Dominion Reaches Major Agreement With EPA, Announces Comprehensive Effort To Improve

April 18, 2003

RICHMOND, Va. - Dominion (NYSE: D) has reached an agreement with the U.S. Environmental Protection Agency and five states in one of the most comprehensive efforts ever undertaken by an energy company to improve air quality.

The agreement, which must still be finalized, represents a collaborative effort between Dominion, EPA, the U.S. Department of Justice, and the states of Virginia, West Virginia, Connecticut, New Jersey and New York.

"It is a grand slam," said Thos. E. Capps, president, chairman and chief executive officer of Dominion. "Everybody scores: the environment, the Commonwealth of Virginia, our customers, and our shareholders. What we have achieved is a comprehensive, affordable resolution that results in major environmental improvements that set a high standard for the rest of the industry. At the same time, it provides us the flexibility to maintain and make selective improvements to our generating units to better serve our customers."

 

The agreement resolves a Notice of Violation EPA had filed against the company's Mt. Storm Power Station in June of 2000 and a lawsuit filed by New York.

The NOV alleged that Mt. Storm made modifications to its generating units without obtaining the proper permits in violation of the Clean Air Act. The company believes it acted in accordance with the regulations and conducted only routine maintenance on the units.

Mt. Storm Power Station
Mt. Storm Power Station

As part of the $1.2 billion agreement, Dominion agreed to install state-of-the-art emissions-control equipment on its largest coal-fired generating units in both Virginia and West Virginia. Dominion plans to complete several of the projects ahead of the schedule required by the decree. The expenditures are consistent with assumptions already in Dominion's current financial models and will not affect earnings, cash flow or previously announced capital spending plans.

By the time all the requirements of the agreement are instituted in 2013, Virginia will benefit from a significant reduction in sulfur dioxide, a contributor to acid rain, and nitrogen oxide, which combines with sunlight to form ground-level ozone in the summer. Sulfur dioxide emissions at the company's coal-fired units in Virginia and West Virginia will be reduced by 64 percent over 2000 levels. Total nitrogen oxide emissions will be reduced by 66 percent over 2000 levels.

Those reductions will enhance visibility at Virginia's state and national parks, improve air quality in its major cities, and help improve the environmental quality of both forested lands and the Chesapeake Bay.

Dominion approached EPA in May of 2000 about negotiating a settlement rather than endure the long and costly legal battle that would have occurred if the company had been sued. EPA and the U.S. Department of Justice did sue seven other energy companies over similar issues and has served NOVs on several dozen utilities and industries. No federal suit was ever filed against Dominion or any of its affiliates.

Dominion, the EPA and New York reached an agreement in principle in November 2000. The other states have, since that time, become part of the settlement. The final settlement, while following those guidelines, provides the details on how emission reductions will be achieved.

"The results of this process prove that negotiating was the proper course," said Capps. "Not only have we secured greater protection of the environment, but we have also demonstrated that more can be accomplished through cooperation rather than litigation."

Among the projects in the agreement are:

  • Installation of two scrubbers that will remove up to 95 percent of all sulfur dioxide emissions at Mt. Storm Power Station in West Virginia. Mt. Storm already had one scrubber in operation. Between them, the three scrubbers will remove about 150,000 tons of SO2 a year.

     
  • Installation of equipment to reduce nitrogen oxide emissions on all three units at Mt. Storm. Two of the units will be complete this summer, and the third will be finished in 2004. The systems, which involve selective catalytic reduction technology, will remove up to 85 percent of the NOx from emissions.

     
  • Installation of two scrubbers at Chesterfield Power Station, near Richmond.

     
  • Installation of NOx control equipment on three units at Chesterfield Power Station. Two of the units will be in operation this spring, and the third will be complete in 2004. The SCRs will remove about 85 percent of the units' NOx emissions.

     
  • Installation of NOx control equipment on two units at Chesapeake Energy Center in Chesapeake, Va. Construction should be finished in 2004. The SCRs will remove about 85 percent of the units' NOx emissions.

     
  • Conversion of two units at Possum Point Power Station near Washington, D.C., from coal-fired generation to natural gas-fired generation and the construction of a 550-megawatt combined cycle unit. Work on the conversions is occurring now and the combined cycle unit will be operational this summer. Compared to a similarly sized state-of-the-art coal-fired station, the combined-cycle unit will produce about 82 percent fewer nitrogen oxide emissions and 92 percent fewer sulfur dioxide emissions.

     
  • Payment of a $5.3 million civil penalty to resolve issues at Mt. Storm.

     
  • Commitment of $14 million for major environmental programs or projects in cooperation with the states of Virginia, West Virginia, Connecticut, New Jersey, New York and the National Park Service and EPA.

The company already has set aside the money for the civil penalty and the environmental projects. These payments will not have an impact on earnings.

Under the terms of the agreement, Virginia will benefit from approximately $4.5 million that will be spent for environmental projects. West Virginia will receive more than $2 million for environmental projects.

"Over the past several months, we have worked closely with the offices of Virginia Governor Mark Warner, Attorney General Jerry Kilgore and Secretary of Natural Resources W. Tayloe Murphy Jr. in putting the finishing touches on this agreement. Their assistance has proven invaluable," Capps said.

Dominion also has agreed to surrender 45,000 SO2 emissions allowances each year beginning in 2013. In addition, the company will upgrade the operation of equipment designed to remove fine particulate matter from its emissions.

The addition of control equipment at Mt. Storm, Chesapeake and Chesterfield power stations will help the Commonwealth of Virginia achieve improved air quality in Northern Virginia, Hampton Roads and the greater Richmond area. All of the regions have problems with ground-level ozone, which is produced when nitrogen oxides react with sunlight during warm summer months. Nitrogen oxides are a byproduct of fossil fuel combustion and emissions from automobiles and industrial plants.

Northern Virginia will also benefit from switching from coal to natural gas at Possum Point Power Station.

Dominion is one of the nation's largest producers of energy, with a diversified and integrated energy portfolio that includes 24,000 megawatts of generation and 6.1 trillion cubic feet equivalent of proved natural gas reserves. Dominion also serves 5 million retail energy customers in nine states. For more information about Dominion, visit the company's Web site at www.dom.com.

This release contains forward-looking statements that are subject to various risks and uncertainties. A discussion of factors that may cause actual results to differ from management's projections, forecasts, estimates and expectations is available in our filings with the SEC, including Dominion's Form 10-K for the year ended December 31, 2002, and our most recent Quarterly Report on Form 10-Q. They include fluctuations in energy-related commodities prices, weather conditions, capital market conditions, the risks of operating businesses in regulated industries that are in the process of becoming deregulated, completing the integration of Consolidated Natural Gas Company (CNG) with the remainder of our business and completing the divestitures of Dominion Capital Inc. and Virginia Natural Gas required of us in connection with the CNG transaction as well as those we are making to focus our attention on the northeast quadrant of the United States.
 

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