Southern Co.’s CEO embraces ‘technology of innovation’ as he looks to industry’s future

By Kristi E. Swartz | 03/17/2015 08:26 AM EDT

Utility giant Southern Co. wants to open an energy innovation center, expand into the hydrogen business and capitalize on the evolution of the Nest thermostat.

Utility giant Southern Co. wants to open an energy innovation center, expand into the hydrogen business and capitalize on the evolution of the Nest thermostat.

The ideas make Atlanta-based Southern sound more like a next-generation technology company than a traditional one that sells electricity. But new technologies from other places have changed the way consumers use electricity, forcing even the most conventional energy companies to figure out how to adapt.

CEO Tom Fanning has been talking up some of Southern’s emerging ideas, many of which are the results of an employee competition. He discussed some of them, along with his take on solar, U.S. EPA’s Clean Power Plan and the company’s two major power plant projects, in a wide-ranging interview with EnergyWire.


"The technology of innovation is something that I really think has legs," he said.

The goal is to create value streams around Southern’s capital-intensive assets, Fanning said. In other words, Southern needs to find new ways of making money off its huge power plants.

Some of the ideas sound as if they could transform the electric system.

"Right now, our assets produce electricity. But as an added value set, if we could produce something else of value, then why not?" he said.

This could mean taking a plant that is idle during an off-peak time and using it to produce hydrogen. Doing so could provide hydrogen for fuel cells used in cars and other areas, Fanning said.

"It’s a very interesting idea, a kind of longer-term approach," he said about possibly getting into the hydrogen business. "But it’s worth betting on right now, so we are."

The hydrogen unit might be developed in Southern’s research-and-development operation in Wilsonville, Ala. He wants to open a new energy innovation center to incubate some of the other ideas.

The center likely would be in Atlanta but not at Southern’s headquarters, he said. It could include an energy policy unit, as well. That group would include input from universities in Southern’s four-state territory and would work on technology, business policy and social policy, he said.

"You think about that as kind of a Venn diagram, creating good American policy based on the union of those three efforts," he said.

Other product innovation might be borne out of work with targeted venture capital efforts with other companies, ones that would help Southern create valid products and services.

"This would be joining in on other people’s efforts, not our own," he said.

The word "innovation" typically isn’t associated with the utility industry. In fact, there was a time that "dinosaur" would be more fitting. Fanning frequently touts Southern as the only utility with its own proprietary R&D center.

The perception of a utility as being resistant — even hostile — to change is hard to shake, however.

More accessible examples of innovation may be on the way. Southern wants to create a network of electric vehicle charging stations across the Southeast (EnergyWire, March 5). That could get started as early as next year, Fanning said.

Southern also is working with Nest Labs, the thermostat company spearheading the creation of the smart home. The idea, according to Fanning, could be something like a server that manages all of your devices, appliances and electricity — which is now coming from a combination of sources, including rooftop solar, energy storage, and combined heat and power systems.

This combination of things would make electricity more efficient and cheaper, he said. What sounds like a threat for an energy company could be just the opposite, he argued.

"If you can make my product cheaper, more attractive, then people will use more," he said in a speech last week.

Establishing a rate structure for solar

Revolutionary talk aside, some older ideas remain, namely with solar. For Southern, the details on how the company views solar are becoming increasingly important as a bill to allow consumers to enter into long-term financing agreements for solar panels continues to move swiftly through the Georgia Legislature (EnergyWire, Jan. 14).

Fanning doesn’t consider rooftop solar panels and distributive forms of electricity to be disruptive when used by themselves. They are a natural evolution of the electric generation business and would only be disruptive when combined with energy storage, he said.

He’s a fan of utility-scale solar, saying it’s more economical. But Southern’s Georgia Power subsidiary "has it on its list" that it should sell solar panels to customers — if there are customers who want to buy the panels, Fanning said.

He argues customers who sell the excess solar electricity should only receive avoided cost, or the amount it would take to run the next-cheapest power plant, such as natural gas. They would not be able to sell back excess power for a full, 1-to-1 retail credit from Southern’s utilities in a concept known as net metering.

"Avoided cost is the right concept because if you don’t need the capacity and you add a [solar] panel, well, then why should everybody pay for it?" he said.

What’s needed is a rate structure that reflects the value of the electric distribution system, Fanning said. This includes a price when the electricity is used as a backup when the sun isn’t shining and the photovoltaic panels aren’t producing electricity, he said.

