Remarks – Robert M. Blue
President – Dominion Virginia Power
Energy, Sustainability & Resiliency Conference
Virginia Chamber of Commerce
Richmond, VA
May 10, 2016
Thank you. I’m happy to join you today.
I first want to applaud Barry DuVal and the Virginia Chamber for hosting this conference
about Virginia’s energy future. Barry understands the importance of energy policy to
Virginia’s business community and made energy a major part of the Blueprint Virginia
effort instigated by the Chamber.
Barry also has taken on another critically important issue for our business and businesses
across the Commonwealth - preparing for the workforce of the future as the baby boomers
begin to retire. Barry, we appreciate your leadership on that issue.
Speaking of retirees, let me offer my congratulations to Jim Campbell. Jim has had a
distinguished career leading the Virginia Association of Counties, and the recognition
bestowed upon him is well deserved.
Jim exemplified the best of an association executive, a strong advocate for his members,
while always working to build bridges to the business community and other stakeholders
that local governments work with day to day.
The business community has enjoyed an excellent working relationship with VACO under
Jim’s leadership, and we look forward to more of the same with Dean Lynch. VACO
provided a model of thoughtful, well-executed succession planning that we can all learn
from.
I also want to say a few words about today’s keynote speaker, Tom Kuhn of EEI.
Tom is a good friend of Dominion’s. He is also a leading light in the energy business. Tom
spends a great deal of time inside the Beltway, so it’s a pleasure to see him outside of the
Beltway and here in Virginia’s Capitol City.
Tom is a tireless leader and advocate for the electric power industry – and has been for
many years. His knowledge of – and commitment to – the industry is unsurpassed.
Those like Tom, who work in the business… along with others who follow it… know that
the world of energy is not what it was – even a few short years ago.
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In fact, if you were a time traveler from as recently as 2009, you would be hard pressed to
recognize today’s energy landscape. Natural gas is the new default fuel. Large-scale solar
projects are now a key part of utility investments. Carbon constraints are now the key
environmental consideration for utilities.
Many of you know that our company’s reach extends well beyond the Commonwealth. We
operate businesses and assets in many locations – from Connecticut to California.
But, to those of you who call Virginia home, we remain the local power company, and I’m
going to speak from that perspective today.
As your local power company, our job is to keep the lights on – around the clock, in all
kinds of weather – and do it safely, reliably, efficiently and affordably.
That is the heart and soul of our business – keeping the lights on. Because if we fail at that,
nothing much else in our economic system is going to work – and that includes our smart
phones, computers, air conditioners and every ATM in the state, among other things.
Our energy networks typically perform very well. You could even argue that our country
has created a $14 trillion economy based on the ability to reach out and hit the switch and
have the lights come on – dependably and affordably, at all times of the day and night.
That is both a blessing and a curse. A blessing because our economy and our
national security benefit from abundant, reliable and affordable supplies of energy.
A curse because our energy systems work so well that we take them for granted and
may sometimes assume new investments and infrastructure upgrades are not
necessary, because what we already have seems to work so well.
It’s our job at Dominion not to take reliability for granted. It’s at the heart of every decision
we make. And it is at the heart of all of our long-range planning.
Current forecasts by PJM, the regional transmission organization that Virginia’s investor owned utilities belong to, show electricity demand in Dominion’s service area – which
includes most of Virginia and northeastern North Carolina – growing more than anywhere
else in a surrounding 13-state region over the coming decade.
This projected demand growth amounts to adding the equivalent of 1 million new homes to
our existing network.
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As we approach this challenge, I think it makes sense to assess where our strengths and
weaknesses are as a state when it comes to energy policy.
Let me begin with strengths. We have low, stable prices for electricity, strong reliability,
and a diverse mix of around-the-clock generation. The policy environment in the
Commonwealth promotes long-term planning and enables needed new investments.
These are substantial advantages, and we should not take them for granted because they
are not a happy accident. These advantages are the result of thoughtful, forward-looking
public policy and good business decisions.
Let’s begin with the bills our customers pay. The bill for a typical Dominion residential
customer is well below the national, East Coast, and DC metro averages. Residential bills
have increased 3.5 percent since 2008. That’s 3.5 percent in eight years, or an average of
less than half a percent a year, well below the rate of inflation.
As for industrial rates, a key factor in our economic competitiveness, we have among the
lowest industrial rates in the nation, and among the lowest industrial rates of the best
states for business, according to CNBC.
