Coal and natural gas cost effective vs. energy efficiency, wind, and solar power? –Stephanie Coffin @ SO 2013-05-22

SO CEO Tom Fanning is a true believer in “all of the above”, yet a skeptic about natural gas. However, he really doesn’t have much faith in renewables, as he indicated at the 22 May 2013 Southern Company Stockholder Meeting and even more strongly in the Wall Street Journal.

retirees and stockholders in the room wonder about the $13 million salary --Stephanie Coffin This question is from Stephanie Coffin of Atlanta, Georgia, and she holds 18 shares of stock.

TF: Hello, Stephanie.

SC: How are you, Tom?

TF: Dynamite. How are you?

your income --Stephanie Coffin SC: Last year, I came to this meeting to ask a question and to listen to the Southern Company reports. And so before I came I got to thinking about what has changed since the last meeting. I think two things, and then I’ll ask my question.

The first is the chairperson’s salary increased 34 percent, over $13 million a year. I’m sure the retirees and stockholders in the room wonder about the $13 million salary and see that as negative PR in the face of continuing recession. $13 million a year, most of us are on fixed income. I mean, your income My income --Stephanie Coffin is fixed, too, but it’s very high. Mine is pretty low and we all have to pay electric bills.

The second change, and then I’ll ask my question, is that now 70 — 97 percent of all scientists believe that climate change — that is, global warming — is real and caused by human activity and this is a big shift. Last year we were the climate deniers, we’re in control, and now 97 percent of all scientists say it’s real, it’s coming, you better get ready. In the face of this scientific consensus the Southern Company has maintained its reliance on fossil fuels, mountaintop coal, old coal plants and pushing nuclear power with huge wattage demands and the dangers of nuclear wastes.

While I applaud the Southern Company’s baby steps buying solar from California and wind from Oklahoma, the rate payers and stockholders have moved on. The clamor for change indicated by standing room only in Public Service Commission hearings, demonstrations against nuclear energy and the fossil fuel divestment campaigns indicate a negative cast over the company and these issues raise real questions about the current leadership.

Big shift --Stephanie Coffin My question speaks to this lack of leadership and is fairly technical. Tom, the Southern Company seems to be making bets on long-term coal and natural gas prices that defy rational analysis and common sense. Georgia Power predicts that the price of Powder River Basin coal will not increase over the next 30 years, but most of the easily mined coal in the Powder River Basin has been mined with a possibility of raising prices. Natural gas prices also have been volatile, doubling from their lows around this time of year SO CEO Tom Fanning listening — this time last year — and are likely to continue to move upward in the future.

Wind --Stephanie Coffin How can the Southern Company believably claim that coal and natural gas will continue to be cost effective compared to energy efficiency, wind and solar power? Thank you.

TF: Thank you. Appreciate it. Let me hit the compensation question Compensation --Tom Fanning first. So the increase in my compensation was really due to a present-value calculation of a change in pension benefits. My cash compensation reduced 16 percent this year. Recall that something like 84 percent of our compensation is performance based. I do have a base salary but everything else is performance based. And compared to, say, the year before, the metrics of the company were not as good. For example, the price of our stock compared to our peers as I showed you earlier, 2012 versus 2011 performance, 2010 performance. Increase --Tom Fanning So actually my cash compensation went down 16 percent and the real change that you’re referring to is a change in the present-value pension calculation. So that was thing one.

Carbon --Tom Fanning Thing two, I guess, is again kind of a multilayered question. Let me — let me say it this way. You — you point out a lot of very interesting facts about, first, carbon. Southern Company evaluates carbon in all the portfolio planning we do and I talk about all the arrows in the quiver or all of the above or the full portfolio; we take into account a host of unknowables going forward.

Natural gas prices --Tom Fanning For example, we take into account where our gas prices may or may not go, where coal prices may or may not go, what may happen to load; we actually take into account the cost of carbon into our evaluation.

Other stocks --Tom Fanning So we take those things into account when we come up with our optimal portfolio. One of the reasons that you as stockholders — I’m glad you own Southern Company stock or you wouldn’t be here — but I bet you own other stocks. You don’t put all your eggs in one basket. Well, we do the same thing with our fuel types.

Natural gas skeptic --Tom Fanning There is nobody who can sit here and tell me what’s going to happen with natural gas and the consensus you can point out about natural gas were exactly right. And, in fact, I did a weekend interview in The Wall Street Journal and unfortunately — it was actually about the full portfolio but they really picked up on a little bit of my cautious attitude about putting too many eggs in the natural gas basket and they titled the article “The Natural Gas Skeptic.” This is when everybody said it was going to be free forever. There’s no such thing for any of the fuel types. That’s why we must have a balanced portfolio. Next question. No such thing --Tom Fanning

For “any of the fuel types”. But solar and wind don’t require fuel. and the price of solar keeps going down while solar installations go up (everywhere but Georgia) like compound interest.

Joseph Rago wrote for WSJ 8 June 2012, Tom Fanning: The Natural Gas Skeptic: ‘Nobody can sit here and tell me that it’s going to be safe forever, safe in terms of economics and reliability,’ says the Southern Company CEO.

“If conventional coal is not going to get done, and there’s only a few people who can do nuclear—this ain’t a job for beginners—you’re left with gas and, heaven forbid, renewables?” He cautions: “Now I’m as excited about renewables as anybody. But they’re a niche play.”

As Fanning knows, that’s not what Edison Electric Institute says about solar power. More about that later.

Thanks to Southern Company for putting up a transcript which, while like all transcripts isn’t always 100% accurate (I’ve made some corrections in punctuation and added paragraph breaks), makes blogging a lot easier. SO’s video is still in opaque brightcove format that, unlike YouTube or Vimeo, doesn’t permit linking to specific times, so you’ll have to manually scan to 1 hour, 3 minutes, and 54 seconds 55 minutes and 12 seconds to see Stephanie Coffin speak. All stills here are from SO’s video, taken by me as fair use.