carbon disclosure report

Transcription

1 carbon disclosure report 2014

2 2 INTRODUCTION Southern Company and its subsidiaries are committed to real solutions that provide 4.4 million customers in the Southeast with clean, safe, reliable and affordable energy. As part of this commitment, Southern Company has taken on a leadership role in researching and developing innovative technologies, and in applying those technologies in addressing greenhouse gas (GHG) emissions. GHG emission reduction is a major focus of our research and development organization, which has a strong record of technology advancement that dates back to the 1970s. This report details the range of actions we are taking and is an update of Southern Company's revised 2013 Carbon Disclosure Report, which included information that was previously submitted to the Carbon Disclosure Project (CDP), resulting in a single, comprehensive look at our challenges, opportunities and progress related to this issue. Leadership 1 Southern Company s chief environmental officer, who is also the senior vice president of research and environmental affairs, is responsible for the Southern Company system s overall environmental programs, including climate policy activities. The chief environmental officer, reports to Southern Company s chief operating officer who reports to the chairman, president and chief executive officer of Southern Company. In addition, the Southern Company management council is responsible for all environmental and climate policyrelated activities of the Southern Company system. The management council is composed of Southern Company s chief executive officer, chief operating officer, chief financial officer, president of external affairs, executive vice president and general counsel, and the chief executive officers of each operating company and Southern Company Services. Also, the full board of directors reviews the company s environmental policy activities. The nuclear/operations committee of the Southern Company board has general oversight responsibilities regarding significant information, activities and events relative to the operations of the Southern Company system, including significant environmental policy and planning issues. This committee regularly reports to the full board. Generation and Greenhouse Gas Emissions 2 The Southern Company system s generation mix is linked to its responsibility to provide customers with clean, safe, reliable and affordable electricity. The system s fuel diversity has enabled it to take advantage of lower natural gas prices and thus maximize the use of its existing natural gas generation to meet customer demand. As shown in Figure 1, in 2012 the system for the first time in its history generated more electricity from natural gas than coal and continued this trend in The system s fuel diversity and ability to utilize its existing natural gas generation resulted in the ability to keep the cost of electricity low for customers, while also lowering GHG emissions. Figure 1: The Southern Company system s generation based on financial control As shown in Figures 2 and 3 on the next page, the Southern Company system s GHG emissions have decreased over the past several years. This decrease in emissions is the result of various factors. The system has generated less electricity due to the economic downturn and mild weather that has occurred in the 1 The information in the report that corresponds to the specific 2014 Investor CDP questions is footnoted throughout the report. For the Leadership section, 2014 Investor CDP Questions: 1.1, 1.1a are answered Investor CDP Questions: 3.1, 3.1e, , 8.1, 8.2, 8.4, 8.6, 8.6a-c, 9.1, 9.2, 9.2a and 9.2c, 10.1, 12.1, 12.1a, 12.4, 14.1

3 Figure 2: The Southern Company system's CO 2 e emissions: 1990, based on financial control Agency (EPA) GHG Reporting Program (GHGRP), including the GHGRP s global warming potentials and emission factors. The majority of the Southern Company system s GHG emissions are measured with continuous emissions monitors (CEMs) according to the EPA s 40 CFR (Code of Federal Regulations) Part 75 specifications. Emissions from electricity generation that are not monitored by CEMs are calculated based on the fuel burned in the unit. The emissions reported under the GHGRP are verified by EPA and based on units for which the Southern Company system has operational control. 4 Several units operated by Southern Company subsidiaries are co-owned by various other companies. Lbs CO 2 e/mwh Figure 3: The Southern Company system s CO 2 e lbs/mwh: 1990, based on financial control Southeast. The Southern Company system also has generated more electricity from natural gas because of its lower prices. Natural gas contains approximately half the GHG emissions of coal, resulting in lower overall GHG emissions. As the economy recovers and/ or as natural gas prices increase, future emissions could be higher than current levels. The emissions shown in this report are based on units for which the Southern Company system has financial control. For 2013, the Southern Company system s GHG emissions on a financial-control basis were approximately 102 million metric tons of carbon dioxide equivalent (CO 2 e). 3 The system s GHG emissions are calculated using methods required by the U.S. Environmental Protection The majority of the Southern Company system s GHG emissions are from using fossil fuels to generate electricity, which results in emissions of three GHGs: carbon dioxide (CO 2 ), methane (CH 4 ) and nitrous oxide (N 2 O). Over 98 percent of the system s GHG emissions are CO 2. The system s traditional operating companies, including Alabama Power, Georgia Power, Gulf Power and Mississippi Power, as well as subsidiaries Southern Power and Southern Electric Generating Company (SEGCO), all have emissions of CO 2, CH 4 and N 2 O. The system s transmission and distribution organizations also have emissions of the GHG sulfur hexafluoride (SF 6 ). SF 6 is a colorless, odorless, nontoxic, nonflammable and extremely stable insulating gas that is essential for the safe operation of transmission and distribution switchgear across the U.S. The system has used SF 6 in switchgear since the 1970s and currently has a system Figure 4: The Southern Company system s 2013 GHG emissions by business division based on financial control 3 3 All data shown throughout this report are CDP Scope 1 emissions. The Southern Company system does not track CDP Scope 2 or Scope 3 emissions. 4 EPA s GHG Reporting Program is located at 40 CFR Part 98. Emissions reported to the EPA on an operational basis, as well as on a facility level, can be found on the EPA s Facility Level GHG Emissions Data Tool:

4 capacity of over 400,000 pounds. Annual emissions of SF 6 have been reduced by almost 90 percent since the 1990s. SF 6 is by far the smallest percentage of the system s GHG emissions. component of the energy mix for the foreseeable future. The nation must find ways to use coal more cleanly by investing in development of cost-effective technologies, such as carbon capture utilization and storage. Figure 4 on the previous page shows the system s GHG emissions based on business division. The Southern Company system does not have a GHG emissions reduction target; however, the system is committed to being a good environmental steward and working to protect valuable natural resources. 4 Future Emissions 5 It is uncertain how the Southern Company system's GHG emissions will change in the future. This is due to the fact that GHG emissions are based in part on factors such as electricity demand and fuel prices, as well as the availability of cost-effective, commercial-scale technology while maintaining low rates for customers. To reduce GHGs while meeting the growing demand for reliable and affordable energy, a diverse portfolio of generating fuels is required, as well as an emphasis on energy efficiency. Low-emitting, cost-effective electricity generation and end-use technologies must be researched, developed and deployed. The Southern Company system has committed substantial financial and human resources to research, develop and deploy such technologies. The company is finding real solutions to meet America s energy needs with clean, safe, reliable and affordable power, recognizing that new technologies will help address the challenges that lie ahead. 21 st Century Coal Coal is an abundant and effective energy source that is necessary to ensure a continued supply of safe, clean, reliable and affordable electricity. Coal is the nation s most abundant fossil fuel, and the U.S. has more coal reserves than any other country in the world. 6 Coal is currently used to generate almost half the electricity in the United States and is projected to be a major The Power Systems Development Facility is at the center of Southern Company s research initiatives. Southern Company s longstanding commitment to be a leader in developing clean-coal technologies has been boosted by several major initiatives. Southern Company was selected by the U.S. Department of Energy (DOE) to manage and operate the National Carbon Capture Center (NCCC), a focal point of national efforts to reduce GHG emissions from coal-based power plants through technological innovation. The company also has joined the DOE and other partners to demonstrate carbon capture and storage (CCS) at a coal-based power plant in Alabama. The NCCC, located at the Power Systems Development Facility near Birmingham, Alabama, is developing and Investor CDP Questions: 3.1, 3.1e, 3.3b,c,

5 testing advanced technologies to capture CO 2 from coalbased power plants. The center works with scientists and technology developers from government, industry and universities. Testing and analyses are conducted in a powerplant setting at a size large enough to provide meaningful performance data under real operating conditions to enable scale-up of the technologies. The NCCC is the first to focus on researching carbon capture technology. A 25-megawatt (MW) slip-stream CCS demonstration is being conducted on an existing coal unit at Alabama Power s Plant Barry. In 2011, the project began using a technology developed by Mitsubishi Heavy Industries Ltd. to capture CO 2, and in 2012 the company began supplying the CO 2 to the DOE s Southeast Regional Carbon Sequestration Partnership (SECARB) through a 12-mile pipeline where it is permanently sequestered, or stored, in a deep geological formation. This project one of the largest in the world to be connected to a coal-fired generating plant is demonstrating start-tofinish CCS and will increase our knowledge about this important process. Successfully developing and deploying viable advanced-coal technologies will require further work to demonstrate effectiveness at commercial scale, address various regulatory and legal issues and lower costs. The company continues to address these challenges through a variety of other projects and programs. Southern Company and its partners have developed an advanced, highly efficient coal gasification technology designed to produce less CO 2 emissions than the current fleet of existing coal plants. The coal-to-gas technology, Transport Integrated Gasification (TRIG ), is uniquely suited for the subbituminous and lignite coals that make up about half of the world s proven coal reserves. In addition, this technology has fewer nitrogen oxide, sulfur dioxide and mercury emissions than traditional pulverized coal technology. In a major planned demonstration of this technology at commercial scale, Mississippi Power is constructing a 582-MW plant in Kemper County, Mississippi, using TRIG technology, which is expected to include at least 65-percent carbon capture and reuse. The facility will be fueled 5 Construction of Mississippi Power's Kemper County Energy Facility.

