Although the companies that comprise the electric power sector face similar challenges, their responses to those challenges – whether capital expenditures, customer service or climate change – will vary. Thomas F. Farrell, President and CEO of energy giant Dominion, outlines what his firm is doing to address these and other issues.
Dominion is one of the largest producers of energy in the United States, with a portfolio of 28,000MW of generation, about 6.6 trillion cubic feet equivalent of proved natural gas reserves and 7800 miles of natural gas transmission pipeline. It also operates one of the nation’s largest underground natural gas storage systems with about 950 billion cubic feet of storage capacity and serves retail energy customers in 11 states. In the energy utility big league, Dominion is a powerful player.
And it needs to be. The company operates in the energy-intensive Midwest, Mid-Atlantic and Northeast regions of the country – regions that, due to increased economic activity, are currently experiencing a huge increase in power demand. Clear evidence of that phenomenon came earlier this year in a study released by PJM, the organization that manages the electric grid in the Mid-Atlantic region. PJM reported that the demand for electricity was growing faster in Dominion’s service area than anywhere else in the PJM footprint – an area that extends from Chicago to the Outer Banks and north to New Jersey. In just five years, demand in the Dominion service area will go up almost 1800 megawatts; PJM likens that to adding more than a million houses to the system.
So what’s the solution? In Virginia (another of Dominion’s key markets that is witnessing a surge in demand), the Virginia General Assembly recently passed a law to re-regulate the state’s electric utilities in a bid to overhaul the energy sector – a move that could yet prove a model for successful oversight elsewhere. The so-called ‘hybrid’ regulatory model incorporates the best elements of traditional regulation and the experiment with deregulation, and power industry leaders – including Dominion – believe the plan will perform three important tasks. First, it will provide incentives to build new generation – especially base-load generation – to support the state’s accelerating growth. Second, it will ensure stable and reasonably priced electric rates for consumers. And third, it will promote greater use of conservation, energy efficiency and renewable power to meet future energy needs.
It’s good news for those companies looking to move forward with plans to reduce emissions, increase capacity and improve energy efficiency such as Dominion. Just over half of its 28,000 megawatts of regulated and merchant electric production is fossil-fired; the rest is emissions-free nuclear and hydropower. The balance and diversity of its generation fleet provides a valuable hedge against the potential risks associated with carbon regulation. 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. Chairman and CEO Thomas F. Farrell believes it will drop even further when the key pieces of Dominion’s climate change strategy – involving four principle components and including both supply-side and demand-side initiatives – fall into place. “We recognize that there is no silver bullet solution to an issue as complex as climate change,” he says. “So we intend to use all the resources at our disposal to confront this issue.”
The first piece of Dominion’s strategy is an increased reliance on energy efficiency, conservation and renewable power. The company already complies with renewable portfolio standards in five of the states in which it is active, and in Virginia, where the new regulatory model includes incentives for investments in renewable generation. This is targeted to reach 12 percent by 2022. “We are currently expanding our renewable portfolio to help Virginia meet this goal,” says Farrell. “Late last year, for example, we announced a partnership with Royal Dutch Shell to build a 164MW 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.”
While conservation, efficiency and renewable energy are increasingly important, however, they are only one piece of the solution, and the second element of Dominion’s strategy is increased nuclear capacity. “We have always believed in the nuclear option,” says Farrell. “Our two Virginia nuclear stations produce more than a third of the state’s electricity, while 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 also in the process of evaluating the addition of a third nuclear unit at our North Anna station in Virginia.”
Farrell expects the Nuclear Regulatory Commission (NRC) to approve an early site permit for the unit by the first quarter of 2008, adding that the company is also developing its application for a combined operating license for a new 1500MW reactor that it intends to file with the NRC later this year. In addition, Dominion also 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 re-regulation law will be invaluable,” says Farrell. “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.”
Which brings us to the third piece of Dominion’s strategy: clean coal. As America’s most abundant domestic fuel source, the role of coal in electric generation is indispensable. “Any serious attempt to improve the nation’s energy security and independence must include coal,” asserts Farrell. One way to do that is to use advanced clean-coal technologies. Dominion is leading a consortium of energy companies planning to build a 585MW coal station in the heart of the coalfields of Southwest Virginia. “We plan to file for a construction certificate later this year,” he continues.
The station would go into service early in the next decade and will use advanced circulating fluidized bed (CFB) 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.
Indeed, technology is proving to be an invaluable resource as the industry heads towards cleaner, more responsible power production. Farrell explains how the ability to capture and store CO2 emissions underground could play an important role in coal’s future, and how Dominion is partnering with the Virginia Center for Coal and 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,” he says.
