PowerSouth

January 2017 Powerlines

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2 Q: How do you see the new administration's effect on the Clean Power Plan and the overall energy strategy in the U.S.? With almost all changes, the future is not as bad as we anticipate nor is it as good as we anticipate. The near-term future of coal-fired generation will be better under President Donald Trump than it would have been under a President Hillary Clinton. However, I don't believe we will see a strong resurgence in coal-fired electric generation for quite a few years, if ever. That doesn't mean existing coal-fired generation plants won't be productive. I don't think we will see new construction of coal-fired plants in the near term. Low natural gas costs, not environmental regulation, have closed the coal plants that have been shuttered. Combined cycle natural gas generation is still cheaper than coal- fired electric generation and will continue to be until natural gas prices go up or coal prices come down more than they have. I believe coal-fired electric generation will continue to be attacked — not by the government but by individual lawsuits that will increase utilities' costs and restrain the growth of coal-fired generation. Also, the Clean Power Plan is not the only environmental regulation that affects coal-fired generation. Water rules, coal ash rules and other air emission rules are in place that will continue to constrain coal-fired generation. We plan to continue the operation of our coal- fired resources to provide the diversity we seek in generation resources. Q: How will the upcoming nuclear power purchase benefit PowerSouth and its members? It will provide the diversity I just mentioned. We believe a diverse generation portfolio provides protection in many areas. Generation diversity protects against fuel cost increases. If the price of natural gas increases, we switch our resources to coal; if the price of coal increases, we switch our resources to natural gas. The same process is used for protection against environmental costs; we switch resources to avoid environmental costs. Nuclear generation provides us an additional layer of protection against fuel cost or environmental cost increases with a generation source. We also have a limited amount of hydroelectric generation and other power purchase arrangements that provide some protection against price volatility. The energy we receive from the Vogtle Nuclear Power Plant will cost more than our legacy generation when it is completed. Nuclear generation has a very high capital (or fixed) cost and very low energy (or variable) cost. Although the total cost of electricity from Vogtle will be greater than our current cost, the low energy cost will provide an additional layer of diversity. As I have said many times, at some point over the next 20 years, the Vogtle purchase will be the worst decision the company has made, and at another point, it will be the best decision we have made. Q: Do you see PowerSouth integrating renewables into the generation mix? In short, I think we will, but it will be a few years. I don't see wind being a factor for PowerSouth for a very long time, if ever. There is not sufficient wind in our region, and the transmission of wind generation across many miles, together with its natural intermittency, will cause the cost of wind generation to be higher than traditional generation resources. I think solar has a chance. A chance at least to displace energy on an hour-by-hour cost basis with the increase of fossil fuel costs and a continuing decrease in the cost of solar energy. It will solely be an energy play. The variable cost of solar will be low enough to compete with the variable cost of traditional generation. We will continue to need conventional fossil generation to provide power when the sun doesn't shine or the wind doesn't blow. However, the most important aspect concerning the integration of customer or third-party owned renewable resources is that the people who don't choose to utilize renewable resources do not subsidize the costs of the people that do. Renewable subsidies guarantee that poor people who can't afford the acquisition cost of renewables will pay part of the costs of the well-to-do people who install distributed renewable generation. A full discussion of these issues requires a much larger forum than we have here. Q: What role will energy efficiency play in the future? I think energy efficiency is playing a very distinct role now. The best utilization of energy efficiency is better-insulated buildings, more efficient appliances and better space heating and cooling choices. New buildings are better insulated; new appliances use less energy, and people are making better-informed decisions on energy usage. I don't think government imposition of energy efficiency on the electric utility industry is the answer. Conservation is good for the consumer if they continue to get the energy benefit they want. Forcing people to change their lifestyles or make extreme sacrifices will not be a lasting solution. The market will find the path given the correct economic signals. Q: How does PowerSouth continue to look after the ratepayers? We are an electric cooperative. That has meant something special, and it still does. We are member-owned. We do not have stockholders we are trying to please. Our sole objective is to generate reliable and affordable electricity for our members to provide to the people of the communities they serve. That means not only tracking our costs to do those things that are most cost-effective in the long run but also building and supporting those communities to ensure the people who live in those communities will have the choice of good jobs, modern conveniences and improving lifestyles. Those factors will result in a stable population base that will support reliable and affordable electricity into the future. That requires us to make investments in those communities to help ensure their success into the future for everyone's sake. Q: How can PowerSouth's employees contribute to a secure future for PowerSouth and its members? I wish I had come up with the quote attributed to Banks Ferris at Alabama Power: "The two most redeeming things you can do in life are to preach the gospel or work for the power company." Mr. Ferris was right. The best thing we can do to help people have a better life is provide electricity as cheaply and as reliably as possible. That is our job. We do it well, and we should be very proud of what we have done and what we do. g Gary Smith PowerSouth President and CEO

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