Southern (NYSE:SO) CEO Tom Fanning cited major flaws in the Environmental Protection Agency (EPA) Clean Power Plan for CO2 reduction and also tried to dampen speculation the company might be announcing plans for another nuclear plant.
During a quarterly earnings call July 30, Fanning said there are three major reasons why EPA should revise the power sector CO2 reduction plan issued in June.
It “significantly overreaches the EPA authority” beyond the scope of Clean Air Act and moves into areas typically regulated by states. Secondly, the details don’t appear to be workable, he added.
Finally, the proposal is not in the best interest of consumers, Fanning said.
EPA does not have authority to regulate things like renewable portfolio standards (RPS), Fanning said. In addition, the EPA proposed rule doesn’t seem to adequately reward companies like Southern that have already cut carbon dioxide emissions more than 20% since 2005, the CEO said.
“We continue to have concerns about the impact of this proposal,” Fanning said. This is especially the case on reliability and affordability, the CEO added. Fanning noted that senior Southern officials testified at recent EPA field hearings in Atlanta and Washington, D.C.
Work continues on big projects; Fanning downplays new nuclear comments
“We continue to make impressive progress at Plant Vogtle Units 3 and 4,” Fanning said of the new nuclear units under construction in Georgia. Vogtle 3 is currently targeted for commercial operation in late 2017.
Recent milestones at Unit 3 include start of the CA01 module assembly; placement of nuclear island walls and completion of the condenser installation. A recent Unit 4 milestone was delivery of the reactor vessel, according to the Southern presentation.
Fanning declined to speculate when Southern will resolve the ongoing business dispute between the owners of the new Vogtle units and the team of contractors that provide engineering, procurement and construction (EPC) services.
The Southern CEO did not sound too worried about the falling stock price of one of the key contractors, Chicago Bridge & Iron (NYSE:CBI). “The right people to ask about that would be CBI,” Fanning said. “We think CBI is a great partner in this project,” Fanning said. CBI became a major player in the Vogtle project with its purchase of the Shaw Group.
Fanning stirred up much press attention recently when he told a Washington, D.C. audience that he would love to announce plans for another new nuclear plant this year. During the earnings call, Fanning tried to cool expectations of any pending announcement.
Southern has long said that nuclear power must be a key option in a carbon-constrained world, Fanning said.
Even if Southern does pursue more nuclear units, in addition to the two now being built at Vogtle in Georgia, it would be a 10-year process that would start with state regulators, Fanning said.
Meanwhile, the Kemper County integrated gasification combined-cycle (IGCC) project being built in Mississippi is going well and start-up activity is an increasing area of focus, Fanning said.
The Mississippi Power project is designed to gasify local lignite coal and capture most of the resulting carbon dioxide.
During the second quarter of 2014; Southern generation mix included 37% gas and 42% coal. The 2Q13 figures were 39% each for coal and natural gas. Fanning sees coal and gas probably leveling off at about 40% each over the short term. The rest of Southern’s generation mix is divided largely between nuclear and hydroelectric power.
Southern reported second quarter 2014 earnings of $611m, or 68 cents per share, compared with earnings of $297 m, or 34 cents per share, in 2Q13.
The past quarter’s weather was normal for the first time in several quarters, Southern officials said.
On the non-regulated front, the 50-MW Macho Springs solar project in New Mexico is now in commercial operation, Fanning said. Southern Power, partnered with Turner Renewable Energy, now has a solar portfolio of seven projects totaling 291 MW.
Southern continues to see signs of a slow recovery in Southeastern market said Southern CFO Art Beattie.
Kilowatt-hour sales to retail customers in Southern’s four-state service area increased 2.1% in the second quarter of 2014 compared with 2Q13. Residential energy sales increased 2%, commercial energy sales increased 1.3% and industrial energy sales increased 3%.