Southern Company Chairman, President and CEO Tom Fanning said in an interview with S&P Global Platts last week that he believes nuclear power plants should compete on their own rather than receive financial support from state governments. Fanning also said he expects customer rate increases associated with Southern's Vogtle nuclear plant expansion to come in under 10% of what regulators originally approved.
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Southern is an Atlanta-based investor-owned utility holding company with 46 GW of power generation capacity serving nine million power and natural gas customers through its subsidiaries.
Its power generation mix consists of about 47% gas, 27% coal, 15% nuclear and 11% renewable energy, but they are "trending more toward 50% gas and less coal," Fanning said on the sidelines of the Platts Global Power Markets Conference in Las Vegas.
If subsidiary Georgia Power's Integrated Resource Plan is approved by the state's Public Service Commission, which is scheduled to issue a decision during its July 16 meeting, total renewable energy capacity would increase to 18% by 2024, according to Southern's 2018 annual report.
"Before I became chairman [in 2010] we were 70% coal, no renewables and single digits on gas, so it's been quite a transformation," Fanning said.
Georgia Power, the Southern Company utility subsidiary building the Vogtle nuclear plant expansion (Vogtle units-3 and -4 totaling 2,300 MW), has not started drawing on the $1.7 billion in additional federal loan guarantees it received in late March, Fanning said. The plant contains the first new nuclear reactors to be built in the US in three decades. Unit 1 began commercial operation in May 1987 and unit 2 began commercial operation in May 1989, totaling 2,430 MW of capacity.
The company has been "working off" the previous loan guarantee amount of $3.5 billion, access to which the US Department of Energy unfroze in late March, he said. Fanning does not expect the Vogtle project will require any additional federal funding.
And in fact, the "under-reported story" is that he believes the customer rate increases associated with Vogtle will come in at less than 10% of the increases initially approved by the Georgia PSC when the nuclear plant is completed, which is scheduled for November 2022, according to Southern's fourth-quarter 2018 earnings presentation.
When asked about his view on state-level subsidies for nuclear power such as zero-emissions credits, Fanning said "he'd rather every technology compete on its own."
The Vogtle plant received federal loan guarantees because the US decided for national security reasons to "recreate the renaissance of nuclear and tried to induce people to go forward with these benefits," Fanning said. Noting those benefits go to Southern's customers, he said "in that case I'm for those subsidies, but broadly I'd prefer that all energy compete on its own."
In states with regulated power markets utilities earn guaranteed rates of return based on investments made to maintain and update their systems. The increases go into utility customer rates and must be approved by state regulators.
"In terms of state-regulated businesses, something like 95% plus of our net income comes from those franchise businesses ... and that really is the bread and butter of our earnings," Fanning said.
In terms of competitive generation, Southern sells none of that in the merchant markets and that business is designed to replicate a state-regulated business, he said. That means long-term contracts of about 14 years with counterparties like other investor-owned utilities and recently the company has been selling power to commercial and industrial customers, so they don't take transmission or fuel risk, Fanning said.
Southern deploys 85% of the microgrids in the US, Fanning said, and they made a calculated bet around 2015 that the age of "big iron" with large centralized power generation and long-haul transmission "is plateauing out and perhaps may dissipate over time."
As the digital age unfolds with growing electric transport, Southern believes "distributed infrastructure" that miniaturizes the traditional make, move and sell power system will be needed, Fanning said. He noted Southern Power's last three wind deals were to General Mills, General Motors and a cruise line, so maybe a confluence of microgrids, energy storage, switch gear and distributed generation is emerging.
And while that is a small part of Southern's earnings now, investing in that future is a "strategically important options bet," Fanning said. He added that he's more bullish about solar, which can more easily be sited near load centers than wind because the best US wind resources will still require long-haul transmission to reach big markets.
"That is not optimal electricity design," Fanning said. Wind power will still play a large role, but the future is "more on generation that can occur near the load centers," which will be solar in particular and possibly a hydrogen economy featuring fuel cells, he said.
-- Jared Anderson, email@example.com
-- Edited by Gail Roberts, firstname.lastname@example.org
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