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Oct 1, 2017

Charlie Lowman was President and CEO of Alabama Electric Cooperative (the predecessor of PowerSouth Energy) from 1970 until 1988. When he retired, Charlie moved north of Andalusia and started a pecan farm. He developed his own strain of pecans. In response to questions about starting a pecan farm so late in life, Charlie responded, “You plant pecan trees for your grandchildren.” That would not be unusual for Charlie since he spent his career at AEC building power plants and transmission lines for future generations.

Electric utility assets, especially generation plants and transmission systems, are built for the long cycle. PowerSouth’s hydroelectric dams were built in the 1920’s. Our coal-fired generation units were completed in 1969, 1978 and 1979, and our natural gas plants were completed in the 1990’s and early 2000’s. They still produce electric power for our members today and do it very well. Barring environmental regulations that may close them, those units will continue to produce power long into the future. A life assessment study of our coal-fired units a few years ago indicated they would operate indefinitely with proper care and maintenance.

However, as circumstances change through years and decades, the benefits of the different plants change. For instance, when natural gas is cheap, like today, our natural gas-fired plants produce power more cheaply than our coal-fired units. When natural gas is expensive, like in 2008-2009, our coal-fired plants produce power more cheaply.

That concept is not difficult to understand. However, finding the diversity to protect us (and your power bills) against volatile swings in costs can be difficult. Electric utility assets are very capital-intensive and may take years to construct. No utility can build assets quickly enough to react to volatility in fuel costs — we have to be prepared before it arises by having diverse resources in place.

To further diversify PowerSouth’s generation portfolio, we decided a decade ago to add nuclear generation by investing in the expansion of the Vogtle Nuclear Plant in Waynesboro, Georgia. The decision presented risk — considerable risk. But it also offered benefits, especially if you look over the long cycle of generation facilities.

Today, with natural gas prices at $3.00/million British Thermal Units (MMBTU) instead of $9.00/MMBTU like they were in 2008, the decision doesn’t look as good as it did in 2008. Some comments on the Vogtle expansion are critical. The Sierra Club commented on Vogtle Units 3 and 4: “Georgia Power’s owner has voted to push ahead with building Plant Vogtle, a chaotic nuclear project beset with multi-year construction delays, bankruptcy, and a price tag that has ballooned to more than $25 billion.

“This leaves Southern Company and Georgia Power as the lone cheerleaders for a massive boondoggle that leaves families and businesses on the hook for expensive, risky nuclear power they don’t need.”

The Sierra Club and others are critical of the construction delays and cost overruns Georgia Power Company, Oglethorpe Power, the Municipal Authority of Georgia, Jacksonville Electric Authority and PowerSouth are experiencing in building the first nuclear generation since the late 1980’s. If we were only interested in the short-term economics of the project, we would abandon it and build natural gas generation because it is cheaper today.

Nuclear generation is not the favorite of the Sierra Club, who would only approve of solar or wind. Nor is it the cheapest generation we can build for the immediate future. However, we believe over the long cycle with natural gas costs again becoming volatile, environmental regulation becoming more restrictive and requirements to produce more low carbon or carbon-free electricity, nuclear power from the Vogtle investment will prove to be beneficial for our members.

For example, under EPA’s proposed Clean Power Plan that is likely to be overturned but replaced with another low carbon restriction, we would need to build a billion dollars in solar generation to produce the same amount of carbon-free electricity we would receive from our nuclear investment.

Vogtle Units 1 and 2, which were completed in 1987 and 1988, were budgeted to cost $900 million. They were finally finished for $8 billion, almost 9 times over budget. But, today they are a great investment for their owners. We are not near cost overruns in that universe.

We look at electric generation plants like Charlie Lowman looks at pecan trees. We are building for the long cycle, for our grandchildren. At some point in the life of Vogtle Units 3 and 4, the investment will be the best investment PowerSouth has made. I am convinced it will be good for our grandchildren.

I hope you have a good month.

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