6 6 Placement of the Plant Vogtle Unit 4 containment vessel bottom head in the nuclear island. by Mississippi lignite, an abundant, affordable natural resource that is not subject to the price volatility and transportation costs associated with other fuel sources. Also in Mississippi, Southern Company and partners successfully conducted a carbon storage pilot injection study at Plant Daniel. In this DOE-funded project, 3,000 metric tons of CO 2 were injected into a deep saline geologic formation 8,500 feet below the ground surface and monitored. A separate project at Plant Daniel is studying the potential impacts of CO 2 on groundwater. Other significant carbon storage activities with Southern Company involvement include a SECARB project to study injection of CO 2 into an unmineable coal seam near Tuscaloosa, Alabama. Coal seams are an opportunity for geologic storage as well as for enhanced coal-bed methane recovery from the coals. Also in Alabama, Southern Company, along with the University of Alabama at Birmingham (UAB) and Denbury Resources, is examining the potential beneficial use of CO 2 for geologic storage with enhanced oil recovery operations. Alabama Power s Plant Gorgas is hosting a geologic sequestration site-characterization project in partnership with the University of Alabama. Southern Company also is partnering with UAB to evaluate the physical properties of rocks for geologic sequestration and train students in carbon storage science and engineering. In addition, Southern Company is involved in the Edison Electric Institute (EEI) Carbon Capture and Sequestration Task Force and in the Carbon Sequestration Council, which are working on behalf of the industry toward a regulatory framework for carbon technologies. New Nuclear Nuclear energy, which supplies about 20 percent of U.S. electricity, is the only large-scale baseload generation source that emits virtually no CO 2. A typical largescale nuclear power plant provides enough electricity every day for more than a half-million homes, while emitting less CO 2 than a hybrid automobile. Emissionsfree nuclear power supplied about 17 percent of the

7 Southern Company system s generation from three plants in 2013: Vogtle and Hatch in Georgia and Farley in Alabama. Although the March 2011 events in Japan underscored the importance of sound, safe design, nuclear energy must be part of any solution to reduce GHG emissions. Southern Company works closely with the Nuclear Regulatory Commission (NRC) to ensure all three nuclear facilities are operating safely and complying with the most up-to-date standards. Southern Company, through its subsidiary Georgia Power, is helping lead the next phase of nuclear power, building two of the nation s first new units in more than 30 years at Plant Vogtle near Augusta, Georgia, that will incorporate the new Westinghouse AP1000 technology. Natural Gas Southern Company is committed to a diverse portfolio of America's energy resources to ensure clean, safe, reliable and affordable electricity generation. A diverse fleet includes natural-gas combined cycles, which can serve as intermediary and baseload units, as well as natural-gas turbines that serve as peaking units when loads are high. As shown in Figure 1 and discussed previously, the Southern Company system in 2012 generated more electricity from natural gas than coal for the first time in the company s history. The large increase in natural gas generation was due largely to historically low gas prices. Georgia Power recently completed the construction of three new natural-gas combined-cycle units (840 MW each) at Plant McDonough, where previous coal units were retired. In addition, some Southern Company subsidiaries plan to convert some coal units to burn natural gas in the future. nation s energy mix. It is important to note, however, that the robustness and availability of renewable resources varies from one region of the U.S. to another. Thus, the technical viability and economics of implementing renewables in one area may be significantly different than in another area. The company is pursuing the development and use of a broad portfolio of costeffective renewable energy resources that show promise for providing customers with a continued supply of clean, safe, reliable and affordable energy. Biomass Switchgrass, sawdust and wood chips are among the most abundant renewable sources available in the Southeast, and the Southern Company system is putting these materials to work to produce energy. In Texas, Southern Power is operating a 100-MW biomass plant. The plant is one of the country s largest wood biomass facilities and is under contract to serve the city of Austin for the next 20 years. Additionally, under an agreement with The Westervelt Company, Alabama Power has rights to 7.5 MW of energy generated from wood byproducts. In addition, the system has evaluated opportunities to convert existing fossil units to biomass and has co-fired biomass as part of normal plant operations at some facilities. Decisions on individual 7 Renewable Energy 7 Southern Company supports the development and use of cost-effective renewable energy resources and is taking action to increase their role in the generation of electricity. Renewable energy is a growing part of the Biomass at Southern Power's Nacogdoches Generating Facility 7 Southern Company's subsidiaries may self-build renewable generation and/or enter into power purchase agreements for energy and environmental attributes from generating facilities fueled by renewable resources. The companies retain the right to use the energy delivered as renewable energy for customers and retire the environmental attributes, as well as the right to sell the energy and the environmental attributes, separately or bundled together, to third parties at their sole discretion.