The fourth and final component of Dominion’s strategy is compliance with the Regional Greenhouse Gas Initiative (RGGI), 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,” says Farrell. “We have almost 5000MW of generating capacity in Connecticut, Massachusetts, Rhode Island and Maine, and 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.”
The company is currently evaluating a range of compliance options and earlier this year 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 alliance of Dominion with Conectiv Energy Supply, Entergy Corporation, NRG Energy, Inc. and Public Service Enterprise Group (in a project administered by the non-profit Climate Trust and MJ Bradley & Associates) has been cited as a real boost for the continued development of the offset market – collectively, the participants’ annual revenues exceed $60 billion and their total power generation capacity exceeds 100,000MW.
Indeed, Farrell would like to see the scheme expanded to encompass a nationwide effort to combat the issue of GHG reduction. “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,” he says. “We will continue to manage our emissions, reduce our carbon footprint and fine-tune our strategy as circumstances dictate,” he says. “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.”
Southwest Virginia Coal Station
Dominion is the lead member of a consortium moving forward with plans for this facility. The station will have a number of major benefits for the Commonwealth – and especially for Southwest Virginia. First, it will generate between 500-600MW of electricity by early in the next decade to serve Virginia customers. It will protect the environment by using proven clean-coal technology. And it will be a significant boost for the regional economy. The station will create new opportunities for Virginia’s mining industry by consuming up to two million tons of coal per year from local mines, in turn producing as many as 250 new mining jobs. Once in service, the facility will employ about 75 plant operators, with an annual payroll of more than $4 million. It will also produce significant new tax revenues for Southwest Virginia.
North Anna Power Station
The second major project is new nuclear generation at Dominion’s North Anna Power Station in Louisa County. After years of inactivity, policy-makers and utilities across the country are taking a new look at nuclear power. Concerns about possible climate change, air emissions, depleted reserves of fossil fuels and dependence on foreign energy sources are all driving this renewed interest. Even some environmentalists, long in the vanguard of nuclear-bashing, are changing their minds, recognizing that nuclear power produces zero atmospheric emissions. Greenpeace founder Patrick Moore recently termed it “environmentally sound and safe”.
Dominion’s North Anna and Surry stations produce more than a third of the electricity generated in Virginia, and the firm is evaluating the addition of a third nuclear unit at North Anna. Although no final decision has been made, Dominion expects the Nuclear Regulatory Commission to approve an Early Site Permit for North Anna by the first quarter of 2008. The permit would resolve safety, environmental and emergency preparedness issues and allow the company to bank the site for possible new construction for 20 years. Approval of this permit would be a major step forward.
Northern Virginia Transmission Line
The proposed 500kv transmission line in Northern Virginia is one of the most controversial projects Dominion has ever undertaken. It has drawn heated criticism and opposition, but the company maintains the line is absolutely necessary in order to meet Virginia’s growing power needs and to avoid serious reliability problems by 2011 – problems that would affect a host of critical national security installations, not to mention technology companies, hospitals, businesses and residential customers throughout Northern Virginia. Farrell believes this new line will help avoid serious problems in Northern Virginia – the driver of the Commonwealth’s economic engine.
Dominion’s preferred route is located within or next to existing power line rights of way where power lines are already located, which will minimize the impact on communities and property along its path. The State Corporation Commission will conduct public hearings later this year, and Dominion is hoping for a ruling by next spring.
Dominion recently took the decision to sell off most of its oil and natural gas exploration and production assets to put additional focus on growing its electric generation and energy distribution, transmission, storage and retail businesses. The move is designed to enhance long-term value by realigning Dominion’s operations and risk profile more closely with the company’s peer investment group of utilities.
“Our strategic review has determined that the best long-term course for Dominion is to place greater emphasis on our traditional utility businesses, which will account for about 64 percent of our income this year,” says the company’s President and CEO, Thomas F. Farrell. “We are very good at managing these businesses safely and efficiently, and we are widely considered to have very talented and skilled employees and one of the best sets of assets in the country.
“The premier quality of our E&P reserves and operations is expected to produce significant interest among potential bidders,” Farrell continues. “These operations have a demonstrated track record of solid growth in reserves and production at top-quartile finding and development costs. It is rare that a business of this size and quality becomes available.
“Following a sale, our remaining E&P reserves of about 1.1 trillion cubic feet equivalent would fit well geographically and operationally with our natural gas pipeline, storage and gathering businesses. They have a risk profile more consistent with the risk profile of Dominion’s other businesses.”