ISSUES & IDEAS: Q & A

Complex Climate

by Margaret Kriz

Sat. Jul 19, 2008


In June, David Ratcliffe, president and CEO of the Atlanta-based Southern Co., was elected chairman of the Edison Electric Institute. Ratcliffe takes the reins at EEI, which lobbies on behalf of investor-owned utilities, at a time when the industry must build more power plants to meet increasing customer demand and when companies are gearing up for next year's congressional negotiations on climate-change legislation. On July 14, Ratcliffe talked to a group of National Journal reporters about the challenges ahead.

NJ: How can the industry meet America's electric needs while cutting emissions of greenhouse gases? The Democrats are pushing solar and wind power. T. Boone Pickens says that we should expand the latter.

Ratcliffe: We see a tremendous increase in demand, [and we need] new ways to make electricity and the infrastructure that goes with that. There is not a singular technology that's going to meet all the need in front of us. What we should do is to encourage development of a portfolio of multiple technologies.

Is the wind energy that Boone Pickens talks about possible? Certainly it is in Texas, where you have wind velocities that are greater than they are in the Southeast. Does that say you can't build a windmill in the Southeast? No, you can, in certain places, probably offshore where the wind velocities are higher than in north Georgia.

Are there limitations to wind energy? Absolutely. And the folks in Texas and other parts of the country that have deployed more of those resources are beginning to understand they don't always work at the right times. They're generally in remote areas, so hooking them up to the grid and planning for their reliable production of electricity presents some issues. Not insurmountable, but issues.

We need more nuclear capacity. It's important that we continue to find ways to utilize the tremendous coal resources that we have as a nation in a more expanded, cleaner fashion. We need all of these technologies. I believe we can do it. I'm a technological optimist.

NJ: What kind of technology will be needed?

Ratcliffe: The technology to capture and sequester carbon dioxide emissions [from coal-fired power plants] is not currently commercially available. We have the capability to capture CO2. We've done it in other industries. But we have not done it [at] anywhere near the scale that we're talking about for a coal-fired electricity industry of today or the future.

[Aggressive climate-change mandates] would require huge quantities of CO2 to be captured and stored or sequestered in some fashion. We need probably 10 to 15 years to develop that technology--that is, from research through pilot projects and to the point where I as a [CEO of a] company in this industry can actually order and buy carbon-capture technology.

NJ: How big a role will nuclear power play in the electricity industry of the future?

Ratcliffe: Nuclear is one of those technologies that I believe very strongly has to be in the portfolio if we are to achieve what we aspire to achieve from a CO2 reduction standpoint. For two years now my own company has been working toward building two new nuclear units at an existing facility that we operate in Augusta, Ga.

It's in the process of being certified--the design is. We filed for an early site permit. We filed for a construction and operating license. Next month we will present the Georgia Public Service Commission with the engineering, procurement, and construction contract that we've negotiated with Westinghouse. We hope that next March the [commission] will certify that there is, first of all, a need for new base-load capacity. Second, that our proposal is the most economic technology for us to pursue for a start-up in 2016 or 2017.

NJ: How much do you anticipate paying for new nuclear plants?

Ratcliffe: We've done a ballpark of the cost. It's billions of dollars. We're talking in round numbers of an overnight cost--that is, if I could sign a contract today and you could turn it on tomorrow--I'd pay you roughly $13 billion for two units.

When we're dealing with these base-load technologies, we have to look at all the costs. Do you want to bet on the certainty of lower capital costs [of building a new natural-gas plant], but no certainty around the long-term cost of natural-gas fuel? Do you want to build a new coal plant with the uncertainty around carbon dioxide capture and storage costs? Or do you want to go to nuclear with extremely high capital costs but pretty good fuel-cycle costs? Those are the technology bets that we're making. On the other end of the scale, we're investing in renewables and efficiency, but those are not going to meet the base-load electricity needs of the future.

NJ: Companies face serious uncertainty about which technology to invest in. Doesn't that behoove you to want Congress to move quickly on climate-change legislation?

Ratcliffe: Sure it does. But I want to make sure that we don't rush to do something that's bad policy. Rushing into things like ethanol has had unintended consequences. A premature policy on climate change that forces us as an industry to run to natural gas, I don't think it's good public policy. So I wouldn't trade that certainty for that bad policy.

NJ: So you're advocating a go-slow approach?

Ratcliffe: Go-slow sounds like I'm a bit of an anchor in this process. I'm trying to make sure that we inform this process with science and technology and economic analysis because of the potential impact to an economy that is already a bit challenged.

I just want to make sure that we do this as well as we possibly can. If you look back at the legislative history of things like this--this is as complex as any piece of legislation that Congress has ever tried to pass. It doesn't happen in a couple of years.

NJ: In the meantime, uncertainty has caused some companies to cancel plans to build new coal-fired power plants.

Ratcliffe: I think what we need is the carbon-capture and storage legislation that Congressman [Rick] Boucher [D-Va.] is proposing. It's a proposal that's rather artfully designed. In the Boucher bill, we're asking the Congress to enable the industry to assess a fee on itself for the purpose of funding research that the industry will manage. We've proposed to manage it through an agency that would be like the Electric Power Research Institute. The money would not get appropriated [by Congress] or go into general [government] funds. The fee would be imposed on the kilowatt hours that are produced with coal and natural gas. What we propose here is an enabling concept that would let the industry manage its own research.

NJ: How do you see the political climate shaping up as Congress begins to consider climate-change legislation?

Ratcliffe: I think there is a strong emotional desire in the public based on the rhetoric over the last three to five years to do something about climate change. That emotion at this point is pretty ill-informed about the cost of doing something. We're beginning to inform the consumer about the cost on top of what he or she is already experiencing in the form of [higher gas prices] at the pump. The notion that their electricity bills will go up significantly will get some push-back to that emotional desire.

How much push-back? I don't know. The polling that we've done suggests that consumers are willing to pay more--to a point. And that point varies across the spectrum, depending on their knowledge and understanding and their ability to pay. Generally when you get to a 10 percent increase, [enthusiasm] begins to dampen. People begin to say, "I'm not sure I want to pay that much more." Now, the importance of that is, some of the proposals we're talking about could have the impact of doubling current electricity prices. I don't think the consuming public has come close to understanding that yet.

NJ: Can the electric industry stick together throughout the climate-change debate, or do regional and technological differences make splits inevitable?

Ratcliffe: I don't want to say it's impossible, because I'm an optimist. There's no question that it's more difficult as you get into more-detailed, prescriptive policies. What we know is that as we debate policy issues at the 100,000-foot level and the philosophical level, everybody can line up. The closer you get to landing the airplane, the more difficult it is to keep everybody on board. Not impossible. But it is not unusual to find that as you get closer and as people have to deal with their own corporate and regional realities, they may have to engage in a coalition that would sponsor something different than what the industry position might be. We may be among those.

NJ: How much different would life be for the electric industry under an Obama administration versus a McCain administration?

Ratcliffe: It's clear that we've got a Democratic Congress. It's clear that it's going to be more Democratic. It's clear that the mood of Congress is to deal with climate change, which is the most important issue for our industry. So I don't really see that much difference. I think whoever is there has a daunting task to line up his agenda pretty quickly and decide what's most critical.

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