8 8 projects depend on costs, regulatory and legislative requirements, biomass fuel availability and other sitespecific factors. Electricity from biomass is considered carbon neutral. Although some CO 2 is emitted during the generation process, it is equal to what was absorbed while the biomass was growing, thus causing no net increase in CO 2 emissions on a carbon-lifecycle basis. Gulf Power owns and operates a landfill gas-to-energy facility at the Perdido Landfill in Escambia County, Florida. It started commercial operations in 2010 and produces 3,200 kilowatts, which is enough renewable energy to power more than 900 homes. The facility was designed as an education platform. It has large observation windows that allow school tours to see the generators produce renewable energy. Solar In 2011, Southern Company subsidiary Southern Power and Turner Renewable Energy, through a jointly-owned subsidiary called Southern Turner Renewable Energy LLC (STR), completed and began operating a 30-MW solar plant in Cimarron, New Mexico, that supplies power equivalent to meet the needs of approximately 9,000 homes. In addition, STR acquired the 30-MW Spectrum Solar Facility and the 20-MW Apex Solar Facility in Both facilities are located in Nevada and use the latest photovoltaic (PV) tracking technology that enables greater operating efficiency by optimally directing solar panels as the sun moves across the sky. STR s fourth acquisition was the Granville Solar Facility in October The facility is 2.5 MW and consists of polycrystalline PV solar modules with the tracking technology as well. The fifth acquisition by STR in April 2013 was the Campo Verde Solar Facility in Southern California. The 139-MW facility began commercial operation in October 2013 and is expected to produce energy equivalent to the needs of nearly 48,000 homes. A sixth project the acquisition of the 20-MW Adobe Solar Facility in Kern County, California, from project developer SunEdison Inc. was completed in April 2014 and is expected to begin commercial operation this year. Georgia Power, in 2012, announced it would purchase up to 210 MW of solar generation through a three-year renewable request for proposal (RFP) as part of the Georgia Power Advanced Solar Initiative (ASI). The RFP was developed for solar projects of all sizes. In July 2013, the Georgia Public Service Commission (PSC) approved an additional 525 MW of solar capacity, with 425 MW to be procured through the utility-scale program and 100 MW to be procured through the distributed generation program. Recent phases of development of ASI include plans to secure PPAs with large-scale solar projects through a competitive-bidding process, as well as allowances for small- and medium-scale distributed generation. Through various phases, installed capacity is projected to total nearly 800 MW of solar by Southern Company subsidiary Southern Power currently owns and/or manages solar energy projects in California, Nevada, New Mexico and North Carolina. As solar PV technologies improve and become more costeffective, the Southern Company system is evaluating the different types of solar PV to determine which

9 would be the best performing and the most economical under conditions in the Southeast. Performance data from several different PV systems installed across the system, including at the Georgia Power and Alabama Power headquarters, are being collected and used to conduct this evaluation. The electricity generated from these systems is being fed directly back into the buildings. A 15-kW demonstration site with seven different PV systems was also installed at an Alabama Power facility in Mobile, to continue the performance and reliability studies. A 5-kW thin-film PV system is being installed at Mississippi Power headquarters in Gulfport, along with high-quality weather monitoring equipment, which will add to our understanding of PV systems and the impact of weather on performance. Wind While wind generation located in the Southeast is challenging, the system has many ongoing wind research projects and is importing wind energy from other regions when it is cost-effective. In instances where the delivered price of wind energy to the Southern Company system's service territory is competitive with other generation alternatives, Southern Company's subsidiaries seek to incorporate those resources into the overall generation portfolio. In 2009, Alabama Power developed a renewable RFP that resulted in a 20-year power purchase agreement (PPA) with TradeWind Energy. The Alabama PSC approved the PPA, under which Alabama Power has the rights to up to 202 MW of energy from the Chisholm View wind farm in Oklahoma. The wind facility began commercial operations in December The RFP also resulted in a PPA with TradeWind Energy for output from the Buffalo Dunes wind project in Kansas. As with the PPA associated with the Chisolm View wind farm, the PPA associated with the Buffalo Dunes Wind Project reflects a 20-year term for up to 202 MW of output and has been approved by the Alabama PSC. The facility began commercial operation in early In 2013, Georgia Power entered into a 15-year PPA with EDP Renewables North America for the output of 250 MW of wind energy from two wind farms in Oklahoma, enough electricity to serve more than 50,000 homes. The Georgia PSC unanimously approved the company s request in May Georgia Power s rights to the output from the wind-energy facility will commence in early Southern Company is also evaluating the potential of onshore and offshore wind generation. The system is working with a federal agency to obtain a lease that would permit the installation of a meteorological tower or floating meteorological buoy to collect data in order to determine the feasibility of wind-power generation off the Georgia coast. Wind data has also been collected along the Gulf Coast in Florida and will be collected in Mississippi. In partnership with UAB, a data collection turbine was installed on the roof of Alabama Power s headquarters. A 2007 study conducted with the Georgia Institute of Technology found several economic, technological and regulatory obstacles must be overcome before offshore wind-power generation in the Southeast can be feasible. Georgia Power's Yonah Dam. Hydro Hydro power remains one of the cleanest, most environmentally safe and affordable sources of energy. Although hydro power has limited growth potential in the Southeast, it has long served as a source of renewable energy as annual rainfall replenishes the raw material used to make electricity. 9

