Electric Light & Power Utility of the Year 2012

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by Jennifer Van Burkleo, associate editor

Southern Co. Chairman, President and CEO Thomas A. Fanning

This year editors at Electric Light & Power named Southern Co. Utility of the Year.

The utility, which is celebrating 100 years in service, brought more than $17 billion in operating revenue in 2011 with more than 43,000 MW of generating capacity.

Headquartered in Atlanta, the largest utility in Georgia and fourth-largest in the nation serves 4.4 million customers in Mississippi, Alabama, Georgia and Florida.

This year’s winner ranked high in many areas, including market capitalization, innovation, achievements, construction, job creation and customer satisfaction reports despite difficult economic and political times, plus expected coal plant retirements in 2013.

In 2011, Southern Co. topped Fortune’s “Most Admired” list in the electric and gas utility sector. And in 2012, Southern Co. won The Edison Award from the Edison Electric Institute.

ELP: As one of the nation’s largest electric utilities, you have a diverse mix of generation resources. What’s your philosophy on meeting your customers’ energy needs?

Fanning: To best provide for America’s energy future, Southern Company advocates a comprehensive, common-sense national energy policy based on two guiding principles: using “all the arrows in the quiver” and investing in energy innovation.

We must develop the full portfolio of energy resources, or all the arrows in the quiver—new nuclear, 21st-century coal, natural gas, renewables and energy efficiency. Fuel diversity helps us avoid becoming overly dependent on a single fuel source, helping protect our customers from the volatility of any one market.

Southern Company is the only energy company in America today dedicated to developing the full portfolio, having committed $20 billion to America’s energy future. According to one estimate, our investment will create a quarter of a million jobs in the Southeast.

Southern Company is leveraging energy innovation to put cutting-edge technology to work for our customers. We’re leading the nuclear renaissance by building the first new nuclear units in a generation of Americans. Our decades-long focus on energy innovation has provided a way forward for coal in this country with the development of 21st-century coal technology under construction in Mississippi. We recently built the nation’s largest wood biomass plant in Texas, invested in new solar facilities in Nevada and New Mexico and acquired wind power from Oklahoma and Kansas. Our ongoing commitment to energy innovation is delivering real solutions to help meet America’s energy needs with clean, safe, reliable and affordable power.

ELP: You are, as you point out, leading the nuclear renaissance in America by building the first new nuclear units in more than 30 years. Do you think installing nuclear capacity is appropriate, given the events of Fukushima? Is nuclear energy right for America today?

Fanning: The nuclear industry is one of the safest, most reliable, cleanest and most affordable energy industries in the world, and Southern Company’s nuclear fleet has an exceptional performance record. I can assure you that, as a company and as an industry, we get up in the morning and go to bed at night thinking about how to enhance the safety and security of this important part of our energy portfolio.

Alabama Power crews repair lines damaged by the tornados that struck the state in April 2011.

Following the events in Fukushima, Southern Company joined our entire industry in identifying and implementing lessons learned, which primarily applied to the existing nuclear fleet. In fact, the Nuclear Regulatory Commission’s 90-day task force on Fukushima suggested that the new technology at Vogtle 3 and 4 would have obviated many of the issues that occurred in Fukushima. This technology is the safest on the planet today. Many of the problems that occurred around Fukushima centered on issues related to getting water where it is needed during an emergency. We’re installing the Westinghouse AP1000. AP stands for Advanced Passive, and all you need to get the water where it needs to be in that technology is the power of gravity.

Nuclear power will continue to be an important part of the energy mix needed to best meet customers’ energy needs with clean, safe, reliable and affordable power. As we expand our nuclear fleet, Southern Company remains committed to operating with the degree of unrelenting attention to safety and security that helped establish our company’s reputation as an industry leader.

ELP: There have been issues in news reports related to Vogtle 3 and 4, such as questions around cost and schedule. Are the units progressing as you planned?

Fanning: Our continued success in the construction of Vogtle 3 and 4 is driven by our uncompromising focus on safety and quality. We are now halfway through the project schedule, and we recently achieved the major milestone of more than 10 million work hours recorded on the construction site.

