Energy Debates: Can We Be Honest with Ourselves?

by Thomas F. Farrell II
President and CEO
Dominion

World Energy, v10n2 Read more articles from this issue

The energy debate has moved into a new level of public awareness. It is a debate, however, that I believe has not really begun - not in real terms, at least. While Iraq may appear in more headlines these days, the climate surely must be running a close second. We draw a big circle around news stories about the "climate" - especially climate change. Or when the words "greenhouse gases," "carbon" or "renewable" appear. After all, understanding these words - what they mean, what they represent, what they portend for the future - effectively outlines our future.

We should be preoccupied with other words, as well: excellence, efficiency, teamwork - and most importantly, safety, reliability and ethics. It is our job to keep the lights on at a reasonable cost and to do so without harm or injury to anyone. We must do so within the quilt work of laws and regulations that govern our business and our conduct.

People rely on our industry to produce power 24 hours a day, seven days a week. Under the best of circumstances, a power outage is merely a huge inconvenience: Your computer or television becomes totally useless. The food in the freezer is at risk. Did you buy any batteries? Are there matches to light the candles? There are also circumstances that are more serious: People in hospitals and retirement facilities, for example, can ill afford to go without power.

Keeping the power on - or having employees go out into the worst weather imaginable and work with highly charged electrical wires and equipment in order to turn the power back on - requires a great deal of training, skill and caution. Our customers by and large appreciate this fact.

Tyranny of the Immediate

There is a concept that some call the tyranny of the immediate: Worry about today, and tomorrow will have to take care of itself. We see it all the time when people outside our industry think about energy. It is a trap that can compromise our future if we are not careful.

Our single greatest challenge in energy is to break free of the immediate and do what will serve our long-term social and economic interests. But we must first discuss energy in real terms.

We take too much for granted, especially at a time when energy demand grows at an alarming pace.

Flash Back 30 Years

We should have learned in the months and years that followed October 6, 1973: the day Syria and Egypt invaded Israel. Within two weeks, representatives of the Organization of the Petroleum Exporting Countries gathered in Kuwait and hiked the price of crude from $3 a barrel to $5 a barrel. Soon the oil embargo was on, and America was facing an energy crisis. Lines of cars started forming at the pumps, hoarding began, fights broke out and a great national debate ensued.

Another milestone was April 20, 1977. That is the day when President Jimmy Carter, standing before a joint session of Congress, unveiled his National Energy Plan and called for the "moral equivalent of war." Carter's plan was to reduce reliance on imports and move the public away from a heavy reliance on oil and toward more use of coal. He hoped that we could develop clean and renewable resources while avoiding environmental damage and giving America energy independence.

That was 30 years ago. We lost that "war," of course. Congress, controlled by the president's own party, largely rejected Carter's proposals, and a national energy policy was sacrificed for the benefit of parochial concerns.

The cards, as Duke University economist Crauford Goodwin wrote back in 1981, were "stacked heavily in favor of the status quo. The public and media memory was short, the tyranny of the immediate decisive."

President Carter was not solely to blame. In the immortal words of cartoonist Walt Kelly's Pogo: "We have met the enemy and he is us."

Now, here we are in 2007. Are we about to do the same dance we did in 1977? Will we wave our arms a lot but end up just chasing each other in a circle until we get tired and do something else? Will we fall short of developing a substantive and realistic energy policy? Unfortunately, not a lot has changed since 1977.

It is a problem partly of democracy and partly of the media, too. The press tends to dramatize a big problem in the most simplistic terms possible. Much of what people know or think they know comes from the media, typically in 30-second sound bites or video clips sandwiched between TV commercials.

The gap between real and imagined knowledge of energy issues is stunning sometimes. This is not just with everyday, uninformed average citizens, but also with energy policymakers who often participate in disjointed, confusing and polarized debate.

This lack of understanding stems partly from some long-standing misperceptions. The media perpetuates them, some politicians reinforce them, the public frequently buys them and the energy industry has not done an adequate job of refuting them, largely because of poor credibility with the public.

In a recent cover story for Atlantic Monthly, writer Greg Easterbrook discussed climate change. "If the Earth's climate changes meaningfully," he wrote, "there could be broad-based disruption of the global economy unparalleled by any event other than World War II." That is blunt, but about right.

Big public choices are hard to make under the best of situations because there are consequences when changes are made. These changes, no matter how necessary, are made far more difficult, however, when we are not honest with ourselves.

Take conservation, for instance. It is a great concept and a worthy, necessary objective. But conservation is not something you do - it is about choices. Big-screen plasma televisions take about two and a half times more electricity than a regular, old-fashioned TV. Consumers like plasma TVs. Stockholders like plasma TVs. But do plasma TVs and conservation join in perfect harmony? Not easily. Again, it is about choices. It is about winners and losers and potentially living differently. That is the implication of a let's-get-serious energy debate.