10 10 The Southern Company system has 33 hydroelectric facilities with a combined generating capacity of approximately 2,825 MW. In addition, these facilities provide more than 200,000 acres of lakes and more than 5,000 miles of shoreline for use by the general public. Green Partnerships Southern Company subsidiaries, individually and in partnerships, are offering customers growing amounts of renewable energy from qualified sources, such as wood waste, landfill methane gas, solar and hydro. Green energy programs enable Georgia Power and Gulf Power customers to choose to purchase renewable energy by paying a premium in addition to their regular power bill. Alabama Power customers can green their energy use by purchasing renewable energy certificates. Energy Efficiency The Southern Company system has a responsibility to provide electricity to anyone who wants it within its service territory, whenever they flip a switch. Electricity producers are central to the economy and to the lives of American families. Energy is growth capital and we need to do everything we can as a nation to ensure a secure, abundant supply. In fact, since 1970, nearly 80 percent of the growth in energy consumption has been driven by the electrification of the American economy, and the average residential customer today uses 13 percent more electricity than in The system must have enough power plants ready for times when everyone wants power, during hot days in summer or cold days in winter. Energy-efficiency programs lower the amount of energy needed to feel comfortable or get work accomplished. When that demand reduction occurs at the same time as the Southern Company system peak, it reduces the need to build more plants. As early as the 1970s, when the GoodCents Home Program was introduced, the Southern Company system has been helping its customers save money through efficient use of their overall energy consumption. Energy-efficiency offerings have grown steadily in number and variety. The system continues to increase its commitment to energy efficiency, recognizing that these efforts can also help the environment. A sampling of energy-efficiency and demand-response programs offered to residential customers by the Southern Company system includes home energy audits, low-income weatherization, variable pricing and smart thermostat combinations, geothermal heating and cooling systems, solar thermal water heating, and home-building guidelines. For larger-volume commercial and industrial customers, energy services, real-time pricing, interruptible load programs and commercial construction programs are among the offerings also available. In 2013, Southern Company rolled out My Power Usage to 3.5 million customers at Alabama Power, Georgia Power and Gulf Power. My Power Usage enables customers to view their daily energy usage in dollars or kwh, set up and maintain personal energy-use budget alerts, subscribe to energy efficiency reminders and view their projected electric bill amount. Southern Company operating subsidiaries are partners with the EPA and the DOE in the ENERGY STAR program, which promotes the use of energyefficient products and practices. In fact, Georgia Power has been consistently named as one of the nation's top five pledge leaders for driving energy-efficiency awareness under the EPA's Change the World, Start with ENERGY STAR campaign. The campaign encourages customers to take small steps, such as switching to compact fluorescent bulbs that make a big difference to save energy. Gulf Power and Southern Company were presented with the Geothermal Exchange Organization s GEO 2012 Utility Excellence Award. The award recognizes Gulf Power and Southern Company for "outstanding promotion of geothermal heat pumps by an electric service provider to its customers as an efficient, renewable energy end-use alternative." The Southern Company system continues to focus on expanding

11 awareness and use of geothermal heat pumps, which are the most energy-efficient, environmentally friendly heating and cooling technologies available. developing new smart appliances and energymanagement technology. Business Strategy Integration 8 The Southern Company system s business strategy is focused on generating clean, safe, reliable and affordable electricity. Information on how the Southern Company system operates as a system (the Pool), its planning process and how weather impacts its business strategy is discussed below. The Pool Gulf Power and Southern Company received national recognition for promoting geothermal heating and cooling. Additionally, Gulf Power s Energy Select program was the 2013 recipient of the POWERGRID International Demand Response/Energy Efficiency Project of the Year award. Gulf Power s Energy Select program was selected as a finalist for the Platts Global Energy Award in Southern Company is active on the national and regional level in advancing energy efficiency. It is a founding member of the Southeast Energy Efficiency Alliance, which promotes energy efficiency in the Southeast, and is a founder-level associate member of the Alliance to Save Energy. Southern Company also is among more than 60 leading energy organizations that worked with the EPA and DOE to develop a National Action Plan for Energy Efficiency. The company was a charter member of the Electric Power Research Institute (EPRI) national energy-efficiency initiative, including living laboratories Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Southern Power (collectively, the operating companies) operate as an integrated system pursuant to the Southern Company System Intercompany Interchange Contract (IIC), an agreement on file with the Federal Energy Regulatory Commission (FERC). The IIC provides a framework whereby the generating resources of the operating companies are operated in a coordinated and integrated fashion to reliably and economically serve their aggregate firm-load obligations, as well as to engage in shorter-term opportunity transactions in the wholesale markets. The IIC is administered by Southern Company Services Inc., which acts as agent for the operating companies in connection with Pool-related activities and processes. The concept of economic dispatch, which seeks to minimize the total system production cost, is a fundamental premise of the Pool. The generating assets of all the operating companies in the Pool are committed and dispatched as a single system, without regard to ownership. Subject to reliability considerations and operational limitations, generation assets having the lowest variable costs are dispatched during each hour to meet the aggregate load obligations of the system. The goal of this process is to minimize the total cost of energy every hour, which benefits customers of all of the operating companies. The IIC sets forth methodologies and procedures for an after-the-fact accounting of system dispatch, so that each operating company Investor CDP Questions: 2.1, 2.1a, 2.2, 2.2a

