Corporate

Executive Speech

Paul D. Koonce
CEO - Dominion Energy
at the
Knight Center For Specialized Journalism

Sept. 7, 2006
Dominion Cove Point

Good morning and welcome to Dominion Cove Point — one of our nation’s most exciting and important energy projects — and a very fitting site for this seminar topic, “Energy, Cost and Crisis.”

I am pleased that we had the opportunity to conduct our LNG demonstration and have been able to help you see first-hand how safely our product is handled and managed. Too often safety becomes the last “grab” for those working against construction of an energy project. Almost on cue, when all other attempts fail at stopping needed infrastructure — be it to preserve unobstructed views, complain about increased traffic flows through neighborhoods, or raise environmental concerns — safety becomes a final act.

And, while these dramas play out routinely in local, regional and sometimes even the national media, the most pressing issue does not get much play — namely, that our nation’s major energy projects are not moving forward as quickly as they should be and will not be in commercial operation when they are needed.

That is my message today, and it has serious implications for our long-term national economic health and quality of life.

Our nation’s appetite for energy grows without reference to our future production timetables or our public debates.

Before I elaborate, let me be clear on safety. It is our company’s top corporate value. Conducting ourselves safely and in full accordance with existing laws and regulations is first among all other factors when constructing or operating energy facilities. Safety is our life, our profession.

Today, I invite each of you to form your own initial judgments about LNG and safety based on today’s demonstration. In all candor, operational safety is not the greatest issue confronting America’s energy users.

In a discussion of our nation’s Energy needs, “Energy, Cost and Crisis” is, in my opinion, a far more realistic subject. It is not alarmist to include the word “crisis” in the title.

Consider the heat wave back in mid-summer. For the second consecutive year, New England, New York, California and my home state, Virginia, set new peak demands for power consumption. Dramatic new records were also set in Texas, as well as throughout The Tennessee Valley Authority and the Midwest ISO.

In the environmental world, Al Gore turned the phrase “inconvenient truth” into something of a buzzword.

In the world of energy infrastructure development, the inconvenient truth for cities, towns and communities all across America is that all this dramatic new demand for power is not ending. Demand is projected to grow by 20 percent by 2015. The proliferation of big-box stores, longer hours and energy intensive equipment will drive the commercial sector. The electronics revolution in the home will drive the residential sector. The increasing number of televisions per household combined with larger, higher resolution plasma screens exemplifies the electronic revolution that is taking place. In our Virginia electric service area, about 43 percent of growth in demand is from existing homes.

Industry experts who have done the numbers report that this US demand growth implies the need for more than 80,000 megawatts of new generation capacity over the next 10 years, or the equivalent of 80 new nuclear plants. This might be conservative when you consider that, in the Eastern Interconnect alone, nearly a quarter of all base load coal generation will be more than 50 years old by 2015.

And, the news for natural gas is much the same. Natural gas-fired generation helped us meet our summer cooling loads. Generation of electricity grew by 6 percent nationally between 2000 and 2005. Generation from units fueled by natural gas increased by 64 percent during the same period. For the first time on record, the federal government’s Weekly Natural Gas Storage Report recorded a net withdrawal of natural gas from the nation’s storage facilities during the summer months.

The Energy Information Administration forecasts demand for natural gas to grow by 10 billion cubic feet per day by 2015, well before the time anyone expects new natural gas supplies from Alaska. If this growing demand is to be met though LNG, we’ll need nearly 1,500 LNG tankers landing U.S. terminals. This is a significant increase over the 270 tankers landed in the last year.

As Americans, we’re proud of the strength of our economy. Over the last 15 years, the U.S. economy has expanded by 3.8 percent per year on average while total energy consumption grew by 1.2 percent. Sustaining that economic health requires important initiatives in the areas of demand-side management, conservation, distributed generation and renewable generation projects such as windmills and solar power. And it requires that we keep building new energy supply and infrastructure.

This includes expanded LNG terminals and pipeline projects to move regassified LNG to the existing pipeline network. Also needed are new pipelines to move supply from growing basins in the western United States, as well as Arctic gas. We’ll require the expansion of existing power transmission lines to connect growing demand centers to regions with excess capacity. It will be instrumental in meeting future electricity demand and insuring system reliability.

So against this backdrop, I pose an honest question:

Are we moving the siting, permitting and construction of major projects forward on reasonable and realistic timelines while hearing and accommodating the legitimate interests of community stakeholders? I say no. I speak from my experience at this critical facility and from my company’s experiences elsewhere. We can and must improve our existing government and regulatory processes in a manner that yields three universal benefits:

  • Transparency for all stakeholders up front;
  • Sooner-rather-than-later determinations of economic, technical and political project viability;
  • Investor confidence and certainty, without which we won’t need to worry about transparent siting processes or project viability. We won’t have any money to build in the first place.

An Interstate Natural Gas Association of America study in 2004 showed that the nation needed to invest $60 billion in new natural gas infrastructure to meet demand by 2020. What strikes me was a study conducted one year later that showed a two-year delay in natural gas infrastructure construction will cost U.S. gas consumers in excess of $200 billion by 2020.

Here at Cove Point, Dominion had more than $150 million at risk while waiting for the necessary approvals. We spent that $150 million-plus to fund the needed environmental, detailed engineering and safety studies for our approved plan — and to conduct those same studies for the proposed alternatives.
Statoil plans to spend $9 billion to bring LNG from the Barents Sea to facilities such as Dominion Cove Point. When a company like Statoil decides whether to commit to this facility or a terminal in Spain or the United Kingdom, it looks at the regulatory process to see if it there is a reasonable length of time for all the necessary approvals.

