Potential Crisis in Capital Awaits Power Sector, Dominion CEO Tells Regulators

- Says Industry, Regulators and Legislators Must Work in Partnership To Avoid Energy Train Wreck

RICHMOND, Va. – The electric power sector faces challenges in attracting capital investment that will require innovative and collaborative approaches in regulation and legislation, Dominion (NYSE: D) President and Chief Executive Officer Tom Farrell said today.

Speaking at the winter conference of the National Association of Regulatory Utility Commissioners (NARUC), Farrell said national economic growth has created an urgent need for new investment in the sector that could range from $400 billion to $650 billion over the next 25 years. The required investment is roughly equal to the total market capitalization of all of the nation’s investor-owned utilities.

Investment will be needed to expand generation, transmission and distribution; comply with increasing environmental costs; and promote renewable sources of energy and demand-side management initiatives, Farrell said.  The need is urgent, he said, with a growing imbalance between energy supply and consumer demand, aging infrastructure and uncertain environmental compliance costs all combining to create the potential for an "energy train wreck."

"What we are facing – potentially – is a crisis in capital," Farrell said.  "To ensure that a crisis in capital does not ultimately lead to that energy train wreck, I believe the key is a partnership among people in this room."

In fluid capital markets, he said, investors with global opportunities will direct investment only at utilities that function under state regulatory systems offering certainty that investments can be recovered with a fair, competitive profit margin on a timely basis. "And the smart money will flow to the smartly regulated," Farrell said.

Farrell told conferees that traditional cost-of-service regulation can continue to work provided there are “some important modifications.” He offered three suggestions to adjust the traditional model so that utilities will be able to continue to meet their obligations to all stakeholders:

  • Authorized returns on equity (ROE) should be set at levels that are fair not only to the customer, but also allow utilities to compete with their peers and other industries in the debt and equity capital markets.
     
  • Recovery of investment in large-scale projects should be allowed to begin as the work is done, rather than waiting until the projects are in service.
     
  • Advance approval of projects, including regulatory treatment during construction and commercial operation, should be considered to provide a sense of certainty to potential investors and lenders.

Farrell said a number of states and the Federal Energy Regulatory Commission have already implemented creative rate-making approaches aimed at addressing these issues.

Dominion is one of the nation's largest producers of energy, with an energy portfolio of about 28,000 megawatts of generation, about 6.5 trillion cubic feet equivalent of proved natural gas reserves and 7,800 miles of natural gas transmission pipeline. Dominion also operates the nation's largest underground natural gas storage systems with more than 960 billion cubic feet of storage capacity and serves retail energy customers in 11 states. For more information about Dominion, visit the company's Web site at www.dom.com.

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Media: Mark Lazenby, 804-819-2042