More impressive, to my mind, our industrial rates today are lower than they were eight
years ago.
That’s a record of rate stability I am very proud of. It resulted from increasing our own
generation with efficient new resources rather than relying on hour-by-hour market
purchases. It resulted from a diverse mix of fuels. And it resulted from efficient
operational performance.
In addition, the grid is more reliable than it ever has been. That’s something I’m proud of
but not complacent about. I am equally mindful that we need to continue to improve.
Electricity is no longer a luxury or a convenience. It is essential to operating a business, to
powering medical equipment, and to carrying out the tasks of day-to-day life, from paying
bills to doing homework.
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Planning is another strength in Virginia. Since 2008, we have been required to submit to
the State Corporation Commission biennially a 15-year plan for meeting our customers’
needs. In 2015, given the uncertainties around the Clean Power Plan, the General Assembly
made this an annual requirement.
This planning process has been beneficial for our customers, and it has provided both an
informal and a formal forum for stakeholders to weigh in on what our customer needs will
be over the next 15 years and the best approach to meeting these needs.
So planning is critically important. We not only build big things, but we have to build the
right big things – on time, on budget and in compliance with all relevant environmental
laws and regulations.
And when we build them, we spend billions of dollars and expect the facilities to operate
for 50 years or more. That’s not exactly your standard business model.
We have to generate power on a vast scale – enough to cover all residential and commercial
needs, moment by moment – for more than two-and-a-half million Virginia and North
Carolina households.
Our 2016 Plan was filed at the end of April. In it, we offered five different possible
scenarios. One is what we call the “least-cost plan.” It relies entirely on natural gas and
assumes no carbon regulation of any kind – an outcome we view as unlikely.
Natural gas has a lot going for it as a fuel source. It is abundant, low-cost and cleaner than
the other two fossil fuels – coal and oil. It also operates on demand, at all times of the day
in all kinds of weather, and can be quickly ratcheted up or down in response to variable
energy production from sources like wind and solar.
Despite the many advantages of gas, Dominion has never been comfortable putting all of its
eggs in one basket. We value what we call “fuel diversity.”
That’s because reliance on one – and only one – fuel source leaves us vulnerable. It lacks
the diversity and balance that has long been the cornerstone of our generation mix. Most
important, fuel diversity protects our customers from price swings and potential supply
disruptions that can lead to higher energy costs.
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We learned this lesson in late 1972 and 1973, when our first two nuclear units, Surry 1 and
2, began operating. At that time, utilities were being encouraged to convert coal units to
low-cost oil generation. A nuclear unit, much less twin units, seemed out of step with the
current trend. In the fall of 1973, after the Yom Kippur War and the subsequent oil
embargo, oil prices tripled – what Daniel Yergin calls “the first oil shock.”
The decision to build two nuclear units suddenly seemed pretty smart, and a preference for
fuel diversity became encoded in our corporate DNA.
The other four long-term options we evaluated all emphasize fuel diversity. They are
designed specifically to meet the various compliance frameworks offered to the states by
the Clean Power Plan.
These four long-range resource plans have some other things in common besides
compliance with the Clean Power Plan – including higher costs to customers than the
scenario which assumes no carbon limits.
Over the 15-year planning period, which runs from 2017 to 2031, we estimate the
additional cost of the Carbon Rule on our residential customers to be anywhere from about
$5 billion to nearly $13 billion – depending on the compliance strategy adopted by the
Commonwealth.
That translates to customer bill increases ranging from about six percent to 26 percent in
2022 – the year Virginia’s interim carbon reductions kick in.
I am not going to spend time going over the specifics of each plan. That would take up the
rest of the day – and you would either doze off or leave. We don’t want that.
Suffice to say that planning is one of our strengths here in Virginia. In many ways it is the
key strength.
But I do want to say something about our weaknesses, too. Many of them can be traced
back to a single source – one that is not unique to our company, but has been a challenge
for our entire industry: the inability to communicate in simple terms about complex issues.
This thread can be traced through the debates on solar power, onshore wind projects, and
nuclear power, among others.
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Let me start with the growing role of solar power in our generating portfolio and our fuel
diversity strategy. Some critics suggest that we have been too slow to incorporate
renewable technologies – like solar power – into our fleet.