Thirty years ago, the debate over energy broke down due to three factors:
• Exploration of offshore oil and gas reserves fell prey to arguments over states' rights.
• Increased coal usage clashed with concerns over environmental damage.
• Issues arose about national security and economic growth.

Nobody spoke on behalf of the long term. It fell victim to the tyranny of the immediate. Does that sound familiar? Will we ever have total energy independence? Absolutely not.

We live in a global economy, where many energy markets are interconnected - especially oil, and increasingly natural gas. International energy trade is one of the few forces capable of bringing nations together. Of course, the expansion of our domestic energy supply base makes good sense. But complete independence from the world market is simply not possible. Energy interdependence is a more realistic and compelling goal.

There are no quick fixes or silver bullets to remedy our energy woes. Changing America's notions about energy will take a huge commitment of time, money and cooperation among government, industry and the educational community. It could take decades to accomplish.

It will not be easy. More of the same old energy politics will not do. Lawmakers are like many people they represent: Energy is not an issue until there is none available or until the price goes up. Watching the media monitor oil prices will give you whiplash. The press alternates between panic and indifference according to the price at the pump.

Demand for Power Keeps Increasing

In Northern Virginia, demand for power has grown 40 percent over the last decade and is projected to grow another 8 percent by 2011. The entire state will experience about 4,000 new megawatts in additional demand just over the next 10 years. Nationwide, we will need about 300 gigawatts of new electric-generating capacity by 2030. That is an industry measure. A gigawatt is 1,000 megawatts, or enough to power about 800,000 new homes. It is a tremendous amount any way you describe it.

Add it all up and translate it into dollars, and the industry estimates that it could cost more than $275 billion to meet the nation's growth. Additional tens of billions of dollars will be required for new "big wires" and "small wires" - transmission, facilities and expansions in distribution.

There is more: Environmentally, the emissions limits continue to tighten. The industry projects about $50 billion in compliance costs for nitrogen oxide, sulfur dioxide and mercury from now through 2025.

We also realistically expect the regulation of greenhouse gases in the not-too-distant future, a view reinforced by policy statements from the leadership of both major political parties. Controlling carbon dioxide (CO2) emissions from fossil fuels will be expensive.

The bottom-line impact on power generation in the United States may range from $70 billion to $300 billion. Total industry spending for environmental improvements and new energy infrastructure could be anywhere from $400 billion to $650 billion. That is more than the entire amount of the market capitalization of all the electric utility companies in the United States. In other words, the industry must spend more on new generating plants than the entire value of all electric companies in the United States. It is a daunting challenge.

But there is some optimism. The electric utility re-regulation bills that are waiting to become laws in the Virginia General Assembly provide the right kind of incentives to help keep customer bills down and reliability up.

Also commendable is the Energy Policy Act. This federal statute provides production tax credits for new nuclear facilities using advanced technologies. Although the bill specifies that only the first 6,000 megawatts of the nation's new nuclear capacity will be eligible for the credits, it is a step in the right direction.

We still need an effective national policy that allows us to tap all of our energy supply options, promotes conservation and efficiency and fosters a business environment that is conducive to timely investment in new energy infrastructure.

In stark terms, the competition for capital is intense, and the stakes are high.

The industry is racing in its role as protagonist to influence the outcome in a constructive way - one that promotes mutual consumer-investor benefit and the economic needs of America. As a work in progress, the ending has yet to be written.

Somehow, some way, we must look beyond the horizon - beyond the immediate. Over the next 25 years, the overall demand for electric power in the United States is expected to jump by 50 percent. The commercial sector will lead the way, propelled by the growth of big-box stores, longer hours and more energy-intensive equipment. The global appetite for power is even greater. Worldwide electricity consumption will double over the same period.

The challenge centers not solely around the demand for power or the manner in which we make it, but also in how we move it. The nation's overtaxed network of high-voltage electric lines - the national grid - was not built to handle the demands we currently place upon it. The power grid was quilted together in the 1930s and was designed to move power over relatively short distances. It is now common to see transactions occur in regional markets that cover hundreds of miles.

In short, the grid that we rely upon to move power about the country faces unprecedented problems delivering power, especially when demand soars during periods of extreme heat or cold.

Climate Change

Finally - and this goes back to the core issue - with issues like climate change, greenhouse gases and the threat to the global environment, today's energy debate is just as challenging as it was 30 years ago. There is now widespread agreement that the climate is changing. There is not widespread agreement about what to do about it or even how we should begin. Here is a clue: It begins with China, India, South America, Africa and yes, the United States. That is because the issue is not called "local warming" or "national warming." It is called "global warming."

