Southern Company’s updated greenhouse gas bonus still pays executives as company invests in fossil fuels

Southern Company, one of America’s largest carbon-emitting utilities, paid a bonus of $1.66 million to CEO Tom Fanning in 2022 for reducing greenhouse gas emissions, despite the utility’s addition of almost 5,000 megawatts (MW) of methane gas plants to its fleet since 2019. Fanning received the extra pay in part thanks to credit that he received for renewable energy projects that Southern built or otherwise brought online, but whose environmental attributes Southern sold off to other parties. When a company sells those attributes, known as Renewable Energy Credits (RECs), it loses the ability to claim those environmental benefits with regulators or in marketing materials, but Southern is allowing Fanning to use those projects toward achieving his bonus. 

Southern Company first launched its greenhouse gas reduction bonus plan in 2019. The scheme allowed executives to receive bonus payouts even if the company’s emissions increased. In 2023, Southern announced that new executives would be eligible for the bonus plan, including Chief Financial Officer (CFO) Dan Tucker and Executive Vice President (EVP) of Operations Stan Connally. However, the utility did not include the CEOs of its major operating companies at Mississippi Power, Alabama Power, or Georgia Power, which are responsible for most of Southern’s final resource planning decisions, such as whether to build fossil fuel plants or renewable energy plants.

Southern made a key change to its plan for 2022, altering the credit Southern executives get for the addition of wind and energy storage. Executives now receive 1.25 MW worth of credit toward their goal for every 1 MW of wind added. Energy storage is reduced to 0.5 MW of credit for each one MW of four-to-eight hour battery storage added, and 0.75 MW of credit for each one MW of energy storage greater than eight hours. Previously, the CEO would receive one MW of credit for each MW of zero-emission nameplate capacity added, no matter the source. 

Southern added a new “net zero availability” incentive which it said applied to “almost 15% of our employees.” The utility says the net zero availability metric gives credit toward a bonus for how often “zero carbon and renewable generation resources, including nuclear, solar, wind, and hydro,” are ready and able to meet demand, however, the company did not share details about how the metric was calculated. In response to a question from the Energy and Policy Institute, Southern Company said that the metric applied to the “operations, information technology, accounting/finance/treasury, audit/compliance/legal, human resources, and external affairs employees of Southern Company Services, Inc.,” which provides support services to other Southern Company affiliates. 

In response to a request for comment, Southern Company said zero-emitting energy added by Southern Power, its unregulated investment arm that builds utility-scale renewable energy and gas projects for other utilities across the nation, may be included toward an executive’s GHG reduction bonus as part of what it calls a “qualitative modifier”. The qualitative modifier can boost an executive’s payout by as much as 30%. The arrangement allows Southern’s executives to boost their bonus payouts for resource additions outside Southern’s own core regulated business, effectively allowing them to profit from other utilities’ decarbonization, even if Southern’s core regulated businesses in Alabama, Georgia, and Mississippi make less meaningful changes or even increase emissions.

Southern also told EPI that any clean energy added by a retail operating company qualifies toward an executive’s GHG bonus, even if the renewable energy credits are sold to a third party such as a corporate off-taker buying credits to meet its own sustainability targets. Southern told EPI that it, “reserves the right to retire the renewable energy credits (RECs), transfer the RECs or sell the RECs associated with renewable generation.”

Tom Fanning’s total compensation totaled more than $67 million over the last three years. In 2022, Fanning’s $1.66 million GHG bonus constituted 6.8 percent of his total compensation for the year. 

Greenhouse gas reduction bonus plan has not stopped Southern’s fossil fuel expansion

Since Southern launched its greenhouse gas reduction bonus plan in 2019, the company has built or bought almost 5 gigawatts (GW) of gas-fired generation in Alabama and Georgia.

Alabama Power’s most recent integrated resource plan issued a “Winter Benchmark Plan” which indicated approximately 5.6 GW of new gas it planned to build through 2041. The utility said it would not construct any battery storage until 2040 or any new solar until 2041. Alabama Power plans to burn coal through at least 2040.

Many of Southern Company’s gas plants are scheduled to run in 2050 or beyond, including Alabama Power’s Plant Barry Unit 8 and units from Georgia Power’s McDonough and McIntosh.

Mississippi Power belittled advocates pushing the utility to install more renewable energy, saying advocates had an “inflated view” of their role in resource planning. The utility’s plans for new gas are not entirely clear, but filings by Mississippi Power with its regulators estimate a few hundred MW of new gas through 2040. Mississippi Power said in 2021 that it would be unable to get solar online before 2025 and the utility added that decommissioning uneconomic coal and gas plants and replacing them with more cost effective renewables was, “inconsistent with sound regulatory policy and the law.” 

However, Mississippi Power advocated for a quick expansion of carbon capture and sequestration (CCS), saying that it would aim for 90% CCS on its combined cycle methane gas plants by 2035 or 2040, depending on the prevailing cost of carbon. A previous analysis by Alabama Power for Plant Barry Units 8 and 9 found that the addition of CCS technology would cost $322 million per year. Alabama Power did not proceed with construction on Unit 9 or CCS technology on either unit and its contractor called the costs “plainly excessive”. Mississippi Power is home to Plant Kemper, the failed coal gasification and carbon capture project that cost Southern shareholders more than $6 billion. 

Investors challenge Southern on Scope 3 emissions, say it lags other utilities

As You Sow, a non-profit shareholder advocacy group, filed a shareholder proposal to require Southern to issue short-term and long-term targets aligned with the Paris Agreement’s goal to achieve net zero emissions by 2050, including the utility’s Scope 3 emissions. Southern opposes the resolution, despite its own claimed goal of net emissions by 2050. 

Southern claimed it was “already employing a deliberate and disciplined approach to reduce Scope 3 emissions” and added that its energy efficiency programs for customers were helping the utility achieve the reductions. However, a number of analyses have found that Southern Company subsidiaries rank at or near the bottom for energy efficiency, and its customers routinely report some of the highest energy burdens in the nation. As You Sow says that without a public goal and reporting, investors can not be sure of Southern’s public proclamations.

Other utilities are starting to include scope 3 emissions in their net zero emissions targets, including Duke Energy and Dominion Energy.

Southern, in its response to As You Sow, said that it was not capable of addressing its scope 3 emissions, due in large part to a lack of standardization in the market. But the Edison Electric Institute (EEI) and the American Gas Association (AGA), two trade groups in which Southern is a member, lobbied against a Securities and Exchange Commission proposal that would have added some standardization to the market. Southern has stated that both EEI’s and AGA’s policy positions are consistent with its own.

Additionally, Southern said its time would be better spent refining and standardizing methane emissions measurements, but As You Sow responded saying the two were “not mutually exclusive actions. In fact, they are complementary.” 

The vote on As You Sow’s proposal will be held at the Southern Company Annual Meeting on May 24, 2023 at 10:00 AM, Eastern Time.

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