I would argue that we have been prudent. As we are now in Triple Crown season, I will use
a racing analogy. Virginia is seldom the first horse out of the gate in any new area of policy
making. But as any racing fan knows, the first horse out of the gate does not always win.
Just ask the owners of Danzing Candy, the horse that took the early lead at Churchill Downs
on Saturday and ended up finishing 15th.
Dominion is in solar energy for the long haul, and we have a strategy that makes sense for
all of our customers. This strategy actually grew out of our experience operating solar in
other states, investments funded by our shareholders, not our customers.
As of the end of last year, our company had solar facilities operating in seven states – from
California to Connecticut – with more in development. We’ve learned a great deal by
building these large-scale solar projects and are excited about bringing this experience
home to Virginia.
Last fall, we announced the acquisition of a new 80-megawatt solar facility – in Accomack
County near Oak Hall, on the Eastern Shore. This will be one of the largest solar facilities in
the mid-Atlantic region. It should be producing power later this year.
This project was made possible by an agreement with Amazon, and we look forward to
expanding our relationship with them. Amazon wants to increase the amount of renewable
energy on the grid to power its energy-intensive data centers.
We certainly want to help them make that happen. And we want to find more creative
ways to help provide the solar energy some of our largest customers want and need. Too
often, the debates regarding solar power focus solely on capacity factor, cents per kilowatthour and net present value.
To be sure, these are critically important factors in solar energy development. But they are
not always the only ones. For some of our largest customers, and many of our residential
and commercial customers, solar power has become a strong corporate or consumer
preference. It is an energy resource, but it is also a normative choice.
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There is more going on here than dollars and cents per kilowatt-hour. The challenge is
how to respond to this corporate and consumer interest in solar in a way that makes sense
for all of our customers. I’m pleased with our initial efforts to accomplish both.
For example, Dominion has joined forces with Microsoft and the Commonwealth of Virginia
to develop the Remington solar facility in Fauquier County. With regulatory approval, we
plan to install about 260,000 solar panels on 125 acres of land that Dominion already owns.
Once completed in late 2017, this 20-megawatt facility should produce enough power at
peak capacity to supply all the electricity needs of six state agencies under the direction of
the Secretary of Natural Resources – the equivalent of about 5,000 homes.
This was a particularly innovative arrangement under which the state saves money over
the life of the project, Microsoft helps fulfill its corporate sustainability goal, and we are
able to bring a substantial new solar project to our state.
Those are the types of customer-driven, innovative partnerships that will play an
important role in moving solar energy forward here in the Commonwealth.
Another three solar projects totaling 56 megawatts of capacity are pending state regulatory
approval. Their output would serve all of our customers and would be located in Isle of
Wight, Louisa, and Powhatan. In addition, we have contracted to purchase the energy from
a solar installation to be built in Chesapeake and owned by SunEnergy1.
For all you NASCAR fans, SunEnergy1is owned in-part by Virginia’s own Denny Hamlin.
Perhaps that fact alone says more about the complexities of modern energy policy than
anything else – a man whose job is driving a car that can only go two to five miles on a
gallon of fuel is part owner of a solar company.
In total, our plans call for investing about $700 million to develop multiple, large-scale
solar projects in Virginia totaling 400 megawatts, enough power to supply about 100,000
homes. And that will in no way be the end of our efforts on solar. As Churchill once said in
a different context, it will be the end of the beginning.
We face the same criticisms on wind as we do on solar – too slow and not enough. But
again, certain realities intrude. We have encountered substantial resistance siting onshore
wind, most notably in Tazewell County where the county board effectively banned wind
turbines.
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That was unfortunate given that the site we were working on in Tazewell had among the
best wind resources in the state.
That is not to say we have no experience with onshore wind. Dominion currently owns half
of two large wind farms. One is located in West Virginia. Its power gets sold into the
wholesale market, but an estimated 66,000 households in Northern Virginia – the nearest
population center – consume most of it.
The other wind facility is in northwestern Indiana near Purdue University. It spans 50,000
acres – a larger land area than the District of Columbia.
We have learned a lot from operating these facilities. And with each new technological
breakthrough, wind power shows more promise – particularly offshore.
Dominion is studying the potential of wind-generated power in the waters off coastal
Virginia.
Almost two years ago, we won the bid to lease more than 112,000 acres of federal property
in the Atlantic off the coast of Virginia Beach under the first-ever federal research grant for
offshore wind energy.