Statoil management must then make a decision based on cost — as well as on timing. Time is money in our business. They are drilling offshore wells, building pipelines to shore, constructing a liquefaction terminal in Norway, building LNG ships in the Far East and negotiating contracts on several continents. They need to have a reasonable expectation about when Dominion Cove Point will be able to accept its shipments.

Our experience here illustrates that the certainty and reliable timelines for up-or-down decisions on major projects are not yet in place — the second of my three points.

As an energy developer, Dominion speaks from experience across many energy sectors. In addition to our activities here, we are looking at a reclaimed surface coal mine site in western Virginia for a 500- to 600- megawatt clean coal power station.

And we are one of several companies exploring the possibility of building a new nuclear reactor. Ours would be at an existing nuclear generation site in Louisa County, Virginia, and like Cove Point, originally designed for expansion.

On the E&P side, we plan to drill about 1,000 wells this year.

We have proposed three new high voltage transmission lines for our Northern Virginia market, one of the fastest growing regions in the country.

Here in Maryland, this expansion was the closest thing to a slam-dunk in the energy industry — a plant designed to be expanded to provide natural gas to one of the largest natural gas markets in the world, the Northeast/Mid-Atlantic region.

Our dock is just off the shipping lane, but not on a river or in a busy port. The project has the support of the environmental community and the local community.

In short— a process begging to be reviewed swiftly so investors can put their money to work.

But get this: We held our first community outreach meeting in September 2003, filed the project in February 2004 and have only recently begun work. We have scheduled the official groundbreaking for next month. That’s 37 months — from outreach to shovels in the ground — for an expansion that had little-to-no opposition. Construction will take more than two years. We expect to be ready for new shipments in the second half of 2008, or five years from our initial outreach.

Much has been made about the Energy Policy Act and how ultimate authority rides with the Federal Energy Regulatory Commission. But state and local permits are also needed.

For the plant itself, we needed seven federal permits, 13 Maryland permits and 6 Calvert County permits. For the Maryland portion of the pipeline we needed nine federal, 17 state and six county permits.

For the Pennsylvania pipeline, compressor stations and underground storage, we needed four federal and 37 state and local permits, for a total of 93 permits in all.

I applaud FERC. The Office of Energy Projects, working with the full Commission has worked very hard to define the process at its agency. They have taken the lead to execute interagency MOU’s attempting to bring some order to the vast interagency federal conflict.

I applaud Calvert County for its constructive and professional consideration of our proposed expansion.

But, these are only two institutions of the many involved at all levels of government. Too often stakeholder groups are free to lay low, watching one agency deal with a particular issue, only to attempt a different tack at another agency. This leads to developers arguing the same issue in multiple venues. Very often, the opposition group is hoping a new route or a new technology will take the project out of their backyard. Meanwhile, consumers pay for every higher energy costs.

By way of example, our company has owned one electric transmission right-of-way in Virginia since the 1960s. Now, after this transmission route has been carefully re-examined and all alternative routes thoroughly considered, a local group has — surprise, surprise —found a new “expert.” This expert does not have a better route.

Yet, he says there is – quote— “always a different way and always a better way.” Not surprisingly, the expert wants to start the whole process all over again with a series of stakeholder meetings. What we thought was a clear, community-involved process for providing electricity to a growing community could be lengthened and obscured. A rehash of the consideration process might also be providing a false hope to those simply wishing a project would go away.

This example makes one point very clear:

Each regulatory or political jurisdiction should establish clear statutory deadlines for all stakeholders to follow. Establishing one record — it’s a more efficient use of our government tax dollars and will lead to greater transparency and more certain decision-making.

Unfortunately, since 2004, the industry has made little progress in getting infrastructure started. Two gas transmission projects to bring more natural gas to the New York-New Jersey area are stalled. Two new LNG projects have been approved for the Northeast. Yet, neither has begun construction. Neither is certain.

I was pleased when The New England Public Policy Center issued a report this past April calling on states throughout New England to consider economic incentives for energy infrastructure; or, in the alternative, to provide a clear means for siting and permitting. The New England Public Policy Center is not a disguised name for an energy lobby; it’s an offshoot of the Federal Reserve Bank of Boston.

As a project developer, Dominion believes that problems with large facilities should be vetted up front. We believe in analyzing a site with local community and state and federal officials at an early stage. If there is a fatal flaw in a project, we want to walk away and go to the next project before we spend a lot of money.

But once a project is deemed good for the region, the project should go forward on a defined path with a defined timetable.

We are not whining. Look around. We are doing anything but. What we are doing is pointing to an obvious and fixable problem slowing a critical national priority.

It is important to talk about our concerns. This meeting with you is an important step in public education. The public needs to know what it takes to keep the lights on. The public needs to know that energy is essential to our economy. The public needs to know our infrastructure needs upgrades. This will take enormous investments by industry. The role of NIMBY activists must be defined, but they can not be indulged in the way they have sometimes been indulged in the past through the manipulation of multiple jurisdictions. Get this across in your coverage and you’ll be upholding the finest traditions of the Fourth Estate and public service journalism.

When you go home and see major energy infrastructure projects proposed in your region, remember that the need is urgent. Our industry is not expecting a free pass to build wherever it wants. Safety, security and needs of the community all need to be addressed. Companies should address those concerns upfront and then proceed at reasonable speed.

It’s our job to keep the lights on, the houses warm and industry working — and provide energy at a reasonable cost. We must have a political/regulatory process to facilitate just that.

Thanks for letting me share my thoughts. I look forward to answering your questions.

NYSE : (April 24, 2014) D 71.52 0.46