ENERGY TRANSITIONS

5 issues to watch in the Southeast

Anyone looking for uniform energy policy in the Southeast is going to be disappointed.

One state, North Carolina, ranks No. 2 in the nation for solar, while Alabama is taking its time closing coal-fired power plants. A major regional utility, Duke Energy Corp., is pushing to keep its old nuclear plants alive, while Southern Co. is building the only new U.S. reactors. Regulators are eyeing ways to boost power companies' use of renewable energy while reckoning with new natural gas plants and shifts in winter demand. Some utilities are announcing decarbonization goals and closing coal plants despite the Trump administration's attempts to save them, reflecting a national trend.

"Coal is just getting decimated," said Charles Fishman, a utility analyst with Morningstar Inc. "People think that our president is doing his best to help coal, but there's too many things going against it."

The Southeast is home to the nation's four largest electric utilities, based upon market cap: NextEra Energy Inc., Duke Energy, Dominion Energy Inc. and Southern. It also houses the New Deal-created Tennessee Valley Authority, the nation's largest public power utility.

Each is taking on an industry transformation in its own way. Meanwhile, GOP-dominated state legislatures and utility regulators are pursuing a patchwork of strategies while turning a wary eye toward Washington.

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Here are five energy issues to watch in the region:

Nuclear

Southern holds the distinction of building the nation's only nuclear construction project at Plant Vogtle, the first in three decades. But that's not the only signal that nuclear is going to remain an important part of the region's energy mix going forward.

Duke Energy is asking regulators to keep 11 of its reactors in North and South Carolina running into the 2060s, citing the importance of having baseload nuclear on the grid as the company moves to a zero-carbon fleet by 2050 (Energywire, Sept. 20). The reactors produce roughly half of the utility's electricity in those states.

Nuclear operators in competitive, organized power markets outside the region have been shutting down reactors early because they are having trouble competing against natural gas and, in some cases, renewable energy. Industry observers say it may be up to the Southeast to keep the nuclear business going.

"The utilities there control their own service territory and can maximize their average cost to consumers across their portfolio," said John Larsen, an analyst who studies utilities at the Rhodium Group, an economic consulting group.

This means in the Southeast, reactors can weather any near-term cost pressures because nuclear is weighed as one part of a broader generation portfolio, "as long as the utility regulators feel OK with that approach," Larsen said.

Two examples that run counter to that are Vogtle in Georgia and V.C. Summer in South Carolina, he said. There, the argument for building nuclear as a low-cost way to diversity the region's generation portfolio collided with delays and cost increases.

"People got sticker shock, and it was reminiscent of prior nuclear plants," Larsen said.

Political will was key in carrying Southern's Vogtle project forward after its main contractor went bankrupt. In South Carolina, the utilities backing the V.C. Summer project walked away because the reactors were too expensive to finish, leaving behind a political mess.

The troubles at both projects played a role in decisions by Duke, NextEra's Florida Power & Light Co. and TVA to shelve plans to build nuclear generation using the same AP1000 reactor design.

"Other utilities in the region are looking at [Vogtle and V.C. Summer] and aren't completely walking away from the technology, but they aren't just going to jump back in the pool right away," Larsen said. "From a long-term investor perspective, it's probably good to never take options off the table."

Flat demand, falling natural gas prices and cheap renewables have pushed nuclear aside for now. But all three electric companies still want to expand nuclear in other ways. FPL, the Sunshine State's largest electric company, has become the first to request that its Turkey Point reactors outside of Homestead, Fla., run for an unprecedented 80 years.

TVA is exploring building small modular reactors at its Clinch River site.

Resource planning

The rapidly transforming electricity industry has led some utilities to revisit their long-term planning process or change the way they look at future generation altogether.

Flat demand across TVA's seven-state service territory led the utility to update its integrated resource plan (IRP), a road map that the board approved in August.

The plan is in line with the utility's efforts to slash carbon emissions 60% by the end of next year and more than 70% by 2030, relative to 2005 levels, and could add as much as 14 gigawatts of solar and 5 GW of storage over the next two decades (Energywire, Aug. 23).

Ideas for various long-term plans have come from state legislatures, public service commissions or the electric companies themselves.

A new energy law in South Carolina requires an all-source procurement process for major power producers. And Mississippi utility regulators are creating a formal, long-term procedure that also calls for electric companies to consider all resources, including energy efficiency, when mapping out their generation mixes.