"If you adequately reflect the value that those assets bring, then we’re perfectly happy with moving ahead with distributed generation," he said.

Southern once had few renewables in its energy mix. Now growth across its four-state territory is sporadic. Georgia will have nearly 900 megawatts of solar power under contract by 2016 and is adding wind power.

In Florida, a state that has significant policy barriers to distributed solar, Southern’s Gulf Power utility in the Panhandle recently announced deals to build utility-scale solar farms at three military bases.

Alabama Power and Mississippi Power have yet to add solar anywhere close to the scale of that in Georgia.

Fanning said the difference in each of Southern’s territories simply reflects each state’s values.

"We place great, great emphasis on the kind of local management for the state that [each of the regulated utilities] serve," he said. "What we want is to contribute to the success of every state as those states define success."

A plan for the Clean Power Plan

That business model likely will trickle down to how Southern and its utilities work with each state to meet carbon-reduction targets as set by EPA in its proposed Clean Power Plan, which aims to cut emissions from power plants. EPA has suggested states work together to form regional carbon markets, but it’s unclear how many will do that.

Southern has discussed a multi-state plan but said there isn’t enough time (ClimateWire, March 12).

Fanning said he thinks the best approach is to let every state have its own process.

"You have to iterate, not only around generation solutions but around transmission solutions, so we’ll do that as a system," he said. "But every state will have their own plan."

Southern has called for EPA to scrap the carbon emission rule (EnergyWire, Dec. 3, 2014). Fanning said he expects the agency to issue a final rule this summer, however. He also expects lawsuits to follow.

Whether Southern or any of its utilities is a party in those suits depends on the final rule, Fanning said. He’s hoping to see significant changes, namely on how long states have to comply with emission targets.

He also wants credit for building two emission-free nuclear reactors in Georgia.

"I think there’s a lot that needs to be fixed in the proposed rule, and, frankly, I think the EPA realizes that, as well," he said.

Southern was one of the donors to Harvard University astrophysicist and climate skeptic Wei-Hock "Willie" Soon as part of a relationship that started before Fanning was CEO. Fanning said Soon’s research and opinions have never informed his own policies.

He also doesn’t think it is Southern’s role to engage in debates about climate science. Not even if governors — such as Gov. Rick Scott of Florida — banned state agencies from using the terms "climate change" and "global warming," according to recent reports.

"That would be up to the governors, I’m not going to wade into that," he said. "That’s something I would assiduously avoid."

‘Next-generation’ projects

Instead, Fanning touts Southern’s efforts to reduce carbon emissions and its push to have a diverse portfolio of resources that includes a coal-gasification plant in Mississippi and nuclear reactors in Georgia.

Both projects are under a microscope because they are considered to be "next-generation" projects. They also are months behind schedule and billions of dollars over budget.

Mississippi Power last week has formally appealed the state Supreme Court’s ruling that calls for the utility to refund customers money it has collected for the Kemper County Energy Center (EnergyWire, Feb. 13).

The company is working with the state on a settlement. If that doesn’t happen, it will file for a conventional rate case, Fanning said.

Meanwhile, Georgia Power is pushing utility regulators to approve a higher price and revised schedule for twin reactors at Plant Vogtle. The company is tied up in a protracted debate over who is responsible and ultimately will pay for costs associated with those delays.

Fanning is confident of the utility’s position. The only way Georgia Power would be on the hook for costs is if contractors Westinghouse and Chicago Bridge & Iron prove that the cause of the delays is the Nuclear Regulatory Commission, he said.

"And I just don’t buy it," Fanning said. "The issues related to quality, timeliness of Chicago Bridge & Iron, and the challenges of the design at Westinghouse have been clearly documented. And the NRC had nothing to do with that."

Georgia Power recently told utility regulators that its share of the capital costs for Vogtle has risen by $627 million (EnergyWire, March 2).

Still, Fanning praises the work being done to expand nuclear power in Georgia. The twin reactors are the first to be built from scratch in nearly 30 years.

"I think looking back, Plant Vogtle will be deemed by the citizens of Georgia to be one of the greatest success stories of any megaproject in American industrial history," he said. "Clearly we’ve had setbacks on Kemper County, we’ve written off a significant amount of money there, too. I don’t foresee that happening at Vogtle."