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Thomas A. Fanning and David Crane on their different strategies for cleaner energy

Utilities have gone through huge dislocations and disruptions in recent years, and big financial bets are being made as they position themselves for energy markets of the future. Wall Street Journal Global Energy Editor Elena Cherney talked to two key players with divergent approaches: Thomas A. Fanning, chief executive of Southern Co., and David Crane, who until December was CEO of NRG Energy Inc. Edited excerpts of their conversation follow.

MS. CHERNEY: You both took very different approaches to transitioning to cleaner energy. David, you told me you were fired by your board at NRG for being too radical. You also said that you wished you had been more radical. What did you mean?

MR. CRANE: There are roughly 55 power companies in the U.S. that produce most of the generation. In 2006, when I became very sensitized to the carbon issue, I looked at the carbon intensities of the 55 companies. We were 54th, or second-most carbon intense, and the one that was ahead of us, Mirant, we ended up buying.

I went to the board and said, "Look, it's unlikely that the world's going to allow us to [continue to] do this."

So we started on renewables. We tried to build a nuclear plant, because I'm a big believer in nuclear as a zero-carbon source. But I found that you had to talk about that to motivate an employee base that wants to basically do what it has always done. So one of the reasons I was so outspoken was to motivate the employee base, and ultimately that made me a bit of a controversial figure.

MS. CHERNEY: Tom, you took a different approach. You described it as a more natural evolution.

MR. FANNING: I take my management group through this exercise from time to time where we really try to think about how much change is out there. It is up to us, as leaders, to kind of see around the corners.

We've moved in our energy production: Coal, before I got there, 70%; coal this year will be 28%. Gas back then was 15%, 16%; now it is going to be about 50%. We've developed our own technology that produces less carbon than natural gas. Renewables, we're moving forward in a big way on solar, particularly, and some wind. Energy efficiency, we just announced a really important acquisition, PowerSecure International [a provider of distributed generation, giving power customers more control over the energy they use].

The whole notion is to understand really how this model will evolve and try to skate to where that puck will be. If you do it in kind of a transparent, orderly way, you don't have this notion of disruption. You have a notion of natural evolution.

MS. CHERNEY: Also, you're building a nuclear facility. Not a lot of people are doing those things. Where do you see that mix going?

MR. FANNING: All of the above. Nuclear, we are leading the renaissance in new nuclear. If the country is serious about carbon, we need nuclear in the mix. It's really hard to do nuclear. Our deal, if you include all capital costs and all financing costs: $15 billion over 10 years. Coal, we all know that coal is under pressure. We developed this technology where we can actually consume coal, gasify it, capture 65% of the carbon and move on. We've taken our lumps on that deal. That deal, probably, because gas is so cheap right now, isn't going to happen elsewhere in the U.S. But I'm darn sure that there's a great market for it around the world.

MS. CHERNEY: David, can carbon capture be made to work commercially in the U.S.?

MR. CRANE: First, Tom and Southern Co. should be commended for what they've done with nuclear and with pre-combustion carbon capture. But they've essentially demonstrated that those two technologies are not cost effective. We cannot afford for post-combustion carbon capture not to be cost effective. If we're going to win the fight against climate change, it must succeed in that regard when you include India and China plants. I don't think post-combustion carbon capture, as it's done, with a technology that's borrowed from the chemical industry, is going to get it done.

We need a disruptive change. Overall, I would tell you that I believe this country, the world, will win the fight against climate change by taking the carbon out of fossil fuels before it wins the war against climate change by making the world an all-renewable plus battery-storage place.

MR. FANNING: Nuclear absolutely needs to be part of the portfolio, and in the portfolio it's cost effective. Let me explain that. The energy from our nuclear plant that we're building in Georgia is going to be the equivalent price of about $1 per million BTU. Now, gas is really cheap right now. The query is how long will gas remain at that price.

Think about stock ownership as you build your own personal portfolios. You buy some stocks that are really secure. Then you want to have some stuff that's kind of risky and more volatile. Maybe it's got a long-term return potential.

When you think about constructing an energy portfolio that has got to achieve the balance of clean, safe, reliable, affordable, it is absolutely clear. Now, there's a temporal feature here. It will change over time. But it is a dominant solution to build nuclear -- relatively high capital cost, very cheap energy, zero volatility, essentially.

It looks like coal is winding down. Renewables become much more important. I've always been a fan of solar. The bridge in the middle is gas. Every one of those has a different risk/return profile, a different capital and energy mix, and as a portfolio, they work.

MS. CHERNEY: David, do you agree?

MR. CRANE: In the sense that he has to get his cost basis passed through the public service commissions of various states, arguments like he just made about diversification of portfolio work. In the competitive [market for energy] diversification of portfolio doesn't necessarily work. Energy has usually been a winner-take-all business. And right now in the U.S., the winner-take-all is natural gas.

One of the things we should be talking about is the role the utilities are playing in snuffing out distributed generation. The premise [put forth by Tom] is that a central grid system is only as strong as its weakest link. We're talking about an economy we built in the U.S. built off 130 million wooden poles. It's shocking that we could be this obsolete.

But every utility in the country except one, Green Mountain Power in Vermont, is fighting the market penetration of people making their own electricity. That's why, if you have an industry that's based, "Oh, we're gonna give this company a monopoly and hope that they do the right thing by the customer," that's not going to be the best approach.

MR. FANNING: Tom and I are great friends, we really are. He's dead wrong. Southern Co., actually our largest subsidiary, Georgia Power, was named by the solar industry as the investor-owned utility of the year by the solar industry. You want to buy rooftop solar? I am glad to sell it to you.

Write to reports@wsj.com

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April 13, 2016 02:48 ET (06:48 GMT)

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