Keeping the lights on in a low-carbon world

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by Garry Kranz and Paula C. Squires

Editor’s note: When Virginia Business went to press for the July issue, no action had been taken on air permits for a new coal-fired plant in Wise County. On June 25, a state board voted unanimously to award the permits, paving the way for Dominion Virginia Power to proceed. This online version of the July cover story reflects the new development.

Charles G. McDaniel, chairman of the Hilldrup Cos., knows a thing or two about electric bills. His moving and storage company in Stafford County powers its huge warehouses with climate-control sytems that run around the clock.  Hilldrup spent $202,000 last year to pay for electricity and natural gas. To contain costs, the company participates in voluntary energy audits and uses energy-efficient fluorescent lighting. 

Hilldrup also began migrating last year from electricity to natural gas for heating and cooling. However, with energy prices spiking up as a result of increased worldwide demand, there are no havens. One of McDaniel’s biggest headaches now is keeping his fleet of moving vans rolling as prices for diesel skyrocket north of $4.50 a gallon. 

Geopolitics aside, he takes some comfort in Virginia’s track record: In the past, customers here have enjoyed a reliable supply of electricity at a reasonable price. In 2007, the average price for all customers was 7.1 cents per kilowatt hour, two cents below the national average of 9.1 cents, according to the federal Energy Information Administration.

Yet, McDaniel sees uncertainty ahead. “If I have a concern, it’s that our utilities have to operate in an environment that hinders their ability to build the new nuclear and clean-coal plants we’ll need in the future,” he says.

Proposed plant in coalfields

McDaniel was referring to a drama that just played out in Virginia. At stake was the most significant power plant proposed for the commonwealth in decades: a $1.8 billion, 585-megawatt coal-fired facility Dominion Virginia Power wanted to build in Wise County. The Richmond-based energy company promoted the plant as a way to boost growth in the economically depressed Southwest Virginia region while meeting the state’s growing energy needs.

Before the state’s Air Pollution Control Board voted unanimously late last month to grant air permits, everyone had piled on for the fight: elected officials, coal company representatives, business groups, residents and environmental organizations. Dominion officials say the “clean-coal” facility will use the latest technology for blending freshly mined coal, waste coal and up to 20 percent of biomass, a renewable fuel.  “Traditional facilities cannot burn these fuels in this kind of combination,” James K. Martin, Dominion’s senior vice president of business development and generation construction, told Virginia Business. “So we believe it’s a very good environmental success story.”

Environmental groups and some Wise County residents disagreed.  Thirteen environmental organizations, 28 individuals and one business took advantage of a chance to post their comments on a special Web site provided by the state’s Department of Environmental Quality. The majority of Wise County-area residents who responded urged the state to deny the plant.

Their biggest fear?  The discharging of noxious pollutants and as much as 5.37 million tons of carbon dioxide into the air a year.  The residents wrote impassioned letters about the possible impact the emissions would have on the air, wildlife and water of the Appalachian Mountains. “Citizens should not have their electricity rates raised to support building a plant that will cause our air quality and health to deteriorate,” said Wise County native Amanda Smith. 

Other residents, including Jerry F. Couch of Castlewood, question the wisdom of putting a new coal-fired plant so close to an existing one. Nine miles away in Russell County is Appalachian Power Co.’s Clinch River Plant. Built in 1957, Couch says the old plant has been fined for excessive emissions. “… Nowhere else in Virginia are two coal-burning power plants located within such close proximity.”

Yet, business leaders and politicians painted a different picture.  “It’s a godsend for this area,”  Bob Adkins, chairman of the Wise County Board of Supervisors, said in an interview.  “We have high unemployment, an aging population and six high schools in the county that are approaching 60 years old. We have a great need for the economic boom that this project would bring.”

According to Dominion, the plant will generate about 800 construction jobs, and 75 permanent jobs, with an annual payroll exceeding $4 million. Once it’s up and running, the company expects the plant to consume 2 million tons of local coal, creating 350 mining jobs and providing up to $6 million in local tax revenues.

