Dominion CEO: Patience and policy on the path to renewable energy
Dominion Resources D CEO Thomas Farrell is coming up on his fifth year anniversary for the position this January. He spoke with Fortune about how the company dumped oil and gas assets in the nick of time, why his family’s military background has kept safety on his mind and the biggest challenge for energy companies in the future.
Fortune: Your tenure as CEO has straddled the recession. How has the company changed?
Farrell: In 2005, our mix of earnings and businesses was very different than it is today. Almost a third of the company’s earnings were in oil and gas production—think deepwater rigs.
We were reaping great benefits from that in the short term, but our view was that it was unsustainable because whenever prices are high, people drill like crazy. It’s a classic boom bust business. Right now, it’s in an extended bust. We saw that spilling over into electric prices, and we didn’t expect that to be very popular, so we decided to sell our oil and gas business in 2006 and 2007.
Then the economy hit the wall and the stock market went over a cliff. So we were basically out of the oil and gas business before that happened. If we had not done that, if we still owned all those assets, I almost hate to think of what we would look like right now.
Did you sell those assets to sidestep the recession?
I wish I could say I knew the recession was coming—I don’t mean to convey that. I did not think the price decks were sustainable, the potential impacts on our customers was going to lead to a large political hue and cry.
Any other major changes?
We made some cultural changes that may not seem catchy to the financial industry. The number one thing we do here is focus on safety and excellence in operations ethics.
It’s played out very well—there’s almost a direct inverse correlation, between the improvements in our safety record and the decline in incidents. I have no scientific basis for this, but I believe that safety performance and financial results are closely related.
Where do you think that belief came from?
Probably because I basically grew up in the army. My father and my great grandfather were all army officers. The Army puts tremendous focus on personal responsibility, personal safety and looking out for your soldiers.
What’s next for Dominion in 2011?
We’re concentrating on is what we call infrastructure growth. Before the downturn in the economy, we decided we needed to build power plants in Virginia, and pipelines and gathering systems in the Appalachians.
It was actually a very good time because interest rates are low, and the prices of commodities we were using—the concrete and steel—are lower. So we decided we were going to go straight ahead and continue. As a result of that, one of the power plants will come online in Virginia this spring, as well as two very large electric transition lines.
That’s what we’re going to concentrate on. We will spend $10 billion in growth capital over the next five years, and another $10 billion in maintenance capital.
Will you be hiring to fill and maintain all these new buildings?
Yes, we will be.
What’s your biggest challenge in the short term?
People who generate power with fossil fuels have to figure out how that power is going to be produced economically, safely and reliably over the next three or four decades— that’s a challenge.
Take into account population growth—over the next thirty years, there’s probably going to be 350 million people or more. There are an increasing number of electric gadgets everybody’s using. We have a situation where the contribution of fossil fuels is going to fall, and nuclear plants we have today are gong to retire. So where’s it all going to come from? That’s a challenge for our industry, and that’s a challenge to our country. The country can’t get its arms around the problem—but it’s basically vital to our economy.
It’s just very frustrating to me. People in our industry, we have all these competing demands, but in the end, we have to actually produce the electricity. Our industry’s job is to produce the electricity safely, economically, reliably, so that when consumers hit the switch, the lights to come on. And they don’t want to get shocked when the bill comes. Everybody wants renewable power, but it’s just not ever going to happen that way.
So where do you fit in?
People want clean air and they want clean water—so do I. All of us have families, we all want that, but also everybody also wants electricity. And people don’t want to look at an electric transmission line. So that’s our industry’s job is, we respond to public policy mandates we’re given.
I think it’s going to be a very volatile political situation. Americans are just going to have to be patient. Our industry—the electric utility industry—will do our jobs and produce the electricity. When policy makers figure out what they want us to do, we will figure out a way to do it.