Remarks -- Thomas F. Farrell II
Chairman, President & CEO - Dominion
EEI Wall Street Briefing
June 13, 2007
Good afternoon. My thanks to David Owens and the Edison Electric Institute for putting this event together. Tom Kuhn and his staff at EEI work hard to craft forward-thinking policies to help guide our industry on climate change and other important energy issues. We appreciate their leadership and support.
Although the companies that comprise the electric power sector face similar challenges, their responses to those challenges will vary – whether we are talking about capital expenditures, customer service or climate change.
Dominion, as you probably know, operates in the energy-intensive Midwest, Mid-Atlantic and Northeast regions of the country. Slightly more than half of our 26,000 megawatts of regulated and merchant electric production is fossil-fired. The rest is emissions-free nuclear and hydro power.
We believe the balance and diversity of our generation fleet provides a valuable hedge against the potential risks associated with carbon regulation. Dominion uniquely adds to this carbon balance with our one trillion cubic feet of natural gas reserves, one trillion cubic feet of natural gas storage capacity, North America’s busiest LNG import facility, and 7,000 miles of pipeline in the Mid-Atlantic region.
According to a report by the Natural Resources Defense Council, Dominion’s carbon intensity – the amount of carbon emitted per unit of energy – is currently about 13 percent below the national average and has been declining over the past few years. It will drop even more when the pieces of our climate change strategy fall into place.
This past spring, as you may know, the Virginia General Assembly passed a law to re-regulate the state’s electric utilities. Dominion supported this law because it does three important things:
And Virginia’s energy needs will be substantial. Peak demand in our service area is expected to grow by 4,000 megawatts over the next decade – the highest growth of any region in the PJM footprint and roughly equivalent to adding one million new homes to our system.
Turning to the issue of climate change, Dominion’s strategy has four principal components and includes both supply-side and demand-side initiatives.
We recognize that there is no silver bullet solution to an issue as complex as climate change. So we intend to use all the resources at our disposal to confront this issue.
The first piece of our strategy is increased reliance on energy efficiency, conservation and renewable power.
Even before Virginia passed its re-regulation law, Dominion had taken steps to consolidate and expand our demand-side offerings.
Earlier this year, we created a new Energy Conservation group to serve our retail electric customers. New and existing initiatives will help achieve Virginia’s 10 percent conservation target by 2022.
Dominion already complies with renewable portfolio standards in five states where we sell electricity. And in Virginia, the new regulatory model includes incentives for investments in renewable generation, which is targeted to reach 12 percent by 2022.
We are currently expanding our renewable portfolio to help Virginia meet this goal.
Late last year, for example, we announced a partnership with Royal Dutch Shell to build a 164-megawatt wind farm on the Allegheny Front in West Virginia. This project consists of 82 wind turbines that will generate enough power to supply about 40,000 homes.
A mandatory one-size-fits-all national, renewable standard is problematic because regional differences matter when it comes to renewables. Virginia’s approach is worth considering: set aggressive targets and provide incentives for the utility to hit the targets. I can assure you we will do so in Virginia.
Conservation, efficiency and renewable energy are increasingly important, but they are only one piece of the solution. As I said earlier, we must use every option at our disposal to address the challenge of climate change.
The second element of our strategy is increased nuclear capacity.
Nuclear power is “environmentally sound and safe.” So said Greenpeace founder Patrick Moore, a view echoed by more and more environmentalists and others concerned about climate change.
At Dominion, we have always believed in the nuclear option. Our two Virginia nuclear stations produce more than a third of the state’s electricity.
Our two merchant stations – Millstone in Connecticut and Kewaunee in Wisconsin – play a critical role in maintaining a reliable and clean supply of power in the markets they serve.
We are in the process of evaluating the addition of a third nuclear unit at our North Anna station in Virginia.
We expect the NRC to approve an Early Site Permit for the unit by the first quarter of 2008. And we are developing our application for a Combined Operating License for a new 1,500-megawatt reactor, which we intend to file with the NRC later this year.
In addition, we recently signed a contract with GE Energy to buy components for a possible new reactor at North Anna.
If we decide to proceed with new nuclear construction, Virginia’s new re-regulation law will be invaluable. It will help attract needed capital by offering an enhanced rate of return on major new generation projects, especially base-load nuclear and clean coal, the backbone of our generating fleet.
That brings me to the third piece of our strategy: clean coal.
Coal, as you know, is our most abundant domestic fuel source. Its role in electric generation is indispensable. Any serious attempt to improve the nation’s energy security and independence must include coal.
One way to do that is to use advanced clean-coal technologies. Dominion is leading a consortium of energy companies planning to build a 585-megawatt coal station in the heart of the coalfields of Southwest Virginia. We plan to file for a construction certificate later this year.
The station would go into service early in the next decade. It will use advanced circulating fluidized bed technology – a flexible, proven clean-coal technology that can burn run-of-the-mine coal, waste coal, and as much as 20 percent renewable biomass.
The advanced CFB technology, combined with efficient emissions controls, will minimize the overall impact to air, water and land resources.
The ability to capture and store CO2 emissions underground could play an important role in coal’s future. With that in mind, Dominion is partnering with the Virginia Center for Coal & Energy Research at Virginia Tech to demonstrate large-scale carbon sequestration in the coal seams of central Appalachia.
If successful, this project’s proximity to our planned Southwest Virginia coal station could provide a significant reduction in future carbon emissions at the station. We are currently seeking funds from the Department of Energy to keep this project moving forward.
The fourth and final component of our strategy is compliance with RGGI – the Regional Greenhouse Gas Initiative. This is a program by Northeastern and Mid-Atlantic states to reduce CO2 emissions. Central to this initiative is a multi-state cap and trade program with a market-based emissions trading system.
Dominion is the largest power producer in New England. We have almost 5,000 megawatts of generating capacity in Connecticut, Massachusetts, Rhode Island and Maine. About 60 percent of it is fossil-fired. Beginning in 2009, our New England fleet will be subject to CO2 regulation in Massachusetts and Rhode Island under RGGI.
We are currently evaluating a range of compliance options.
For example, earlier this year we teamed up with four other utilities to identify ways to address greenhouse gas emissions by soliciting offsets to meet the cap and potentially achieve other climate change goals. The non-profit Climate Trust and M. J. Bradley & Associates are administering this offset project.
Although we will continue our efforts to comply with RGGI, we believe a national, economy-wide approach is the best way to address climate change.
Those four elements form the basis of our climate change strategy. We will continue to manage our emissions, reduce our carbon footprint and fine-tune our strategy as circumstances dictate.
The key, in my view, is to maintain and grow a diverse and flexible energy portfolio that includes coal, nuclear, natural gas, hydro and renewable sources – along with much more aggressive conservation and energy efficiency programs.
I look forward to exploring this topic in more detail with my fellow panelists and the audience.
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