Dominion Power 2001 Annual Report Download - page 49

Historically, Dominion recovered such costs arising from
regulated electric operations through utility rates. However, to
the extent that environmental costs are incurred in connection
with operations regulated by the Virginia Commission, during
the period ending June 30, 2007, in excess of the level currently
included in the Virginia jurisdictional electric retail rates,
Dominion’s results of operations will decrease. After that date,
recovery through regulated rates may be sought for only those
environmental costs related to regulated electric transmission
and distribution operations. Dominion also may seek recovery
through regulated rates for environmental expenditures related
to regulated gas transmission and distribution operations.
Environmental Protection and Monitoring Expenditures
Dominion incurred approximately $116 million, $94 million,
and $78 million of expenses (including depreciation) during
2001, 2000, and 1999, respectively, in connection with environ-
mental protection and monitoring activities, and expects these
expenses to be approximately $126 million in 2002. In addition,
capital expenditures related to environmental controls were $221
million, $214 million, and $84 million for 2001, 2000, and
1999, respectively. The amount estimated for 2002 for these
expenditures is $321 million.
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, and to obtain
operating permits for all major emissions-emitting facilities.
Permit applications have been submitted for Dominion’s affected
facilities. The Clean Air Act’s SO2reduction program is based
on the issuance of a limited number of SO2emission allowances,
each of which may be used as a permit to emit one ton of SO2
into the atmosphere or may be sold to a third party. Evaluation
and planning of future projects to comply with SO2and NOX
limitations are ongoing and will be influenced by changes in the
regulatory environment, availability of SO2allowances, various
state and federal SO2and NOXcontrol programs, and emission
control technology.
In response to NOXreduction requirements mandated by
the Environmental Protection Agency (EPA) for states in which it
operates, Dominion plans to install NOXreduction equipment at
its affected coal-fired generating facilities at an estimated capital
cost of approximately $650 million over the next several years.
In the near future, the Bush Administration and the United
States Congress may consider various “multi-pollutant” legisla-
tive proposals that would require fossil-fuel fired generating
units to comply with more stringent pollution control standards
for NOX, SO2and mercury. Many of the proposals would rely
upon flexible cap and trade programs for compliance and would
exempt covered facilities from other Clean Air Act requirements.
All of the proposals would phase-in the emission reduction
requirements under a variety of timeframes, up to 16 years.
Dominion’s management cannot predict whether any of these
proposals will pass this year or in the future. However, if more
stringent emissions standards are ultimately imposed on
Dominion’s generating units, new, perhaps significant, expendi-
tures could be required.
During 2000, Virginia Power received a Notice of Violation
from the EPA alleging that it failed to obtain New Source
Review permits under the Clean Air Act prior to undertaking
specified construction projects at the Mt. Storm Power Station in
West Virginia. The Attorney General of New York filed a suit
against Virginia Power alleging similar violations of the Clean
Air Act at the Mt. Storm Power Station. Virginia Power also
received notices from the Attorneys General of Connecticut and
New Jersey of their intentions to file suit for similar violations.
Management believes that Virginia Power has obtained the nec-
essary permits for its generating facilities. Virginia Power has
reached an agreement in principle with the federal government
and the state of New York to resolve this situation. The agree-
ment in principle includes payment of a $5 million civil penalty,
a commitment of $14 million for environmental projects in
Virginia, West Virginia, Connecticut, New Jersey and New York,
and a 12-year, $1.2 billion capital investment program for envi-
ronmental improvements at Virginia Power’s coal-fired generat-
ing stations in Virginia and West Virginia. Dominion had
already committed to a substantial portion of the $1.2 billion
expenditures for SO2and NOXemissions controls. The negotia-
tions over the terms of a binding settlement have expanded
beyond the basic agreement in principle and are ongoing.
Global Climate Change
In 1997, the United States signed an international Protocol to
limit man-made greenhouse emissions. However, the Protocol
will not become binding unless approved by the United States
Senate. Currently, the Bush Administration has indicated that it
will not pursue ratification of the Protocol but will work to
establish new “voluntary” approaches to achieve reductions of
greenhouse gas emissions. However, the United States Congress
may consider legislation that would implement mandatory
reductions of greenhouse gas emissions. The cost of compliance
with the Protocol or similar mandatory greenhouse gas reduc-
tion obligations could be significant. Given the uncertainties
of future action by the federal government on this issue,
Dominion cannot predict the likely future impact on its
operations at this time.
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