Both policies are likely to boost renewables, which have become more economic as electric companies are building few large baseload power plants. The new processes partly reflect fallout from big-ticket power plants that fell through. Clean energy advocates have pointed to the V.C. Summer project's failure to argue that a competitive bidding process for energy would prevent a nuclear debacle from happening again.

They've applied the same argument in Mississippi, where utility regulators grappled with the best way to handle Mississippi Power's advanced coal plant with carbon capture — another project that was plagued by cost overruns and delays. Plant Ratcliffe now runs on natural gas rather than coal, and renewable boosters argue a new generation planning process will stop a redux.

In North Carolina, Duke signaled to state utility regulators in a filing last year that it is considering a so-called integrated systems and operations planning process to reflect industry changes. The move would more tightly link Duke's distribution plans to its larger-scale generation and transmission strategy.

Utilities' IRPs have traditionally focused on generation and transmission only, leaving distributed technologies to be addressed in separate dockets. Flat demand and a shift away from centralized power plants with a broader focus on distributed technologies like solar panels have created the need to look at the planning process differently, Duke said.

"One key goal of [integrated systems and operations planning] is for the planning models to reasonably mimic the future operational realities to allow Duke Energy Corp. to serve its customers with newer technologies," the company said.

Decarbonization

Several electric companies have announced plans to decarbonize by 2050, but North Carolina recently became the first state in the Southeast to set a carbon-neutral goal by that time (Energywire, Sept. 30).

The final version of the Clean Energy Plan from the state's Department of Environmental Quality calls for a 70% reduction in emissions by 2030 relative to 2005 levels, on the way to reaching carbon neutrality in North Carolina by 2050.

North Carolina stands out in the region in that it has a Democrat for a governor, Roy Cooper. It is also the only state in the Southeast that has had renewable energy mandates in place for years.

Lawmakers in neighboring states have generally recoiled at the idea of enacting hard-and-fast renewable energy goals, though several have tried.

Two Florida lawmakers are renewing their calls for the state to get its energy from 100% renewables. State Rep. Anna Eskamani and state Sen. José Javier Rodriguez want the state's energy office to create a plan by 2022.

Eskamani and Rodriguez, both Democrats, will have an uphill battle getting their plan past Florida's GOP-controlled Legislature and the state's Trump-endorsed governor, Ron DeSantis (R). But the proposal could gain momentum in 2020 as Florida takes center stage in debates about addressing climate change.

Farther north, Duke has announced decarbonization goals to fit with the plans of its home state, North Carolina.

In Georgia, Southern has pledged to have a low to no carbon fleet by 2050, with interim goals in place for 2030.

Southern CEO Tom Fanning has said that the goals are not something he dictates to the three regulated electric utilities that fall under the parent company's umbrella, owing to the unique political and regulatory circumstances facing each one.

Some differences in their approaches have already played out this year: Georgia Power is cutting 1 GW of coal and adding more than 2 GW of renewable energy. The Southern subsidiary still has large coal plants on its system, even if they are running at less than half of their capacity (Energywire, Oct. 2).

Neighboring Alabama Power Co. said earlier this year it will close the last of the units at Plant Gorgas, a 100-year-old coal plant, but that may be the last coal shutdown planned there for some time, based on the utility's demand forecasts. The company recently proposed building a natural gas plant and adding 400 megawatts of solar as part of a plan to fill a gap of roughly 2.4 GW in the coming years.

Fishman of Morningstar said his firm's research shows that renewables are projected to grow even faster than what federal government data shows.

"We just see it across the board," he said. "Utilities are under public pressure, and the economics are favoring it, too."

He shrugged off the notion that demand for renewables like wind and solar will drop as their tax credits start to phase out.

"We're not seeing that, the way the utilities are talking," he said.

Demand shifts

It's no secret that electricity demand in the United States is generally falling. Power sector executives have pushed the idea of energy conservation as a way for customers to save money on their monthly power bills and frequently talk about ways to run their businesses more efficiently.

These ideas, coupled with a shift toward distributed energy resources, are wreaking havoc on traditional business models that rely heavily on utilities making big capital investments and selling gobs of electricity.

Electric vehicles and the "smart" home could tip the scales in the other direction. More cars connected to the power grid could not only drive up demand, but also stabilize grid frequency — helping with reliability as more intermittent renewable resources are being added.

Many electric utilities have jumped in the driver's seat, setting rate structures and policies to encourage EV development in their states. But the road to the technology hasn't been easy.

