Dominion Power 2007 Annual Report Download - page 54

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
In February 2008, Dominion East Ohio filed an application
seeking approval from the Ohio Commission to implement a 25-
year program to replace approximately 19% of its 21,000-mile
pipeline system and to recover the resulting costs. The application
also requests Ohio Commission approval for Dominion East Ohio
to assume responsibility for the service lines that run from the curb
to the customer’s meter. Currently, customers own those service
lines and are responsible for bearing the cost of installation and for
any repairs or replacement that may be needed.
The cost of the program in total will exceed $2.6 billion in
2007 dollars. The resulting expenditure of more than $100 mil-
lion per year will more than double Dominion East Ohio’s cur-
rent annual spending on its pipeline infrastructure. However, the
cost to customers would be spread out over many decades due to
the 25-year time frame of the replacement program and the
period over which recovery in rates would be allowed.
Dominion East Ohio also made a related filing asking the
Ohio Commission to consolidate its review of the pipeline infra-
structure replacement program with Dominion East Ohio’s cur-
rent rate case application in order to give the Ohio Commission
and other parties the opportunity to consider the two filings
together.
Environmental Matters
We are 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 compliance,
remediation, containment and monitoring obligations.
To the extent environmental costs are incurred in connection
with operations regulated by the Virginia Commission during the
period ending December 31, 2008, in excess of the level currently
included in Virginia jurisdictional rates, our results of operations
could decrease. After that date, we are allowed to seek recovery
through rates.
E NVIRONMENTAL P ROTECTION AND M ONITORING
E XPENDITURES
We incurred approximately $181 million, $138 million and $205
million of expenses (including depreciation) during 2007, 2006
and 2005, respectively, in connection with environmental pro-
tection and monitoring activities and expect these expenses to be
approximately $218 million and $333 million in 2008 and 2009,
respectively. In addition, capital expenditures related to environ-
mental controls were $293 million, $332 million and $140 mil-
lion for 2007, 2006 and 2005, respectively. These expenditures
are expected to be approximately $194 million and $191 million
for 2008 and 2009, respectively.
C LEAN A IR A CT (CAA) C OMPLIANCE
In March 2005, the Environmental Protection Agency (EPA)
Administrator signed both the Clean Air Interstate Rule (CAIR)
and the Clean Air Mercury Rule (CAMR). These rules, when
implemented, will require significant reductions in sulfur dioxide
(SO2), nitrogen oxide (NOX) and mercury emissions from electric
generating facilities. The SO2and NOXemission reduction
requirements are imposed in two phases, with initial reduction
levels targeted for 2009 (NOX) and 2010 (SO2), and a second
phase of reductions targeted for 2015 (SO2and NOX). The
mercury emission reduction requirements are also in two phases,
with initial reduction levels targeted for 2010 and a second phase
of reductions targeted for 2018. The federal rules allow for the use
of cap-and-trade programs. West Virginia has adopted final regu-
lations for CAIR and CAMR. Virginia has adopted final regu-
lations for CAIR with requirements more strict than the federal
rule and will adopt final regulations for CAMR with requirements
more strict than the federal rule. Illinois has finalized regulations
to implement CAIR and CAMR with requirements more strict
than the federal rule. Indiana has adopted CAIR and CAMR,
with only minor changes. Massachusetts has finalized regulations
to implement CAIR with requirements more strict than the
federal rule. Separate from the CAA, CAIR and CAMR, Massa-
chusetts has regulations specifically targeting reductions in NOX,
SO2, and mercury emissions from our affected facilities in Massa-
chusetts. These CAA regulatory and non-CAA state actions will
require additional reductions in emissions from our fossil fuel-
fired generating facilities and are already addressed in our current
compliance planning. In June 2005, the EPA finalized amend-
ments to the Regional Haze Rule, also known as the Clean Air
Visibility Rule (CAVR). Although we anticipate that the emission
reductions achieved through compliance with CAIR and CAMR
will generally address CAVR, we do expect that additional
emission reduction requirements will be imposed on several of
our merchant facilities. Implementation of projects to comply
with these SO2,NO
Xand mercury limitations, and other state
emission control programs are ongoing and will be influenced by
changes in the regulatory environment, availability of emission
allowances and emission control technology. In response to these
CAA and non-CAA state requirements, we estimate that we will
make capital expenditures at our affected generating facilities of
approximately $900 million during the period 2008 through
2012. In February 2008, the U.S. Court of Appeals for the Dis-
trict of Columbia issued a ruling that vacates CAMR as promul-
gated by the EPA. At this time we cannot determine if this ruling
will be subject to further appeals and how the EPA, and sub-
sequently the states, may alter their approach to reducing mercury
emissions. We also cannot estimate at this time the impact on our
future capital expenditures.
52 Dominion 2007 Annual Report