Dominion Power 2003 Annual Report Download - page 49

47.Dominion 2003
Environmental Protection and Monitoring Expenditures
Dominion incurred approximately $113 million, $123 million and
$116 million of expenses (including depreciation) during 2003,
2002 and 2001, respectively, in connection with environmental
protection and monitoring activities, and expects these expenses
to be approximately $120 million in 2004. In addition, capital
expenditures related to environmental controls were $210 million,
$335 million and $221 million for 2003, 2002 and 2001,
respectively. The estimated amount for these expenditures is
$100 million for 2004.
Clean Air Act Compliance
The Clean Air Act requires Dominion to reduce its emissions of
sulfur dioxide (SO2) and nitrogen oxide (NOX), which are
gaseous by-products of fossil fuel combustion. The Clean Air Act’s
SO2and NOXreduction programs include:
• The issuance of a limited number of SO2emission allowances.
Each allowance permits the emission of one ton of SO2into
the atmosphere. The allowances may be transacted with a
third party; and
• The issuance of a limited number of NOXemission allowances
to comply with NOXemission requirements applicable during
ozone season months of May through September. Each
allowance permits the emission of one ton of NOXinto the
atmosphere.
Implementation of projects to comply with SO2and NOXlimi-
tations are ongoing and will be influenced by changes in the
regulatory environment, availability of allowances, various state
and federal control programs, and emission control technology.
In response to these requirements, Dominion expects to make the
following capital expenditures at its affected generating facilities:
• $350 million during the period 2004 through 2008 on SO2
emission control equipment; and
• $72 million during 2004 through 2005 on NOXreduction
equipment. Total costs are expected to be $708 million, of which
approximately $636 million has been incurred through Decem-
ber 31, 2003.
The majority of these cost estimates are also included in the
capital cost expenditure estimate contemplated by the Consent
Decree, described below.
In relation to a Notice of Violation received by Virginia Power
in 2000 from the Environmental Protection Agency (EPA) and
related proceedings, Virginia Power, the U.S. Department of Jus-
tice, the EPA, and the states of Virginia, West Virginia, Connecti-
cut, New Jersey and New York agreed to a settlement in April
2003 in the form of a proposed Consent Decree. The Virginia
federal district court entered the final Consent Decree in October
2003, resolving the underlying actions. Under the settlement, Vir-
ginia Power paid a $5 million civil penalty, agreed to fund $14
million for environmental projects and committed to improve air
quality under the Consent Decree estimated to involve expendi-
tures of $1.2 billion. Dominion has already incurred certain capi-
tal expenditures for environmental improvements at its coal-fired
stations in Virginia and West Virginia and has committed to
additional measures in its current financial plans and capital bud-
get to satisfy the requirements of the Consent Decree. As of
December 31, 2003, Dominion had recognized a provision for
the funding of the environmental projects, substantially all of
which was recorded in 2000.
Other
As part of its reissuance of a pollution discharge permit for the
Millstone Power Station, the Connecticut Department of Environ-
mental Protection is evaluating the ecological impacts of the cool-
ing water intake system. Until the permit is reissued, it is not
possible to predict the financial impact, if any, that may result.
Future Environmental Regulations
In December 2003, the EPA announced plans to propose addi-
tional regulations addressing pollution transport from electric
generating units as well as the regulation of mercury and nickel
emissions. These regulatory actions, in addition to revised regula-
tions expected to be issued in 2004 to address regional haze,
could require additional reductions in emissions from the Com-
pany’s fossil fuel-fired generating facilities. If these new emission
reduction requirements are imposed additional significant expen-
ditures may be required.
Under authority of the Clean Water Act, the EPA has
announced the publication of new regulations governing utilities
that employ a cooling water intake structure, with flow levels that
exceed a minimum threshold. As announced, the EPA’s rule pre-
sents several control options. Dominion is evaluating facility infor-
mation from affected power stations. Dominion cannot predict the
future impact on its operations at this time.
The U.S. Congress is considering various legislative proposals
that would require generating facilities to comply with more strin-
gent air emissions standards. Emission reduction requirements
under consideration would be phased in under a variety of peri-
ods of up to 16 years. If these new proposals are adopted, addi-
tional significant expenditures may be required.
In 1997, the United States signed an international Protocol to
limit man-made greenhouse emissions under the United Nations
Framework Convention on Climate Change. However, the Proto-
col will not become binding unless approved by the U.S. Senate.
Currently, the Bush Administration has indicated that it will not
pursue ratification of the Protocol and has set a voluntary goal of
reducing the nation’s greenhouse gas emission intensity by 18%
over the next 10 years. Several legislative proposals that include
provisions seeking to impose mandatory reductions of green-
house gas emissions are under consideration in the United States
Congress. The cost of compliance with the Protocol or other
mandatory greenhouse gas reduction obligations could be signifi-
cant. Given the highly uncertain outcome and timing of future
action, if any, by the U.S. federal government on this issue,
Dominion cannot predict the financial impact of future climate
change actions on its operations at this time.