12 12 realizes the economic benefit of its owned resources and also receives its proportionate share of other costs and revenues resulting from Pooled operations. The Southern Company system uses the latest technology to dispatch and purchase generation. ENVIRONMENTAL COMPLIANCE PLANNING The operating companies of the Southern Company system develop their environmental compliance strategies on a coordinated basis, utilizing inputs and expertise from a number of organizations from across the system. These groups represent environmental, governmental affairs, planning, fuels, engineering, finance, operations, communications, generating plant and research functions. As described more fully below, the process entails a series of key meetings, presentations and discussions, where requirements, modeling data, emissions information, emissions technologies, cost, schedules and other considerations are examined in detail. While participating in this coordinated planning process, each operating company retains the right and responsibility to review and approve its own compliance plans and strategies. Gathering all available knowledge about current and possible future local, state, regional and national environmental requirements is critical to the process. The future requirements may be in the form of legislation that will result in future rulemakings or in the form of draft or proposed new rules that must go through the rulemaking process to become final. For many rules, the possibility that litigation will result in changes to the rule creates additional uncertainty. The forecast of impacts of the requirements on generating plants is formally refreshed at least annually. To forecast the impacts of requirements on generating plants, various assumptions must be made regarding generating units, including possible responses by the Southern Company operating companies and other systems across the nation to existing and future environmental requirements (in addition to changes in demand for electricity). These assumptions include: unit operating characteristics such as heat rates, capacity and emission rates; fuel characteristics and costs; allowance prices for cap-and-trade programs; emission limits and environmental requirements; control technology options and costs; and future generation demand. To appropriately consider uncertainty, a scenario process is employed by the Southern Company system for long-term resource planning. A range of planning scenarios is developed and modeled. This range is established through the work of a coordinated planning

13 Customer impacts are at the heart of planning for the system's environmental compliance strategy and fuel mix. team consisting of internal subject matter experts and company planning managers. The analytical work is supported by external expert inputs with key parts of the analysis conducted with an external consultant. Planning scenarios identify a number of important drivers in the ongoing evolution of the electric utility industry. These drivers include fuel markets, possible CO 2 regulations and other environmental issues, economic growth and technology development. The scenarios consider multiple views of CO 2 regulations and fuel prices. Still using a coordinated approach, the operating companies analyze the scenarios using a fully integrated multi-sector energy-economic model. Model outputs characterize the evolution of the U.S. energy economy including electricity, transportation, manufacturing, industrial, commercial and residential for each of the scenarios. The interconnected nature of these sectors is captured through the system s modeling approach. For example, higher CO 2 and fuel costs would increase electricity prices and tend to reduce growth in overall economic activity, including reduced growth in electricity sales. Moreover, CO 2 legislation or regulation places costs and restrictions on CO 2 and other GHG emissions. These costs and restrictions, along with varying projections of fuel prices, would shift generation investment choices through retirements of existing capacity, installation of new environmental control technologies and construction of new replacement capacity. These and other such interrelated factors are considered in the system s scenario modeling process. The application of control technology is dictated initially by the anticipated environmental requirements for each specific generating plant and/or unit. In some cases, the plant or unit emission-control requirements are mandated. In other cases, such as the cap-andtrade program for sulfur dioxide established to address acid rain, utilities can choose the most cost-effective option: fuel switching, applying control technology or purchasing emission allowances. Customer impacts must be at the heart of decisions, and the resulting strategy must consider a range of potential outcomes. These impacts include the direct costeffectiveness of the strategy as compared to alternative strategies, as well as local community impacts such as jobs and taxes. Some units and plants may not be able to achieve the required emission reductions in a costeffective manner, resulting in the need to switch fuels, find alternate methods to comply or retire. If emission controls are mandated for a specific unit, then the economic value of the generating asset, including future operating costs, must be considered before application of the technology. The decision process reviews the cost-effectiveness of each feasible option for each unit. After the process Southern Company is developing and testing advanced technologies to capture CO 2 from coal-based power plants. 13

14 14 is completed and analyzed across the various planning scenarios, a strategy is compiled on a unit level and reviewed annually based on the most current information. One major goal of the environmental strategy process is to maintain flexibility by including as much information as possible in the process before making final decisions. If allowed under the regulations, controls are applied to the most cost-effective units first. A key advantage of this process is that it allows decision making on an incremental basis. While the strategy includes emission-control plans for the next 10 years, final decisions on specific pollutioncontrol projects are not made until commitments are required in order for construction to commence early enough to meet any required compliance date. While controls may be planned on a particular unit, no firm commitment to that plan will be made until necessary to assure that the emission control equipment is in place and operational when needed. This flexibility enables each operating company to adapt to changing requirements and keep costs as low as practical to the customer. The Southern Company system s business strategy also includes research and development on ways to reduce GHG emissions. These research and development activities make Southern Company a leader in developing new technologies and provide a strategic advantage over its peers. Southern Company-managed research and development investments have totaled more than $1 billion since Weather The operating results of the operating companies are affected by weather conditions that may fluctuate on a seasonal to inter-annual basis. With a century of experience in generating electricity and serving customers in the Southeast, the Southern Company system is keenly aware of the climate of the region and broad range of weather conditions that could impact its operations and business. Significant weather events, such as hurricanes, tornadoes, floods and droughts, have at times resulted in substantial damage to or limited the operation of the system s properties. Not surprisingly, the occurrence of such events can negatively impact results of operations and financial condition. Electric power supply is generally a seasonal business. In many parts of the country, demand for power peaks during the summer and winter months with market prices also peaking during those periods. As a result, the overall operating results of the Southern Company system may fluctuate substantially on a seasonal or even annual basis. Moreover, less power has historically been sold when weather conditions are milder. Volatile or significant weather events could result in substantial damage to the system s transmission and distribution lines. The system has significant investments in the Atlantic and Gulf Coast regions that could be subject to major storm activity. Further, severe drought conditions can reduce the availability of water and could restrict or prevent the operation of certain generating facilities. Each operating company maintains a financial reserve to cover the cost of damages to property from weather events to its transmission and distribution lines and the cost of uninsured damages to its generating facilities and other property. In the event a traditional operating company experiences any of these weather events or any natural disaster or other catastrophic event, recovery of costs in excess of reserves and insurance coverage is subject to the approval of its state PSC. While the operating companies should be entitled to recover prudently incurred costs resulting from such an event, any denial by the applicable state PSC or delay in recovery of any portion of such costs could have a material negative impact on the Southern Company system s results of operations, financial condition and liquidity. In addition, damage caused by significant weather events within the Southern Company system service territory may result in reduced customer demand for electricity for extended periods and, potentially, a drop in the number of connected customers. For example, Hurricane Katrina hit the Gulf Coast of Mississippi in August 2005 and caused the complete loss of a number of customer houses and businesses and substantial damage to other customer properties within Mississippi Power s service territory. Any significant reduction in