The projected cost of completing the nuclear facility is still less than the original certified amount, and up to $2 billion of potential additional savings for customers has been identified since the original certification. With a project of this magnitude, we don’t measure success by whether we have challenges, but rather how well we manage the challenges that invariably occur.

ELP: With the price of natural gas today, are nuclear and other resources competitive? What impact will a substantial shift to natural gas have on the industry?

Fanning: Southern Company is committed to doing what is in the best interest of our customers, and in order to keep prices low, the market drives those decisions. Five years ago we produced 70 percent of our energy from coal and only about 11 percent from natural gas. This year, we have made a transition where that 70 percent of the energy from coal will drop to about 35 percent. And the 11 percent from gas will increase to 47 percent. Last year we were the third-largest consumer of natural gas in our industry.

While natural gas is an important part of a diverse energy portfolio, it is not a panacea. For example, although nuclear and 21st-century coal plants have a higher capital cost than natural gas facilities, their lower dispatch cost helps protect customers from the historic volatility of natural gas. As others rush to natural gas, there are five reasons to remain cautious.

First, we have to resolve the environmental questions around fracking. No. 2, we have to build out the infrastructure—pipelines and storage—that support the new natural gas finds that are being developed all over the United States. Third, we have a historic decision to make as a nation about gas exports that will have a direct impact on the price we pay for this resource. No. 4, we have to determine how far the significant demand curve shifts that are taking place will go and the impact those shifts will have on price and supply. And fifth, because of the higher long-term volatility of natural gas, we need to be able to do long-term hedging for price and volume. The relatively low credit quality of much of that industry makes those hedges costly, and in many cases, unavailable.

ELP: Your territory has been hit by severe hurricanes and last year experienced devastating tornadoes. You recently sent crews to help in the Northeast after Superstorm Sandy. Is this type of assistance across the industry important when natural disasters strike?

Fanning: Mutual assistance is a collaborative effort that is for the good of the country. When Hurricane Sandy struck the Northeast, the electric utility industry responded in an unprecedented manner because this severe storm affected densely populated areas. Southern Company committed more than 2,400 resources to the effort.

There is a decades-long history of electric utilities’ collaborating after significant weather events. It is critically important for the electric utility industry to help bring normalcy and hope to families affected by storms. Southern Company has received mutual assistance after devastating events in our service territory, including hurricanes Katrina, Ivan and Opal. We are committed to reciprocating by assisting those affected by other major storms.

Line personnel are some of the heroes in catastrophic events like this. They leave their families behind and go to the most devastated areas to help customers and communities in need. These are dangerous jobs, and we’re committed to returning our employees home safely to their families. The heroic efforts of our men and women are focused on one thing: getting power restored as quickly and safely as possible.

ELP: Speaking of customers, Southern Company consistently ranks among the top utilities in customer satisfaction. Why?

Fanning: Southern Company is celebrating its centennial this year. We have a long-standing company culture that puts customers at the center of everything we do. It’s more than just about the “whats” of our business: make, move and sell electricity. It’s about the “hows”: the ways we provide clean, safe, reliable and affordable power to everyone who depends on us. It is by focusing on the hows that we deliver a real value proposition to the customers and communities we serve.

Southern Co. CEO Tom Fanning, at left, and Energy Secretary Steven Chu tour the Vogtle 3 and 4 construction site. Chu toured the site about a week after Southern Co. obtained the construction and operating licenses for the nuclear generating units.

For example, we try to put a face on the company in every community we serve. We operate 260 local offices across our service territory, making it possible for virtually any customer to walk into one of our offices and receive in-person service from a local Southern Company representative.

Also, we encourage our employees to become active members of the communities we serve, making it an expectation of employees to be engaged in things like school boards, sports teams, churches and community service in the broadest sense.

At Southern Company, we believe that we must be bigger than our bottom line, and we are committed to making our communities better because we’re there.

ELP: As the nation grapples with economic uncertainties, what challenges does this present for the utility industry?

Fanning: As I talk about national energy policy, I discuss the critical importance of restoring America’s financial integrity. Today, 60 percent of the GDP is touched by electricity in some way. We’ve got to get this right. It’s a national imperative that today’s financial issues be resolved, and I believe it should begin by reining in overreaching regulations, restoring America’s financial integrity and adopting tax policies that support growth and promote capital formation.