This is the grand challenge of our times, on a scale never seen previously. Climate change is a global issue that calls for global cooperation. At a minimum, the United States needs a policy that is national in scope - one that embraces energy in its totality and does not look for convenient villains. We have to be honest about ourselves, about what we want and about what we are willing to change.

The expense of regulating CO2 will be enormous. There are currently no viable CO2 control technologies on the market, and it could take decades and huge R&D investments to develop them.

The big question that lurks behind the debate is: "Who is going to pay?" The answer is all of us, because the costs involved will be reflected either in the price of energy products or the taxes we pay.

Diversification is the linchpin. We must utilize all of our energy sources - coal, nuclear, oil, gas, hydro and renewable sources - and undertake much more aggressive conservation and energy-efficiency efforts. We do not have the luxury of limiting ourselves to a few sources of energy while excluding others.

Limitations in Alternative Energy Sources

We also must keep the proper perspective about our energy supplies. So-called alternative sources, including wind, solar, fuel cells, ethanol and bio-diesel fuels hold great promise for the future. But they are expensive. A single wind turbine can cost $2 million. In fact, present investments in wind turbine technology are largely a bet that federal policy will change and essentially subsidize them.

The push is on for renewable sources of energy. This is a valid issue as long as we talk about it in realistic terms. Solar energy, like wind, provides intermittent and unpredictable power. Because electricity cannot be stored on a large scale, wind and solar are unsuitable as 24-hour-a-day sources of energy. At this stage, it would be more accurate to call these supplemental rather than alternative energy sources. They are simply not ready to replace the fossil fuels - coal, oil and natural gas - that currently account for about 80 percent of the world's energy supply.

We also must have realistic expectations about conservation and energy efficiency, which is the amount of energy used per dollar of gross domestic product. Current U.S. energy policy restricts development of our domestic oil and gas resource base, including the Atlantic and Pacific outer continental shelves and federal lands in Alaska and the Rocky Mountain Basin. This is the Achilles' heel of America's energy dilemma. The value Americans place on self-sufficiency is oddly absent in government energy policies. The United States is a nation rich in natural resources, yet it restricts access to large tracts of it. Few countries have similar limitations.

Coal and nuclear power must be part of the solution, too. Coal is our most abundant domestic fuel source. It produces half of our electricity, and its price is less subject to volatility. Several companies are exploring the construction of a new clean-coal station in southwestern Virginia. Congress must do its part by channeling more federal research funds into the commercialization of these high-efficiency advanced technologies.

There is currently renewed interest in nuclear power, as well there should be. New nuclear plants will solve many of the nation's energy problems. Nuclear power is a safe and clean energy source.

Utilities and their investors expect adequate financial rewards to bring the electric grid into the 21st century and support our high-tech economy. To that end, in Virginia, for instance, the General Assembly recently passed policy changes that represent a highly encouraging departure from the norm. The legislature resisted the tyranny of the immediate and voted to enact a policy based on what is coming: namely, a future where Virginia homes and enterprise continue to demand more power.

More than a half-century ago, President Harry S. Truman commissioned a blue-ribbon study to take stock of American resources and energy needs. The final report, called "Resources for Freedom," urged Americans to start preparing for the energy demands of the 1970s. "As a nation," the report said, "we have always been more interested in sawmills than seedlings." What happened from that point on? The sawmills prevailed, and the 1970s arrived. A great debate ensued, we talked a lot about energy and then we got over it. Any effort to prepare for the long term was lost in the rush to accommodate the here and now.

Now, more than 30 years after the great energy crisis of the 1970s, we are again in the midst of a great debate. There are some new aspects - climate change being the most prominent - but we are largely faced with the same challenge: Can we free ourselves from the tyranny of the immediate? Can we look into the future, see what is headed directly at us and act in our own best interest? Can we do it differently this time?

We can and we must.

Thomas F. Farrell II is chairman, president and chief executive officer of Dominion. He was named to this position effective April 27, 2007. He formerly was president and CEO of Dominion.

Mr. Farrell previously served as chief executive officer of Dominion Generation upon its formation May 1, 1999, and as president and chief executive officer of Dominion Energy.

After being named executive vice president of Virginia Power in September 1997, Mr. Farrell coordinated all deregulation matters at Virginia Power/North Carolina Power, overseeing state and federal regulatory and legislative initiatives. He was also responsible for external relations, legal matters and government affairs at Dominion and its subsidiaries.

Mr. Farrell went to Virginia Power from its parent company, Dominion Resources, where he served as senior vice president of corporate affairs and general counsel. He previously held the post of vice president and general counsel at Dominion.

Mr. Farrell serves on the board of directors of Dominion Resources and Virginia Commonwealth University's School of Engineering Foundation and is rector of the University of Virginia. He also serves on the boards of the Institute of Nuclear Power Operations and Bon Secours Richmond Health System.

Mr. Farrell has a bachelor's degree and a law degree from the University of Virginia.