15 the number of customers or demand for electricity could have a material negative impact on operating results, financial condition and liquidity. Engagement 9 Southern Company is a publicly held company that seeks to provide consistent and predictable returns for its stockholders as well as supply clean, safe, reliable and affordable electricity to its subsidiaries' customers. Part of serving customers and stockholders is the engagement in GHG issues with policymakers in both the regulatory and legislative arenas. In addition, Southern Company is actively involved in various trade associations and engages with numerous stakeholders. PolicyMakers Southern Company actively seeks to have direct and open communication with various policymakers, including the EPA. For example, the company is engaged with EPA regulation that could potentially materially impact a portion of its business and operations. Southern Company provides feedback to agencies on potential regulation by having face-to-face meetings, as well as submitting public comments. Southern Company also has a presence in Washington, D.C., in order to have a constructive dialogue with policymakers in the federal government. Southern Company attempts to ensure policymakers are provided accurate information in order that they can appropriately discuss, debate and make decisions on policy issues that could have an impact on the Southern Company system s business units and their customers. Southern Company engages with the DOE to further action on various issues, including the mitigation of GHG emissions. This engagement happens through projects such as the NCCC and the start-to-finish CCS project at Plant Barry (both discussed previously in the Future Emissions section). Trade Associations and Research Organizations Southern Company is a member of the Edison Electric Institute (EEI), which is the association of U.S. stockholder-owned electric companies that represent approximately 70 percent of the U.S. electric power industry. EEI represents its members interests in legislative and policy arenas and provides publicpolicy leadership, critical industry data and strategic business intelligence. Southern Company seeks to provide leadership within EEI by serving and rotating off committees across a wide range of issues. Southern Company is a member of the Utility Air Regulatory Group (UARG), which is a voluntary, nonprofit association of electric generating companies and industry trade associations. UARG s purpose is to participate on behalf of its members collectively in EPA s rulemakings and other Clean Air Act (CAA) proceedings Investor CDP Questions: 2.3, 2.3a,b,and g

16 16 that affect the interests of electric generators and in litigation arising from those proceedings. EPRI is another organization in which Southern Company is an active participant. The members of EPRI include utilities throughout the world. EPRI is an independent nonprofit research group that seeks to pool resources and ideas from all of its members in order to advance the development and deployment of technologies impacting the electricity sector. Southern Company s partnership with the National Fish and Wildlife Foundation is delivering measurable outcomes. Stakeholders Stakeholder engagement has always been a part of the utility business and is integrated into longstanding processes. For example, as an investor-owned utility, Southern Company conducts annual and quarterly financial reporting and business planning, including the review of stockholder proposals as outlined in corporate governance bylaws. The system engages in processes regulated by national, state and local authorities and elected officials. State PSCs within the system s service territory have established mechanisms for assessing the need for rate changes, which leads to an open dialogue among the states, the company and other stakeholders. The company also participates in environmental and community impact engagements, including local town hall meetings, within plant and transmission licensing and approval processes. In 2011, Southern Company s CEO and top executivelevel management began engaging diverse national and regional stakeholders in candid, transparent and constructive dialogues on a wide range of issues related to energy and the environment that are important to the company, the Southeast and the nation as a whole. Interactions with key stakeholders including forums, issue-focused meetings, webinars and one-on-one communications have fostered a level of trust that is necessary to build long-term, constructive relationships. Through the interactions of the past four years, Southern Company has set a path forward for discussions on various issues including those on which the company and stakeholders differ and openly and constructively sought places of common ground. This process has broken through some of the stereotypes and preconceived notions, defined priority areas of concern and established a foundation for seeking common ground and opportunities for collaboration. Ongoing dialogues with these stakeholders continue to enhance and inform the company's decision-making and longterm strategic view by identifying issues, concerns, strategies and actions. Challenges 10 Any restrictions on the Southern Company system's GHG emissions or requirements relating to renewable energy or energy efficiency at the federal or state level are likely to result in significant additional compliance costs, potentially including significant capital expenditures. These costs could affect future unit retirement and replacement decisions and could result in the retirement of a significant number of coal-fired generating units Investor CDP Questions: 2.1, 2.1a, 5.1, 5.1a,b,e,f