A Virginia Tech economic impact study commissioned by Wise County estimates an annual boost of $258.5 million to the county’s economy during the plant’s operational years.

Plant deemed in public interest years ago

The General Assembly decided four years ago that building a coal-burning plant in Southwest Virginia would be in the public interest. It passed legislation offering an enhanced rate of return on funds invested in such plants that used Virginia coal. Regulatory approval from the State Corporation Commission came this spring, but with some caveats. The agency ruled that Dominion can raise rates to finance the plant’s $1.8 billion construction for a return on equity of 12.12 percent. However, potential cost overruns beyond that price tag cannot automatically be charged back to ratepayers. 

Dominion already has negotiated a construction contract with The Shaw Group of Baton Rouge, La. “We’re ready to go,” says Martin. Construction is expected to take 48 months with the contract’s end date April 2012. 

Dominion had asked for a vote by July 1. When the affirmative action came on June 25 following a day and half of public hearings in Wise County that drew hundreds of people, it contained conditions; namely strict reductions in emissions. The board lowered Dominion’s proposed level for 3,300 tons of sulfur dioxide a year to 603 tons and the mercury level from 49.5 pounds to 4.65 pounds a year. The board’s decision also requires Dominion to switch its Bremo Bluff Power Station from coal to natural gas.

Even Gov. Timothy M. Kaine took heat for his support of the plant. In a statewide energy plan released last year, Kaine called for increased conservation, a 30 percent drop in greenhouse gas emissions by 2025 and the support of new technologies to expand Virginia’s energy sources including “prudent investments”  such as the Wise County plant.

His position drew scrutiny in the national press. The Wall Street Journal and some bloggers questioned how the governor could expect to rein in greenhouse gases while supporting a new coal-fired plant. According to the Virginia Public Access Project — which tracks campaign contributions — Dominion has donated $135,829 to Kaine since 2005, the year he was elected governor, and a total of $238,829 since 2001, when he successfully ran for lieutenant governor. A spokesman for Kaine says the governor continues to support the plant and new clean-coal technologies, which could have applications in other areas. 

Snapshot of energy debate

The disputed Wise County plant provides a timely example of the complexity of today’s energy debate. Virginia and other states are struggling with how to provide for future demand in a way that balances economic prosperity and environmental protection. Factor in fears about global warming and the almost certain prospect of higher prices, and it’s easy to understand why businesspeople like McDaniel have qualms about the future.  Meanwhile, de­mand for electricity continues to grow. All those BlackBerries, cell phone chargers and laptops can’t run without juice.  PJM Interconnection, a Valley Forge, Pa., company that operates the electric power supply system for the District of Columbia, Virginia and 12 other states, estimates that American consumers will increase their peak demand for electric power by 16.7 percent over the next 10 years.

The average annual growth rate in PJM’s region is forecast at 1.6 percent. Yet the rate is higher, 1.9 percent, for the Southern region or Dominion’s territory where the company adds about 50,000 electric customers a year. 

One of the reasons growth is more acute in Virginia is its emergence as an Internet hub.  In cementing Northern Virginia’s reputation as a high-tech center, the huge swath of Internet backbone there puts a strain on the state’s electricity grid. Virginia is home to about 125 power-hungry data centers that run continuously, powering massive cooling systems that prevent Internet computer servers from overheating.

According to Dominion, yearly usage for these centers range from a low of 10,646 megawatt hours (or an annual bill of $500,000) to a high of 100,200 megawatt hours, (an annual bill of $4.5 million) depending on size. For perspective, 1 megawatt supplies enough electricity for 250 homes at peak demand. If the SCC approves a fuel charge increase proposed by Dominion, the company says data center bills will likely increase by up to 39 percent.

Virginia’s manufacturers likewise consume enormous amounts of electric power. So they, too, obsess about cost. Virginia exports $12.2 billion worth of merchandise each year, with finished goods accounting for nearly 85 percent ($10.3 billion). Yet, the manufacturing sector is rapidly reaching a crisis point. Rising prices for fuel and raw materials are being driven by runaway growth in China and India. “We have never seen such a confluence of issues affecting our industries,” says Brett Vassey, executive director of the Virginia Manufacturers Association. 