This project is a long-term undertaking – by that I mean a decade or longer – and here, too,
there are still lots of questions to answer.
Long story short, we have to find ways to get the costs down before we can proceed with
the commercial development of offshore wind. But, if it can be done, safely and affordably
for our customers, the project could generate a lot of electricity – when the wind is blowing
and the turbine blades are spinning.
Our proposed 12-megawatt pilot program could be an important step forward in charting a
viable path for offshore wind. In fact, our project was the very first in the country to
receive approval by the Bureau of Ocean Energy Management.
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Unlike the criticisms we face on renewables – too slow and not enough – the opposite can
be true with respect to nuclear – too fast and too much. One of our long-range plans has a
nuclear component. It involves the construction and operation of a new nuclear unit at the
North Anna Power Station in Louisa County.
But there are challenges in this arena as well. The Clean Power Plan is tough on states with
substantial existing nuclear power like Virginia. In Dominion’s case, approximately 40
percent of our output in recent years has come from emissions free nuclear – and by
emissions free I also mean carbon free.
In our view, one of the main flaws in the Clean Power Plan is its failure to recognize the
important contribution that the nation’s existing nuclear fleet is making in reducing
emissions. No credit is given to our nuclear stations for their zero-carbon emissions – or
their productivity. None.
That makes no sense. Nuclear power is the only large-scale, zero-carbon, round-the-clock
source of electricity. The only one. Our country will not succeed in achieving its carbon
reduction goals if we continue to ignore the role that our nuclear units play in the economy.
As I mentioned earlier, there is a common thread to all of these challenges – the gap
between the way we execute on our plans and the way we talk about them.
Dominion must continue to deliver safe, reliable, affordable and sustainable energy – every
time our customers flip a switch – whether at home, in a retail shop, data center or
industrial facility.
That means we have to keep building new infrastructure: Power stations. Electric
transmission lines. Natural gas processing and storage facilities. And pipelines. Especially
the much-needed $5.5 billion Atlantic Coast Pipeline, which will bring natural gas into
Virginia and North Carolina for use by gas and electric utilities, including Dominion and
Virginia Natural Gas.
In both the winter of 2014 and the winter of 2015, we saw price spikes on the coldest days
well beyond increases in commodity prices due to insufficient gas pipeline infrastructure in
Virginia.
The need for additional natural gas is not limited to just a few really cold days. As we
become more reliant on large-scale, around-the-clock natural gas generation, this is a
critical area to address for both cost and reliability reasons.
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Our infrastructure investments are also paying substantial dividends for the state’s
economy.
Richmond-based Chmura Economics & Associates released its study of the economic
impact of our new investments last October. It looks at Dominion’s capital spending
projects in Virginia over the six-year period from 2015 through 2020.
Over that time, Chmura’s analysis found that Dominion’s construction projects will produce
about $10 billion in new economic activity in the Commonwealth.
We have a good plan and we have a proven record of executing on this plan to bring
projects in on time and on budget. That’s a huge strength.
However, I am also mindful that we have a complex story to tell in the age of Twitter. We
have not been as nimble and as clear in telling the story of why new investments are
needed, and the reliability, cost, and environmental benefits that these investments will
bring.
We have had controversies about new investments in natural gas pipelines and electric
transmission – but also in wind power and solar energy. And in many cases, we have not
told our story very well.
Our recent experience with closing our coal ash ponds is a good example of this
shortcoming. We have a great plan for improving the environment, protecting public
health and our waterways, and prudently using customer dollars.
Perhaps we mistakenly assumed that plan would speak for itself and that everyone would
recognize the benefits that it would provide.
We were wrong, and we have had to redouble our efforts to explain what we were doing,
why we were doing it, and the benefits that our plan would provide.
Energy policy, as everyone in this room knows, is complex. Few decisions are
incontrovertible. There are pluses and minuses to every new investment.
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We work hard to make the business decisions, subject to the approval of our regulators,
that best meet our core responsibility of delivering reliable, clean, affordable electricity.
We are working equally hard to be as transparent and as clear as possible with our
stakeholders on why we made each decision, what we will do to implement the plan, and
how we will monitor our progress.
I hope my remarks today have offered some of that transparency, and I look forward to
working with the Virginia Chamber and many people in this room as we continue to
negotiate the changing energy landscape.
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