear — if we are going to get what we want.

Yes, we want a cleaner environment, but what if that means giving up our SUVs, gas-fired leaf blowers and other conveniences that contribute to our modern lifestyle?

The point is, we could all stand to take a close look in the mirror and acknowledge these inconsistencies. We’re all part of the problem. If we’re going to reduce the carbon intensity of our economy, we all have to be part of the solution, too.

I’m convinced we can get this important national and international issue right if industry — and the consuming public — are given appropriate signals and incentives to reduce the carbon that’s emitted from all sources.

A federal market-based program, broadly applied, would be preferable to more traditional regulation.

In cases where viable emission control technology has been available, cap and trade emissions programs have proven to be more flexible and effective than command and control regulation.

Some think a carbon tax is the best way to go. Dominion in involved in this discussion with our legislators, regulator and colleagues in the energy business. At the national level, we need to identify what emission reductions may be necessary and how we achieve them without placing the U.S. economy at a competitive disadvantage in the global marketplace.

What we really don’t want to see is a patchwork of different state and local regulations, which would only complicate and increase the total cost of compliance. Our economy would suffer, and consumers would feel it in their pocketbook. No one wins under that scenario.

Several states have already enacted greenhouse gas legislation. We think that is misguided. Climate change policy should only be developed at the national level and be applied economy-wide.

There is no silver bullet when it comes to greenhouse gases. Most emission-free sources of power — including solar, wind, geothermal and hydro — have severe limitations. They either cost too much, they aren’t reliable, they create other environmental concerns — often pitting environmentalists against each other — or they are susceptible to NIMBY: “Not In My Backyard.”

Right now, the best approach to reducing greenhouse gases in the power generating sector is to work with what we’ve got — and make it work better.

At Dominion, we are doing our part to control greenhouse gas emissions. Power generation is a core business for us, and we have a diverse fuel mix that includes nuclear, gas, hydro, oil and coal.

Coal accounts for about 30 percent of the total, with nuclear and natural gas together accounting for about 50 percent. We have implemented a number of initiatives that are helping us produce more electricity while burning less coal. And we are working with others in our industry to evaluate new and more efficient generating technologies. Less coal burned means less greenhouse gas going into the atmosphere.

Increased use of emission-free nuclear power is another option the nation needs to pursue.

One way is to increase the efficiency of existing nuclear stations. Every megawatt of power produced by a nuclear station is likely to supplant a megawatt of power produced by a fossil-fueled station.

At our Millstone nuclear station in Connecticut, for example, we generate as much power now with two nuclear units as the station once produced with three units.

Across Dominion, we have increased the efficiency of our nuclear units over the past five years to the point where it is like building a new power station without ever turning a spade of earth or burning a lump of coal.

We also have applied to the NRC for an early site permit at our North Anna nuclear station in Louisa County to keep the nuclear option open for the future. We currently have no plans to build a nuclear unit because the economics aren’t right at this time. That could change down the road if Congress gets serious about reducing greenhouse gas emissions.

Dominion very much wants to be part of the solution to global climate change, and we will do our part. We look to our regulators and policymakers to provide clarity about the ground rules — the incentives and penalties that reward or punish different behaviors.

Only then will be able to make informed decisions and invest our resources in solutions that make sense for our shareholders and our customers.

Whatever comes to pass, I encourage all of you to think about concrete steps we can take to elevate this important debate to a higher level.

Above all, meaningful public policy must be guided by the light of reason, not the fire of emotion. We don’t need yesterday’s answers to today’s problems. We need to address climate change with rational thinking, economic common sense and mutual respect.

Dialogue and discussions like the one we’re having today serve to improve our understanding of the range of options we need to consider as the debate advances.

It’s a huge challenge — one that’s worthy of the best ideas that government, business, and the environmental community can muster.

I’m convinced that if we as a nation approach this and all environmental challenges with balance… cooperation… sanity… and science… as our point of departure, we stand a much better chance of shaping workable solutions that promote economic health and protect vital ecosystems. After all, that’s what all of us want.

NYSE : (April 24, 2014) D 71.55 0.49

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