Monday, June 11, 2012

CEO of Southern Company Spanks Gas and Competition In WSJ

Is it me or did Thomas Fanning, the CEO of the Southern Company, in his Saturday interview with the Wall Street Journal, sound a tad defensive in his extraordinary interview entitled, "The Natural Gas Skeptic"?

In Fanning's mind, Southern Company's captive consumers are better off both because of his natural gas skepticism and because the company's political power fended off deregulation and kept its state-sanction monopoly, insuring electricity consumers remain wards of state regulators.  Since Fanning's consumers cannot fire him, those regulators better be alert, especially so, given Fanning himself calls his company "a bird of prey."

After whacking electricity competition and natural gas, Fanning declares renewable energy to be just a "niche play," but claims nobody is more excited about renewables than him. Please excuse my smile and view that renewable energy is more than Fanning apparently thinks.

Today renewable energy provides 13% of the nation's electricity and is among the nation and world's fastest growing energy sources.  In the USA, when biofuels are included in the calculations, renewable energy provides more total energy than nuclear power, something about which Fanning is genuinely excited.

What explains Fanning's skepticism about gas and criticism of competition?  Could Southern's $14 billion investment in two nuclear plants in Georgia and another $2 billion expenditure for a coal gassification plant in Mississippi shape his opinions?  Unfortunately, the WSJ raised neither hugely expensive construction program. The exclusion of what some consider to be white elephants in the room was particularly unfortunate, because neither would be possible, if Southern did not have a state-sanctioned monopoly.

To build an equivalent amount of natural gas capacity, as the Georgia nukes may one day provide, would have cost just 14% of the $14 billion nuke bill.  Or to put it another way, natural gas plants would cost Southern's ratepayers $2 billion, and not $14 billion, assuming the nukes are built on budget about which there is always doubt.

Since they have no choice or competition to protect them, Georgia ratepayers are already paying for the nuclear plants that will not operate until 2017, that are behind schedule, and that are embroiled in a major cost overrun dispute.

As for the Mississippi ratepayers, press reports indicate that their electricity rates will rise as much as 28% to pay for the $2 billion plant about which they have no choice or competition as well.

Meanwhile, in Pennsylvania, where electricity customers are free to choose from electricity suppliers who compete for their business, electricity prices have been declining steadily since 2010.  In fact, competition is so fierce in the Keystone state, where as many as 30 companies compete for consumers in some areas, that Direct Energy is offering a free day of electricity per week in the PPL service territory.

Moreover, 10,000 megawatts of new generation has been built since 1999 in the Commonwealth by investors, without forcing electricity ratepayers to finance the plants. No Pennsylvania consumer is paying hundreds of dollars for plants that may operate five or more years in the future and from which he may never get any service.

Most of the 10,000 megawatts constructed in Pennsylvania in the competitive era is natural gas, but 1,500 megawatts of new renewable energy capacity will be built by the end of this year as well.

Electricity competition in Pennsylvania and other states and the shale gas revolution challenge the wisdom of Mr. Fanning's investment decisions and prescriptions for policy.  At the end of the day, Georgia and Mississippi put their faith in Mr. Fanning and their state regulators to make energy choices for their captured, monopoly consumers, while Pennsylvania puts its faith in the free and collective buying decisions of its consumers to direct investment.

Having been a state utility regulator and a utility consumer advocate, I have no doubt about which system will produce better results over time for society and electricity consumers.


  1. I hadn't seen the Southern Co. CEO interview, John, but it's ironic compared to today's Megawatt Daily article documenting that Southern Co. holds 2.3 Bcf/d of firm trans capacity and 18.6 Bcf of firm storage capacity, and has increased their gas-burn from 70 Bcf in 2000 to an expected >600 Bcf for 2012. Hard to reconcile the words and the facts/data.

  2. Well, he has to defend making some bad choices regarding the cost overruns of the Nuclear in GA and the coal plant in MS, so he defends them by saying he is the smartest by staying diversified.