We must rein in overreaching regulations and ensure the benefits outweigh the costs. Overly burdensome regulations represent a significant indirect tax on our economy. We advocate common sense regulation that reduces the strain on our economy and works for the benefit of all Americans.

We must take steps to restore America’s financial integrity by promoting federal fiscal responsibility. We cannot afford to continue growing our national debt. Increased federal spending not only increases deficits; it also increases the certainty of future tax burdens. To rebuild America’s financial strength for current and future generations, we need to address our national debt today.

In addition, we must adopt tax policies that support growth and promote capital formation by maintaining parity in the tax rates on dividends and capital gains. Eliminating this equal treatment would create a tax incentive for investors to choose one over the other and could push them into riskier investments. We must also keep those rates as low as possible to create an environment that encourages capital expenditures that create real job growth.

ELP: Southern Company helped develop a new coal gasification technology, transport integrated gasification. What makes this technology different from previous coal gasification technologies? How will this technology impact Southern Company and the electric utility?

Fanning: Southern Company is an industry leader in the pursuit of real solutions to meet our nation’s energy challenges through energy innovation.

Through a partnership with KBR and under the sponsorship of the U.S. Department of Energy, Southern Company developed transport integrated gasification, or TRIG, technology, which allows for low-carbon generation using an affordable and abundant coal resource.

Subsidiary Mississippi Power is putting this technology to work through the construction of a 21st-century coal facility in Kemper County, Miss. The facility will generate electricity using native Mississippi lignite—a low-cost, domestically available resource—and the project will capture at least 65 percent of the carbon dioxide produced, with resulting carbon emissions comparable to a similarly sized natural gas plant.

We recently announced an alliance with KBR to market this technology worldwide. Consider that more than half of the world’s existing coal reserves consist of low-rank coal, such as lignite and sub-bituminous coal—the very types of fuel that TRIG was developed to utilize.

By leveraging this technology, we can help preserve coal as an energy resource and ensure that more customers have access to clean, safe, reliable and affordable electricity.

ELP: Southern Company has been active in the renewable arena this year, bringing the nation’s largest biomass plant online and recently announcing several solar acquisitions with Ted Turner. Can you talk a bit more about where renewables fit into the company’s long-term strategy?

Fanning: Renewables are an important component of Southern Company’s all the arrows in the quiver approach. Subsidiary Southern Power owns generating facilities with Turner Renewable Energy that compete in the wholesale market. Georgia Power recently announced the industry’s largest voluntarily developed solar portfolio, and Alabama Power is adding more than 400 megawatts of wind-generated electricity from Oklahoma.

This expansion of innovative, renewable energy generation is a great complement to the investment we’re making to study the use of solar photovoltaic technologies in the Southeast, which is helping determine how to harness the power of innovation and technology beyond what is possible today. Renewables are an important part of our long-term energy strategy as we expand America’s energy capacity and diversity, but for the time being, they will remain a niche energy resource, particularly in the Southeast. The prices in our region are too low for widespread renewable generation, and the Southern Company system has sufficient capacity through this decade.

In general, where there are plentiful renewable energy resources, there are few people. Getting the electricity to where customers live takes a significant investment in transmission infrastructure. One of the lessons learned from the Northeast and Midwest blackouts is to locate the generation near the load centers. The greater the distance for transmitting electricity, the greater the risk.

Alabama Power crews stage during restoration following the tornados that hit Southern Co.'s service territory in April 2011.

Because renewables are an intermittent resource, utilities must plan for when the sun doesn’t shine or the wind doesn’t blow. Today the most likely backup energy resource is natural gas, which means you are doubling down on that energy bet.

Renewable energy exists almost exclusively because of federal largesse in the form of tax credits and other incentives. This is not a viable, long-term approach for any industry.

Southern Company is committed to doing what is in our customers’ best interest today while taking steps to provide clean, safe, reliable and affordable energy over the long term. As renewable energy and other generation technologies continue to develop, we will find new ways to put them to work for the benefit of our customers.

We recognize that there is no single solution to prepare for America’s energy future. It will take the full portfolio of energy resources to best meet our customers’ energy needs in the years and decades to come.

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