THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, December 19, 1995 TAG: 9512190249
SECTION: BUSINESS PAGE: D2 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
DATELINE: RICHMOND LENGTH: Medium: 64 lines
Virginia Power said Monday that a new business unit set up to provide wide-ranging energy services to large customers has landed its first long-term client: Chesapeake Corp.'s West Point paper mill.
The Richmond-based utility said its Evantage division signed a 25-year deal to supply the mill with coal, natural gas and oil. Virginia Power will design, build and own a new 38-megawatt natural gas-fired turbine at the mill.
Executives of the two companies said the project will allow Chesapeake to greatly cut sulfur emissions at West Point by enabling it to rely less on oil-fired boilers.
A 40 percent increase in electricity-generating capacity resulting from the project will also let Chesapeake use the mill to expand into new product lines.
Virginia Power announced the formation of its energy-services unit earlier this year as part of its Vision 2000 restructuring. The actual name for the unit, Evantage, was unveiled Monday.
Utility executives have described the energy-services operation as the ``offensive part'' of the company's strategy for staying competitive in the rapidly changing energy business. Other major initiatives announced during the Virginia Power restructuring have been defensive in nature. They have involved cost reductions, including the elimination so far of 850 of the utility's 10,500 jobs.
Tim Caviness, a vice president in charge of the Evantage unit, said his group is seeking long-term energy deals with at least 200 industrial, commercial and government customers in the Virginia Power service territory.
He said once the utility has exhausted that business opportunity, it will expand its effort to sell a wide range of energy services beyond its service territory.
Virginia Power is chasing its large customers hardest because they are the best-positioned electricity users to shop around for power as lawmakers and regulators continue undoing utility monopolies.
James T. Rhodes, Virginia Power's president, called his company's agreement with Chesapeake a ``win-win'' for both companies and Virginia Power's ratepayers.
Rhodes said that Chesapeake will benefit from the utility's economies of scale in buying and arranging the transport of fuels that the West Point mill uses in electricity and steam generation. And for about the same annual operating costs, the paper mill will have a greatly expanded energy-production capacity that will let it add new product lines.
But utility executives said Virginia Power will also benefit. As part of the deal, the utility renegotiated the contract that requires it to compensate the paper mill for some of Chesapeake's electricity generating capacity. Virginia Power estimates the renegotiation will result in a $10 million savings through the rest of the decade.
Virginia Power also will finance construction of the new facility, train the plant operators and provide management services for the rebuilding of an existing boiler at Chesapeake's mill.
If the agreement is approved by the State Corporation Commission, Virginia Power said the new turbine will be completed in late 1997. About 900 people work at the West Point mill, which is part of Chesapeake's Paper Products subsidiary. by CNB