UNITED STATES AND NEW YORK REACH AGREEMENT WITH ELECTRIC UTILITY TO REDUCE AIR POLLUTION Accord Marks a Major Step in National Enforcement Initiative

11/16/2000

UNITED STATES AND NEW YORK REACH AGREEMENT WITH
ELECTRIC UTILITY TO REDUCE AIR POLLUTION
Accord Marks a Major Step in National Enforcement Initiative

WASHINGTON – The Justice Department, the Environmental Protection Agency and the State of New York today announced an agreement in principle with Virginia Power that requires the company to significantly reduce harmful air pollution from the company’s eight coal-fired power plants, perform $13.9 million in environmental projects, and pay a $5.3 million civil fine.

This accord marks another step forward in the ongoing, nationwide initiative to stop pollution released illegally from coal-fired power plants. It is the second of its kind; in February, the United States reached a similar agreement with the Tampa Electric Company.

The agreement in principle announced today reflects the goal of the federal and state governments and Virginia Power to resolve claims, without litigation, that are similar to environmental claims that have been filed against several other electric utilities. The agreement will be translated into a detailed consent decree that will be negotiated over the next several weeks.

Under the agreement, Virginia Power will install permanent emissions-control equipment to meet stringent pollution limits; implement a series of interim pollution-reduction measures to reduce emissions while the permanent controls are designed and installed; agree to decrease over time the total amount of pollution released from all of its coal-fired plants; and retire pollution emission allowances that Virginia Power or others could use to emit additional pollution into the environment. The company anticipates substantial benefits from the agreement in terms of certainty, flexibility, and the ability to efficiently plan for the future.

“This agreement marks the Clinton-Gore Administration’s latest action to provide cleaner, healthier air for all Americans,” said Environmental Protection Agency Administrator Carol M. Browner. “This action will ensure that millions of citizens throughout the Eastern United States are protected from air pollution that can threaten their health, especially the health of our children. This action will also reduce the acid rain that can destroy our rivers and lakes.”

Virginia Power, a subsidiary of Dominion Resources, Inc., operates eight coal-fired power plants in Virginia and West Virginia. In June, the EPA notified Virginia Power that the agency discovered Clean Air Act violations at the largest of these plants, the Mount Storm Power Station in West Virginia. Specifically, federal regulators said the company had significantly modified the Mount Storm facility, increasing its pollution output, without applying for a Clean Air Act permit and taking steps to minimize increased emissions.

The sulfur dioxide and nitrogen oxides produced by power plants in the Ohio River Valley and the Southeast affects air quality near the facilities and also far downwind of the plants, contributing to acid rain in the Northeast.

In July, the State of New York filed suit against Virginia Power, alleging that the company’s modifications to the Mount Storm plant violated the Clean Air Act. The State of New Jersey notified Virginia Power that it, too, planned to sue the company and allege similar violations.

The EPA, the Justice Department, and the New York Attorney General have worked with Virginia Power to reach an agreement principle to reduce emissions of sulfur dioxide and nitrogen oxides at the Mount Storm plant and the company’s seven other coal-fired plants. The State of New Jersey will be involved in the negotiations leading to the final consent decree with the company.

Upon being advised by the EPA, the Department of Justice, and the State of New York of specifics regarding potential violations, Virginia Power officials were responsive in moving to resolve these concerns.

“The company worked cooperatively to reach these terms that will improve air quality on the East Coast. Other electric utilities would benefit themselves and the public by following Virginia Power’s constructive approach,” said Lois J. Schiffer, Assistant Attorney General in charge of the Environment at the Justice Department. “This agreement will protect the public from hundreds of thousands of tons of air pollution that would have been released from Virginia Power’s coal-fired plants.”

New York Attorney General Eliot Spitzer said, "This settlement is a long-awaited breath of fresh air for New Yorkers. More than 250,000 tons of toxic pollutants will be removed from the air stream flowing to New York and other Northeast states. The agreement will help save the Adirondack Park and other wilderness areas from acid rain destruction and help address the growing problem of pollution-induced asthma and lung disease in our cities." Spitzer thanked EPA Administrator Browner and Assistant Attorney General Schiffer for working with the state to address a critical environmental and public health problem.

The agreement in principle calls for Virginia Power to:

• Reduce emissions of nitrogen oxides (NOx) from coal-fired plants by about 75,000 tons, from about 105,000 tons per year to about 30,000 tons per year. Those reductions are phased in over time, beginning in 2004 and reaching the 30,000 ton cap in 2013. NOx emissions will be capped at 30,000 tons per year thereafter.

