Tom Fanning and David Crane are friends. But each believes the other is dead-wrong when it comes to managing a clean energy transition in the U.S.
Fanning, CEO of Southern Company, and Crane, the former CEO of NRG, debated the need to diversify energy portfolios and support distributed energy generation at The Wall Street Journal’s ECO:nomics event last week in Santa Barbara, California.
At one point in the conversation, Crane addressed how resource diversification doesn’t necessarily work in the competitive energy market. “Energy has usually been a winner-take-all business, and right now in the United States, the winner...is natural gas,” he said.
Today’s exceptionally low natural-gas prices have hurt profits for merchant power producers like NRG, Dynegy and Calpine. Low commodity prices helped power generators sell more electricity last summer and take market share away from coal and nuclear facilities. But these gains weren’t enough to offset rock-bottom wholesale power prices.
Fanning, who runs a large, regulated utility, said this price sensitivity is “one of the failings of the merchant market.”
“Yes, that’s true. That is one of the failings,” said Crane. “And I could talk for hours about the failings of an integrated utility market.”
Fanning was quick to respond that Southern Company offers some of the highest levels of service reliability, at prices 11 percent below the national average, and has one of the highest rankings in terms of customer satisfaction. He went on to say that the integrated utility market is also able to offer a more diverse energy mix than the competitive market.
In a merchant market governed by artificially imposed and constantly changing rules, companies try to chase the right marginal investment, Fanning said. “We know that the right thing for the United States to do is build a portfolio. If the rational market that these people participate in always forces you to choose the next marginal investment -- [rather than] take a long-term view -- you will absolutely sub-optimize your portfolio. […] It is not the way to do it.”
Indeed, low natural-gas prices played a role in driving down NRG’s stock price, which increased pressure on the company’s burgeoning clean energy businesses. This fueled investor uncertainty, ultimately leading to Crane being forced to step down. While his clean energy endeavors played a role in his being let go, the former NRG CEO stands by the need to transition to clean, decentralized energy.
Crane shot back at Fanning’s critique of the merchant market, arguing that utility-led efforts to “snuff out” distributed energy are not the way to build a modern, diversified portfolio either. Fanning’s viewpoint is premised upon the central grid system, a system made up of 130 million wooden poles, said Crane. It’s an aging system -- and a system that’s vulnerable to changes in climate and weather.
“It’s not necessarily the best system for the 21st century,” Crane said. “It’s certainly not empowering, it’s not the cleanest and it’s not as value-added. If an American homeowner can make their own power on their roof, then do it. But every utility except for one -- Green Mountain Power in Vermont -- is fighting the market penetration of people making their own electricity.”
This is why giving a power company a monopoly and hoping they'll do the right thing by the customer is not a great approach, Crane concluded.
But in Fanning’s opinion, there are far better ways to diversify an energy portfolio than putting solar panels on people’s roofs -- building community-scale or utility-scale solar, for instance. Fanning said large solar projects simply make better economic sense.
Referring to Georgia Power’s residential solar business, Fanning said, “If you want [a rooftop solar system], I will sell it to you…but there are better ways to advance this thing.”
Watch a video of the exchange on the WSJ website.