In North Carolina, where Gov. Cooper wants 80,000 zero-emission vehicles registered by 2025, a proposal from Duke Energy to install what would be the largest charging network in the Southeast has hit roadblocks by the utility regulatory staff.

In Georgia, pro-EV utility regulator Tim Echols brought up the benefits of EVs with Georgia Power CEO Paul Bowers last week during a hearing about the utility's proposed rate hike request. Georgia Power offers incentives to encourage customers to charge their EVs overnight.

"You've seen some load shifts," Bowers said, noting that's part of the dynamic of a smart home that features a host of interconnected appliances and devices.

Echols, the Georgia Public Service Commission vice chairman, pointed out that consumers also are taking actions like running the dishwasher late at night, after 11 p.m.

"I think we've actually seen that they are shifting usage," he said.

Bowers added, "That's the behavior change with some of the smart devices that we have in the home today."

Georgia Power's sister company, Alabama Power, is caught up in a weather-driven demand trend in which electricity companies have higher generation needs during the winter months than in the summer. Utilities are finding that the so-called winter peak is exceeding their summer peak because of events like the 2014 polar vortex.

Alabama Power says it needs to add generation to meet what it calls a "pressing reliability need" in the winter (Energywire, Sept. 9).

Electric utilities argue that the problem cannot be solved with renewables such as solar because the peak times happen before the sun comes up and after it has set — both in the morning, when families are getting ready for work and school, and at the end of the day, when people typically return home for the evening.

Some power companies have pushed to keep older, less efficient coal and natural gas plants on the grid to maintain reliability, arguing that they will be useful as reserve units during the winter.

Hurricanes

If the Southeast is a patchwork of energy policies, states' handling of hurricane preparedness is its own quilt.

The issue has become more critical as hurricanes have increased in size, strength and intensity in recent years. Swaths of the Southeast — including Georgia, whose geography has historically left it somewhat protected from hurricanes — have found themselves in the line of fire along with Florida and the Carolinas.

Completely hurricane-proofing a power grid is prohibitively costly — akin to encasing a house in concrete and steel and burying it hundreds of feet below ground.

The Florida Legislature, Public Service Commission and all the state's electric companies embarked on a path toward better hurricane preparation and power restoration after a series of storms battered the state in 2004 and 2005.

More recently, hurricanes Matthew, Irma and Michael — striking in 2016, 2017 and 2018, respectively — helped set those efforts in motion again. This time, some of the utilities say they are armed with new technologies that either prevent power outages or enable crews to restore electricity faster. Their efforts have included putting more power lines underground, stepping up tree-clearing work and installing a "smarter" grid.

Florida Power & Light is building on its 10-year grid hardening effort by replacing all wooden poles with concrete or steel. The NextEra subsidiary has started an aggressive plan to bury power lines on its distribution system.

The utility also led the charge carrying out a controversial law that lets investor-owned utilities bill customers for grid improvements in the name of preventing prolonged outages during hurricanes. The measure is now before the state Public Service Commission, which must figure out how to implement it.

"[This is] I think perhaps the most significant rulemaking that this agency has ever engaged in. ... Certainly the most significant in a generation," said Charles Rehwinkel, deputy public counsel, last week at a hearing before the Florida PSC.

Rehwinkel's office represents consumers in utility matters.

Customers could wind up paying billions of dollars for FPL to make the grid more resilient to storms over the next few decades. Other than the price tag, a chief concern of advocates like Rehwinkel is making sure that the company isn't improperly billing customers for items that aren't needed for power restoration.

"We don't want to see in the guise of a storm protection plan rulemaking, that type of investment added on to the bill ... and certainly while resiliency or speed of restoral in everyday outage circumstances can be enhanced by smart meters, that's not the primary reason why smart meters are put in," he said.

North Carolina's Cooper also made storm resiliency a priority as part of Executive Order 80, the directive issued last year aimed toward reducing greenhouse gases and combating climate change.

"Today, North Carolinians are experiencing the impacts firsthand, living on the front lines of intense storms, sea-level rise and catastrophic flooding," said North Carolina DEQ Secretary Michael Regan, ticking off the names of the most recent storms to batter the state: Matthew, Florence, Michael and Dorian.

"We're at a crossroads," Regan said. "We could choose to ignore the science and the trends, or on behalf of ... all of the young people who took to the streets [in September] — we can choose to act and accept responsibility."

Twitter: @BizWriterKristi Email: kswartz@eenews.net

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