Broad mix of resources

Since Dominion Virginia Power is the commonwealth’s largest energy supplier with 2.3 million customers, the business community expects it to play a leading role in staking out a new model for supplying environment-friendly power at a rate people and businesses can afford. 

The company is weighing a broad mix of energy resources: coal, natural gas, nuclear and renewable forms of power. Thomas F. Farrell II, chairman, CEO and president of Dominion Resources Inc. — DVP’s parent and one of the largest energy producers in the U.S. — said during a recent speech that diversification offers the best approach to energy security.

And while renewable sources such as wind and solar hold promise, Farrell warned about viewing alternatives “as a magic bullet. Nor can we expect to conserve our way to energy security. There is no quick fix or free lunch,” he told attendees at the First Annual Energy Summit of the Southwestern Virginia Technology Council in Wise. “The American people need to hear that message loud and clear. We must level with them about the rising costs of energy production and use — and the price tag that goes with a cleaner environment.” 

Many of the state’s utilities are seeking substantial rate increases to offset higher fuel prices. Last month, state regulators granted Dominion an 18 percent increase that will bump the monthly bill of a typical residential customer using 1,000 kilowatt hours by $16.61 to $107.20. A cap on Dominion’s base rates, enacted when Virginia tried unsuccessfully to implement electric deregulation, has helped keep rates stable here. But the cap comes up for review next year and could be adjusted up or down.

Customers of Appalachian Power should also expect higher bills. The company, which serves about a half million customers in Southwest Virginia,  has filed an increase with the SCC that, if approved, would bump the monthly bill for 1,000 kilowatts from $71.48 to $88.01, or about 23.1 percent.

Dominion plans to invest $12 billion to build new facilities and expand its energy portfolio under a strategy dubbed “Powering Virginia.”  It will encourage conservation with a series of pilot programs. One would offer 1,000 customers incentives such as programmable thermostats in exchange for allowing Dominion to cycle central air-conditioning units on and off during peak-demand times.  To help businesses manage costs, Dominion rolled out a new Business Advantage budget-billing program for small and medium-size commercial customers. 

Dominion also is investing in renewable energy sources, including recently acquired interests in several wind farm projects. Starting next January, Dominion wants to give customers more options for buying “green” energy – assuming the plan gets the OK from state regulators.

All this activity is occurring against a changing federal landscape. Legislation to reduce greenhouse emissions could come as early as 2009,  following a change in presidential leadership. A cap-and-trade bill, whose sponsors included Sen. John Warner (R-Va.), failed to get enough votes to come to a debate last month. Yet an increasing number of senators are pushing for some type of climate change legislation that would impose a mandatory cap. The Warner bill called for cutting carbon emissions by 71 percent below current levels by 2050. Major emitters would have been given a choice: change operations to meet the cap or buy additional carbon credits from companies emitting below the cap through a market-based trading system. A spokesman for Dominion says the company supports the cap-and-trade concept, but prefers another version of the bill that would impose reductions more gradually with less harm to the economy.

Meanwhile, Rep. Rick Boucher (D-Va.), whose congressional district includes Southwest Virginia, introduced legislation in June to advance the development of carbon capture and sequestration (CCS)  technologies. It would establish a $1 billion annual fund, supported by fees on the generation of electricity from coal, oil and natural gas. The idea is to fund large-scale projects that would hasten the commercial availability of such technologies, protecting coal as an energy source.  “The early arrival of CCS is essential,”  Boucher said in a statement, “to prevent economic disruption in a carbon-constrained economy.” 

Using waste coal

Still, garnering most of the attention in Virginia now is the coal plant in Wise County near the town of St. Paul. At the Virginia City Hybrid Energy Center — so-called because it would use a mixture of hybrid fuels — Dominion plans to spend nearly $320 million on environmental controls, or about 18 percent of the projected price tag of $1.8 billion. The plant has been designed for the later installation of carbon-capture technology when it becomes commercially available, Martin says. Those technologies enable utilities to recover carbon and reuse it to produce energy.