• Achieve NOx reductions from coal-fired plants by installing at least eight new selective catalytic reduction control systems, a very effective pollution control device.

• Reduce emissions of sulfur dioxide (SO2) from about 263,000 tons per year to about 82,000 tons per year. Virginia Power will surrender 45,000 SO2 emission allowances each year beginning in 2012, and its SO2 emissions will be capped at 82,000 tons per year thereafter.

• Achieve SO2 reductions by installing four new control devices known as “scrubbers,” and upgrading three existing scrubbers at coal-fired plants.

• Eliminate the use of coal at the Possum Point power plant near Washington, D.C., by converting the plant’s coal-fired operations to use natural gas – a very clean-burning fuel.

• abUpgrade and optimize equipment that controls emissions of particulate matter from coal-fired plants.

• abPerform environmental mitigation projects valued at $13.9 million and pay a civil penalty of $5.3 million.

So that Virginia Power may accomplish these important environmental improvements and continue supplying energy to its customers, and in consideration of Virginia Power’s early, productive efforts to quickly resolve this matter, the agreement provides significant flexibility for the company. The work called for is phased in over a twelve-year period.

In November 1999, the federal government sued seven other electric utility companies, charging that they violated the law by making major modifications to their power plants without installing equipment required to control smog, acid rain and soot. The Justice Department, on behalf of the EPA, brought legal actions against dozens of coal-fired power plants controlled by American Electric Power, FirstEnergy, Illinois Power, Southern Indiana Gas & Electric Company, Cinergy, the Southern Company, and the Tampa Electric Company. With the exception of the February, 2000 settlement with Tampa Electric, those lawsuits continue, as does the EPA’s enforcement efforts against the Tennessee Valley Authority – a federal agency that owns and operates many coal-fired, electric generating plants.

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Virginia Power plants that burn coal to make electricity are located in Virginia and West Virginia:

Bremo Power Station (located in Fluvanna County, Va., near the James River)

Chesapeake Energy Center (near Chesapeake, Va., on the Elizabeth River)

Chesterfield Power Station (in Chesterfield County, Va., on the James River)

Clover Power Station (in Halifax County, Va., on the Staunton River)

Mount Storm Power Station (located in northeastern West Virginia, in the Allegheny Mountains)

North Branch Power (also located in West Virginia)

Possum Point Power Station (in Virginia, about 25 miles south of Washington, D.C., on the Potomac River).

Yorktown Power Station (near Williamsburg, Va., on the York River).

(See attached fact sheet.)

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VIRGINIA POWER AGREEMENT IN PRINCIPLE

To be incorporated in an enforceable Consent Decree filed in Federal Court encompassing all coal fired units in Virginia Power’s current system. The agreement covers 21 units at Virginia Power’s Bremo, Chesapeake, Chesterfield, Clover, Mt. Storm, North Branch, Possum Point and Yorktown Power stations. These units generate 5500 MW of electricity and currently emit 263,000 tons of SO2 and 105,000 tons of NOx each year. It provides Virginia Power added flexibility to modernize and upgrade its facilities in exhange for an agreed upon, enforceable program of significant emission reductions.

Emission Reductions

Nitrogen Oxides: Current NOx emissions are 105,000 tons per year (1998)

Final system-wide permanent NOx emission cap 30,250 tons per year, commencing January 1, 2013. This represents the elimination of two-thirds of Virginia Power’s 1998 NOx emissions - a reduction of 75,000 tons per year of NOx.

With the construction of eight Selective Catalytic Reduction (“SCR”) NOx control devices and the conversion of two units from coal to natural gas, at least 67% percent of MW on the Virginia system will have state-of the-art (“Best Available Control Technology” or “BACT” ) NOx controls.

100,000 ton reduction in 2003 and concluding with a

Retirement of 45,000 allowances currently authorized by the Acid Rain for the Virginia Power system program beginning in 2012.

Upgrades and optimization of existing particulate matter (“PM”) controls and introduction of advanced particulate matter continuous emission monitors (“PM CEMs”).

Additional environmental projects $13.9 million (nature and location of projects to be negotiated).

New York State is a party to the agreement in principle. We anticipate that other states may be parties to the final consent decree.

The company anticipates substantial benefits from the agreement in terms of certainty, flexibility and the ability to plan for the future.