Dominion Resources' Upbeat Outlook Ignores Likely Carbon Costs

Dominion Power announced an upbeat outlook for 2009 and beyond that--while it included a minor downward revision in next year's profits--ignored the huge risk that shareholders and customers face from the growing likelihood that the company will face charges for the 64 million tons of CO2 that it annually spews into the atmosphere. According to a December 9 Dominion press release: Thomas F. Farrell II, chairman, president and chief executive officer, said:

Unlike many other areas of the country that are facing negative energy demand, our Virginia service territory is still enjoying growth, albeit at a slower rate. Additionally, we have pre-approved spending on major infrastructure projects in a favorable regulatory environment. And, even with the projected increases in pension and other benefit costs, no contributions to our pension plans are needed any earlier than mid-2010.

Therefore, following an expected return to normal economic conditions, we would expect an operating earnings growth rate of 6 percent or more beginning in 2011. Although we are revising our operating earnings growth rates in 2009 and 2010, we are comfortable that our longer-term growth rate reflects the true earnings power of the company.

Translation: We at Dominion are managing to boost power demand despite the economic downturn and the rising efficiency of homes, appliances, lighting and industrial processes. We don't care a fig about conservation and helping our customers to save money and become more energy efficiency--notwithstanding our greenwash public service announcements--because we control the Virginia regulatory apparatus and prefer to keep operating just as we did in the previous century: higher demand=new coal pants=rate hikes=higher profits.

Don't be fooled! While some stock analysts, such as Elizabeth Harrow at Schaeffer's Investment, are touting Dominion Resources as a "cheap stock", a little back-of-the-envelope calculation suggests that the company's failure to take climate change seriously is exposing customers and shareholders to serious risk.

Dominion plants spewed more than 64 million tons of CO2 last year, and the company expects that to rise to 71 million tons in the future. Renewable energy still accounts for less than 2 percent of Dominion's power. Yet a new Washington Post poll finds that 84 percent of Americans want president-elect Obama

to pursue a wide range of issues besides the economy, including 84 percent who want him to drive an effort to require electricity companies to increase the use of renewable sources of energy. A majority, 55 percent, want him to tackle the issue right after taking office in January.

With public alarm about climate change finally starting to catch up with the reality of the threat, carbon charges seem increasingly likely. If carbon is priced at just $10 per ton -- and there are good reasons to think that the charge may be considerably be higher -- Dominion would face an additional $640 million in annual costs. Of course, Dominion may well try to pass those costs on to its customers. But surely some of us will cut back on usage as a result--perhaps sharply. Ah well, there's always the possibility of a bailout. Or maybe not.