The Virginia City facility will use circulating fluidized bed technology, or CFB. Although certified by the U.S. Department of Energy as a “clean coal” technology, some critics claim it is outdated in terms of being the least polluting and prefer what is known as an IGCC facility (integrated gasification combined cycle). 

The CFB process involves injecting limestone into boilers along with coal. This serves to reduce emissions of sulfur dioxide, nitrogen oxide and other pollutants into the atmosphere, Martin says. 

As part of its operations, Dominion plans to gather up the vast deposits of “gob,” or waste coal that litter the Clinch Valley.  These sediment ponds are the visible remnants of the region’s mining heyday.  Burning “gob” for feedstock removes a source of potential acid drainage into the Clinch River basin, Martin says, while the resulting limestone ash provides a neutralizing base that protects groundwater from further contamination.

A plan for disposing of the ash by creating a landfill nearby, however, has been called into question by some residents.

As required by state mandate, the Virginia City project must burn Virginia coal — a stipulation aimed at generating economic growth for the region’s coal industry.

Yet, environmentalists question the invasive “mountaintop removal” method of mining they say would be used to supply the plant. Representing several groups, the Southern Environmental Law Center filed 50-plus pages of comments and exhibits with DEQ. Among many topics raised were questions about the legality of using only Virginia coal — especially unwashed, waste coal — and mountaintop removal. The SELC says this method “has already erased more than 470 peaks from the Appalachian skyline and buried or polluted more than 1,200 miles of Appalachian streams.” 

The SELC plans to appeal the SCC’s decision allowing Dominion to build the plant to the Virginia Supreme Court.

Dominion has spent more than $6 million to acquire land, conduct studies and reroute roads in Wise County. Simply put, Dominion officials say a coal-fired plant is the most cost-effective way to come up with 585 new megawatts of the 4,000 megawatts of power it says Virginia will need in the next decade. That’s enough to power 146,000 homes, or a year and a half of new connections.

The plant will meet or exceed federal standards for protecting health and the environment, say Dominion officials.  They defend the CFB technology as being the best suited for the area, because it will burn the coal and waste coal so plentiful in Southwest Virginia while using very little of what the area does not have — water.

A large importer

Dominion executives point out that Virginia imports about 20 percent of its base load electricity supply, second only to California among U.S. states. A setback could have forced the company to buy even more power on the open market, where wildly fluctuating prices are abetted by peak demand.

While Dominion savors its victory, Appalachian Power in Roanoke (a subsidiary of Columbus-based American Electric Power) is smarting over the SCC’s rejection of its application for a “clean-coal” plant in West Virginia. The 629-megawatt plant, which planned to use the IGCC technology, would have served AEP customers in Virginia, West Virginia and Tennessee. 

West Virginia regulators endorsed the concept last spring. But Virginia’s SCC denied a request for a rate increase for AEP to begin recovering $2.2 billion in plant construction costs, of which $1 billion would have been allocated to Virginia customers. The ruling torpedoed the project and puzzled Appalachian Power officials who noted that just weeks before the SCC granted approval for Dominion’s Wise County plant. Following the general assembly’s earlier endorsement, however, some consumer advocates say the SCC’s hands were tied.

“We think [the decision] ignores Virginia’s energy policy to develop IGCC” as an environmentally friendly alternative to traditional coal plants, says AEP spokesman John Shepelwich. 

Affordable, reliable energy is critical in Virginia’s quest to remain a top-ranked state for business. No one likes the idea of rolling blackouts, a possibility Dominion has invoked if supply fails to meet demand.

Whether state efforts and plans by energy companies to broaden portfolios can keep the lights on and the chill in McDaniel’s warehouses remains to be seen.  It’s a big order and one of the most important of our time:  meet demand, maintain affordable prices, protect the Earth. 


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