17 The EPA has proposed standards for new generating units that significantly impact the operational flexibility of new natural-gas combined-cycle units. 17 Restrictions may come in the form of legislation and/ or EPA regulation. Southern Company maintains that GHG and climate policy are best handled by elected representatives. The issues related to reducing the levels of GHGs in this economy are so complex and consequential that elected representatives should be engaged in debating and constructing appropriate solutions. EPA Regulation of GHGs The EPA is regulating GHGs under the CAA. To date, regulatory actions include changing the permitting process for electric generating units and proposing GHG emission standards for new sources of electric generation. Southern Company believes the CAA is ill-suited to regulate GHGs and that all issues regarding GHGs should be dealt with by elected representatives. Permitting As of January 2, 2011, new and modified stationary sources that produce GHG emissions over certain thresholds must go through the prevention of significant deterioration (PSD) permitting process, including installation of the best available control technology (BACT) for CO 2 and other GHGs. GHG emissions must also be included in Title V permits. The inclusion of GHG requirements in permits will likely make permitting more difficult and impose new types of emissions and operational limits on power plants. Performance Standards In June 2013, President Obama released his Climate Action Plan, which directed EPA to repropose GHG standards for new units under section 111(b) of the CAA by Sept. 20, 2013, finalizing them in a timely manner. The president s directive further stated that EPA should use CAA sections 111(b) and 111(d) to propose standards, regulations or guidelines, as appropriate, for modified, reconstructed and existing sources by June 1, 2014, finalize them by June 1, 2015, and require states to submit their state implementation plans by June 30, 2016.

18 18 The reproposed new source standards, which were published in the Federal Register on Jan. 8, 2014, set separate standards for coal and natural gas units. Fossil fuel-fired boilers and integrated gasification combined-cycle (IGCC) units would be required to meet a CO 2 emissions limit of 1,100 pounds per MW-hour based on estimated performance of partial CCS. Natural-gas combustion turbines larger than 850 million Btu (British thermal units) per hour would have an emissions limit of 1,000 pounds of CO 2 per MW-hour, while combustion turbines smaller than 850 million Btu per hour would have a proposed standard of 1,100 pounds of CO 2 per MW-hour. Both standards are based on performance of modern, efficient combinedcycle units. Comments on this proposal were received by EPA through May 9, 2014, and the final standards are expected by January The section 111(d) process to be used in developing standards for existing sources first requires EPA to propose emission guidelines that reflect the best system of emission reduction (BSER) that is adequately demonstrated by existing sources. States then have authority to develop performance standards and flexibility in choosing compliance mechanisms. Proposed emission guidelines from EPA are expected in June GHG Legislation Over the past several years, the U.S. Congress has considered many proposals to reduce GHG emissions and mandate renewable or clean energy. Due to many factors, no legislation has been enacted, and predicting passage of future bills is very difficult. Cap and Trade Cap and trade is a market-based program that caps or limits emissions at a declining level and allows entities to trade emission permits for compliance. Annually, the total number of permits cannot exceed the program s emissions cap. In theory, entities that can reduce emissions most cheaply will do so, achieving the emissions reduction at the lowest cost to society. In 2009, a cap-and-trade bill, the American Clean Energy and Security Act of 2009, got as far as passing the U.S. House of Representatives; however, it did not pass the Senate. While no federal nationwide cap-and-trade bill has been passed by the U.S. Congress, two state-run cap-and-trade programs are currently operating. The first program set up is called the Regional Greenhouse Gas Initiative, which is a consortium of Northeastern and Mid-Atlantic states. More recently, the state of California started its own cap-and-trade program aimed at reducing CO 2 emissions both in the state, as well as from energy sources providing electricity to the state. Carbon Tax A carbon tax is a fee imposed on the releases of CO 2 or the carbon content of fuels. Carbon tax legislation has been discussed as a potential part of comprehensive budget deficit or tax reform legislation. The impacts of a carbon tax depend on its scope (which sectors are covered); the point of regulation (where in the carbon chain the tax is imposed); the tax rate ($/ ton); crediting (availability of tradable credits and/ or offsets); use of revenues (to reduce distortionary taxes such as personal income/payroll/corporate taxes or to reduce the federal deficit); and preemption (treatment of CAA GHG regulation). Southern Company supports comprehensive tax reform and a national energy policy that creates economic stability and encourages development of clean, safe, reliable and affordable energy resources. A carbon tax is frequently mentioned in these discussions; however, regardless of a carbon tax s purpose whether it is to raise revenue or reduce GHG emissions there are better and more efficient ways to accomplish these goals. A carbon tax is a tax on energy for all Americans. Energy taxes will unnecessarily and disproportionately raise the cost of energy for customers who make tough economic decisions every day, while hurting the ability to grow the U.S. economy and reducing global competitiveness.