Clean, affordable power.  Can America have it all?

Interview with Thomas F. Farrell II, Chairman, President & CEO, Dominion Resources

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Print this page by Paula C. Squires

Sit down with Tom Farrell, chairman, president and CEO of Dominion Resources Inc., and the conversation about energy flows as easily as the James River outside his office window. A federal cap-and-trade system to lower carbon emissions? Farrell supports the concept. He also favors a government-supported nuclear program that would include tax incentives and uranium recycling plants. 

As head of one of America’s largest energy producers, Farrell enjoys a high profile in Virginia where subsidiary Dominion Virginia Power serves as the state’s largest utility. He was one of five co-chairs for the Transition Committee of Republican Gov. Bob McDonnell, an old, high-school friend. In this role, Farrell worked with a group of senior advisers on energy and other topics while being careful, he says, to recuse himself on issues involving state agencies with regulatory oversight over Dominion.

On the regulatory table now is a rate case before the State Corporation Commission. Dominion Virginia Power is seeking a $246 million increase in electric rates to cover operating costs and help finance $4 billion in capital investments during the next three years. Major infrastructure improvements are needed, Farrell says, to meet Virginia’s growing demand. In fact, he considers the case crucial to Dominion’s future direction and ability to compete in capital markets. 

The SCC staff, however, is recommending a rate cut based on a 10.2 percent rate of return on equity, less than the 14 percent return sought by Dominion. Hearings on the case began last month. Meanwhile, Farrell continues to wrestle with the challenges of being an energy producer today; namely how to produce power that’s clean, reliable, and affordable.

Here is the edited version of our recent interview. Click here see the full transcript.
Virginia Business: A couple of years ago you said America was headed for a train wreck in energy supply if we didn’t get our act together. Have we gotten our act together? 
Farrell: I do not think we have gotten our act together.  I think we got a reprieve for a few years because of the recession … But we’ve made very little progress nationally. I don’t know how you can really move forward without a much more robust nuclear program than we have in the United States. 

VB: You’ve said that the U.S. government has to be part of the answer. What would it take for us to get serious about nuclear?
Farrell: We need to build uranium recycling plants in the United States.  They call them breeder reactors. They have them in Europe. They have them in Japan.  Prior to Three Mile Island, we were on a path to build breeder reactors in the United States. Three Mile Island and the Chernobyl incident ended the breeder reactor program, and we went in the direction of storage.  You don’t have to do both. You either have to be able to store the waste indefinitely, like tens of thousands of years, or you have to do these breeder reactors.  I think those should be owned by the federal government. 

VB: Why should the government own them?
Farrell: Because as a citizen, I would feel more comfortable if I knew that the government was taking the uranium, putting it in the facility, recycling it, and putting it back out into the plants.  That’s what they call a closed-loop system.  Once the uranium enters the loop, it stays in there.  You have security issues.

VB: What is the status of adding a third nuclear reactor to your North Anna Power Station in Virginia?  Did you award the competitive bid for the reactor design?
Farrell: We have not awarded the bid … The three largest operators of nuclear units in the country are Exelon, Entergy and Dominion.  All three of us picked General Electric Hitachi as our partner. As we were winding through 2008, we said to GE, “We need to get a contract that we’re comfortable shares the risk appropriately between GE, Dominion’s customers and Dominion’s shareholders.” We never got comfortable with where they were willing to go. So we terminated that relationship, and we started a bidding process in the beginning of 2009 which no other utility has done.

VB: How many bids have been received?
Farrell: We received multiple bids.

VB: And was GE one of them? 
Farrell: We haven’t said who was involved in the process. We have narrowed it down to a handful, and we’re negotiating with the smaller groups to come up with what we think is the best possible achievable contract … If we don’t go down that path, we’ll have to build gas-fired power plants.

VB: What is your time frame to decide
on the bids?
Farrell: I think we will be in a green light/red light decision by the middle of 2010. 

VB: Switching to the topic of climate change, it appears that the Obama administration wants to move forward to limit greenhouse gases.  How would Dominion limit emissions, especially at older coal-fired plants? 
Farrell: In Virginia, there’s very little under existing technology you could do to cut carbon emissions if you’re burning a fossil fuel, whether it’s coal or natural gas.  People are working on a technology called carbon capture. It’s storage. It has been proven on a small scale. No one has proved it at a very large scale. We are working very diligently on that, particularly in the plant we’re building in Southwest Virginia.

VB: Tell us about the efforts at the new Wise County coal plant. 
Farrell: We’re using a new technology there.  It’s called a fluidized bed. It burns the coal at a lower temperature so the emissions from it are lower. We’re working with Virginia Tech on some pilot programs there to see if we can figure out a way at that site to store the carbon. Capture it first and then store it. (Editor’s note: The federal Department of Energy denied a request for federal stimulus funds to pay for half of this $580 million carbon capture and storage project. Dominion says it is seeking federal funds from other sources but that the project will not be able to move forward without government support.) 

VB: Besides wind, what other renewables is Dominion investing in?
Farrell: Hydro, bio mass.  We have one of the largest bio-mass plants in the United States in Virginia [in Pittsylvania County]. It’s 82 megawatts.  It’s the largest one or maybe the second largest one.

VB: Do you support the concept of cap and trade as a workable way of lowering carbon emissions?
Farrell: Yes. As I said in testimony at the congressional hearing, there are changes that need to be made to what passed in the Waxman-Markey bill. That includes a safety valve to make sure that if the cost of the credits gets too high, there’s a stop valve to make sure the customers’ bills don’t start going up. 
… There are people who take the position that carbon regulation in transforming our energy fleet will be done at little or no cost.  I could not disagree with that more.  It’s going to be enormously expensive. 

VB: As a member of Gov. Bob McDonnell’s Transition Committee, what role did you play?  Did you advise on energy issues?
Farrell:  I was a co-chair of his transition committee.  And that group has been working on lots of topics, more than just energy. … We’ll forward our recommendations to the Governor’s Policy Team, and the governor will accept them, reject them, modify them, however he sees fit.

VB: Do you anticipate any potential conflicts of interest since you head a public energy company subject to regulations of the State Corporation Commission?
Farrell: I have recused myself from having any role with regard to any agency that has any potential regulatory oversight of Virginia Power … I have nothing to do with giving advice on anything that would have any regulatory oversight of Dominion or any of its operations.

VB: Is there anything we didn’t discuss that you think is important?
Farrell: Yes, I think it’s important for people to understand that utilities don’t set public policy — we respond to public policy. For example, before the oil embargo [in 1973], a lot of Virginia Power’s power was generated by oil because it was cheap, abundant and domestic. And then the oil embargo happened, and the price of oil shot up.  Public policy makers in this country said, “We don’t want you to use that foreign source of energy. We want you to go to coal.” So we converted … Now people don’t want us to burn coal. Now people want nuclear.  If people want us to stop burning coal, we can do that, but the price of electricity will be higher. And people will just have to make that decision as a nation, that it’s a tradeoff between the environment and cost in this case, and we’re going to go for higher costs.  But the idea that you’re going to be able to have all of it and have it inexpensively is a myth. 

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