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AEP Chairman & CEO Mike Morris: Future Power

AEP’s Michael Morris says that like it or not fossil fuels will remain our principal source of energy for much …

AEP’s Michael Morris says that like it or not fossil fuels will remain our principal source of energy for much of the 21st century. Nuclear, however clean and constant, still faces hurdles. Renewables will help but mostly at the margin.

CEOs ranked energy costs as one of the most pressing challenges affecting their business, second only to health care costs. The chairman, president and CEO of Columbus, Ohio-based American Electric Power, a $12.6 billion utility that sells 214 million megawatt hours of electricity, also leads the Business Roundtable’s Energy Task Force. (The Business Roundtable represents 160 CEOs of leading U.S. companies with more than $4.5 trillion in annual revenues and more than 10 million employees.) The Roundtable recently issued its own blueprint for the U.S.‘s energy future in anticipation of various legislative proposals being considered by Congress.

Before joining AEP in 2004, Morris was CEO of Northeast Utilities from 1997 to 2003 and was previously CEO of Consumers Energy. A past president of the Edison Electric Institute, he also serves on the U.S. Energy Department’s Electricity Advisory Board and the Institute of Nuclear Power Operations among others. CE‘s J.P. Donlon recently spoke to him about national energy options. 

In your task force’s report you urge business leaders to accelerate energy efficiency-energy consumed per unit of economic output. How is this best achieved, and who wins and who loses?

Energy efficiency is the least expensive energy answer to rising costs. As an industry or as a nation, we have never taken conservation or efficiency to the level that it should be. So we concluded that’s the first thing we should all do, because we’re headed toward a tighter supply/ demand equation on energy supply. The U.S. is a net importer of oil. We are ultimately heading to be a net importer of natural gas. Some states are net importers of electricity.

To the second half of your question, the biggest single bang for the buck is in the envelope where you work and where you live. There are substantial savings, particularly in the Northeast, for upgrading the ability for buildings to hold heat in the winter and keep heat out in the summer. Clearly, window and insulation manufacturers would win. But so do tenants, homeowners and building owners. One might argue that once energy demand levels off or goes down, a utility or an oil heating company might “lose.” But those industries are growing at such exponential rates in different areas-New York City being one of them-that they would rather see a dampening of demand, because it would help them in the near and midterm.

How best can we expand access to domestic oil and gas?

We need more access to our own supply base, which today is constrained. At the same time, we don’t want citizens to see this and say, “Oh, there they go again. They [the energy industry] just want to drill everywhere in the U.S.-offshore, every national forest, every pristine lake.” That isn’t the case at all.

Having said that, we need to adjust CAFE standards, allow competition on liquid transportation fuel, and expand use of biodiesel, coal to liquids, and plug-in hybrid electric vehicles. This won’t by itself achieve energy independence, nor will it allow us to stop buying oil from people who end up attacking our country because that oil will be absorbed by the market with or without us. We are fortunate to be blessed with coal well above the rest of the world, and we need to take full access of all our resource opportunities. 

Commenting on the views of majority leaders Steny Hoyer, Ed Markey and Nancy Pelosi, Texas Congressman Ralph Hall said, “There is a war going on against energy from fossil fuels.” He added, “I can’t understand the pure venom felt against the oil and gas industry.” He could have added coal. In such an environment, how does one overcome political resistance of leaders that energy from all sources is still needed?

We spend an inordinate amount of time with the very people you mention. In fact, I’ll be testifying in front of Congressman Markey’s panel next month. If you are antifossil fuel, coal, oil and natural gas, then you are anti-U.S. economy. Without these fuels playing the substantial role that they need to play, you will not have adequate energy to satisfy the economic demands of this country. You will lead us into an energy-driven economic brown-out, which will be worse than the disaster triggered by the Smoot- Hawley Tariff Act in the ’30s. The Senate Majority Leader said that you could build a 100-square-mile solar panel in Nevada and handle the energy demands of the western U.S. for the foreseeable future. Such a notion is a political statement and does not withstand engineering scrutiny. We need to be respectful of politics, yet in the end American jobs will trump the notion that we need to take fossil fuels out of the energy mix.

With 20 percent of the nation’s electricity being generated by nuclear, and with nuclear being free of greenhouse gas emissions, why isn’t this source preferred over others?

People who oppose it emotionally have deeply held convictions. Yet, we need to go that way, and the country is beginning to lean in that direction. The timeline, however, will be mid to late next decade; between now and then, the supply/demand equation will get tight enough that something will need to be built to satisfy energy demand. So I don’t see nuclear stations coming online by 2015, more like the 2020 timeline.

One of the impediments to nuclear is Wall Street’s skittishness. Some 28 companies have applied for nuclear permits, and a more streamlined permit regulation process is in place. But having a permit is not the same thing as actually building a plant. What will it take to reduce the risks to attract backers?

For Wall Street to get comfortable, two elements are needed. There are loan guarantees now being potentially offered by the Department of Energy for the first number of stations that get through the wicket on a timeline that was provided for in the Energy Policy Act of 2005. That may not be enough. Many don’t appreciate this, but the ultimate safety valve for the debt or equity investor is the recovery authority granted by the State Financial Utility Regulator. If I were going to lend $3 billion to company ��X’, I would want to make sure that they had a relatively clear state path to recover that $3 billion from the customers that would ultimately receive the benefit of the energy that flowed from that plant.

What role does nuclear energy play today in AEP, and how will this change in the future?

Today, we have two nuclear units at a single site, Donald C. Cook station, which represents about 9 percent of our overall supply. This will change as we join in the new nuclear builds, not in the first cycle but probably in the second cycle. The reason is that there are many bumps in that highway. We are bumping along the clean coal highway, and that’s enough bumps on one head.

What contribution of your electricity output might nuclear power make in the future?

If we were to build a new nuclear station, which we probably will sometime after 2020, it would generate 1,000 to 2,000 megawatts. We’re a 40,000 megawatt player today, so it would represent an additional 5 percent of capacity.

What really makes the most sense, carbon capture or a carbon tax?

We like the cap and trade approach. A carbon tax would probably cost us less and therefore cost our customers less, but the result wouldn’t achieve much carbon curtailment. More revenues would simply flow into the federal coffer. A cap and trade approach is more likely to benefit air quality.

What is the one fact about our energy situation that is most misperceived?

There is no silver bullet. There is no 100-square-mile solar panel in the middle of Nevada that will satisfy the Western U.S.‘s electricity demand. If we were, as a people, to become considerably more energy frugal, that would take tremendous pressure off prices. Everyone wants wind energy, but no one wants windmills in their backyard or transmission lines to deliver the energy to their wall socket. We are a spoiled generation. I long for the spirit evidenced in Tom Brokaw’s book The Greatest Generation. We need folks to say, “Hey, here are the kinds of things that will lead us to a better place.”

About JP Donlon

JP Donlon
JP Donlon is the Editor-in-Chief of Chief Executive magazine.