Dominion Power 2002 Annual Report Download - page 53

Telecommunications Operations
Dominion continues the expansion of its operations as a com-
petitive provider of telecommunications services. These services
include providing facilities-based, high-bandwidth capacity
throughout the eastern United States with particular concentra-
tion on under-served markets. The future growth of its business
will involve adding new customers and revenues, lighting its
network, developing product extensions, and acquiring select
assets. Dominion is building a balanced portfolio of customers
representing multiple industry segments. See Note 30 to the
Consolidated Financial Statements for a discussion of the con-
solidation of Dominion’s telecommunications joint venture
beginning in February 2003.
Environmental Matters
Dominion is subject to costs resulting from a number of federal,
state and local laws and regulations designed to protect human
health and the environment. These laws and regulations affect
future planning and existing operations. They can result in
increased capital, operating and other costs as a result of compli-
ance, remediation, containment and monitoring obligations.
Historically, Dominion recovered such costs arising from regu-
lated 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 $123 million, $116 million
and $94 million of expenses (including depreciation) during
2002, 2001 and 2000, respectively, in connection with environ-
mental protection and monitoring activities, and expects these
expenses to be approximately $120 million in 2003. In addition,
capital expenditures related to environmental controls were
$335 million, $221 million and $214 million for 2002, 2001
and 2000, respectively. The estimated amount for these
expenditures is $260 million for 2003.
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 SO2reduction program is based on 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.
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 NOXreduction requirements mandated by the
Environmental Protection Agency (EPA) for states in which it
operates, Dominion plans to install NOXreduction equipment
by 2005 at its affected coal-fired generating facilities. The
installation of this equipment is estimated to cost approximately
$715 million, of which $445 million has been incurred as of
December 31, 2002.
EPA is planning to issue additional regulations to address
non-attainment of the new ozone and fine particulate
standards within the next few years, as well as ongoing regula-
tory action associated with regional haze. That regulatory
action could require additional reductions in SO2and NOX
emissions from Dominion’s fossil fuel-fired generating facilities.
In addition, EPA is in the process of developing a proposed
standard for mercury emissions for electric utility coal-fired
boilers that could require significant mercury emission reduc-
tions from all of Dominion’s coal-fired generating units. If these
more stringent emission reduction requirements are imposed in
the future, new and perhaps significant expenditures could be
required. Dominion cannot predict the future financial impact
of implementing these potential requirements on its operations
at this time.
The United States Congress is considering various “multi-
pollutant” legislative proposals that would require fossil-fuel
fired generating units to comply with more stringent pollution
control standards for air emissions. 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. They would phase-in the emission reduction
requirements under a variety of timeframes, up to 16 years.
Dominion cannot predict whether any of these proposals will
pass this year or in the future. However, if more stringent emis-
sions standards are ultimately imposed on Dominion’s generat-
ing units, new, perhaps significant, expenditures could be
required. Dominion cannot predict the future financial impact
on its operations at this time.
During 2000, Virginia Power received a Notice of Viola-
tion from EPA, alleging that Virginia Power 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 viola-
tions 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. In December 2002, the Attor-
ney General of Connecticut filed a motion to intervene as a
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Dominion ’02 Annual Report