Tom Fanning: Nuclear, Rate Hikes & National Security

We need everybody pulling together with a national energy strategy. It is a national security imperative to build this stuff. We can't afford as a nation not to supply the power necessary to get to where we need to be. This is not like I need another refrigerator. This matters to the sanctity of our nation.

And I've always enjoyed working with you. You're one of the smartest guys I've ever met in Washington. And what was so great about that meeting was we started firing off ideas about, 'Hey, we could do this and do this.' And 'Hey, let's call a car a storage facility.'

I can remember having that conversation. That's right. We had a great time and always appreciated your work.

Well, thank you.

Before I became chair.

Yeah, it was so weird. Even my time before Southern. I was a National Merit Scholar coming out of high school. It was Yale, Georgetown, Virginia, and West Point. Dad convinced me to try and play football at West Point. I get hurt five days before I'm supposed to report for Beast Barracks. Georgia Tech turned me on, and I doubled up in Russian. Then I got reappointed to West Point, got hurt again, stayed at Tech, graduated. With my four years of Russian, I go work in the 1980 Moscow Olympics. That gets cancelled. Son of a gun, I go back to Georgia Tech graduate school. I leave graduate school, going to go work in Jeddah, Saudi Arabia with a company called Abaren Zani. Live in Jeddah. Car, apartment, food paid for. And son of a gun, the Iran hostage crisis hits. And so I just say, 'Okay, I'm out.' The world is telling me something.

No, yeah. And even when you tell the story, when I tell the story of my career at Southern, if I was — God was there 43, you know, no. It wasn't linear at all. And in fact, my 15 different jobs, you know, so I changed jobs for round numbers 15 total. I moved — I think I moved eight times and had six different business units, lived in Australia, New York, was all over the place. The whole point in having that kind of diversity of career, even though it would appear at the outside to be kind of linear, is that you get all these different experiences. Like what brought me into what I'm doing now, this national security work, was I spent three years as the chief information officer, CIO. Most days I thought CIO stood for 'career is over.' It was a disaster. But here's the thing. Turned out to be one of the most enjoyable, interesting, learning opportunities.

What we find is that everything you do in life is a learning opportunity. And I think as you go through your career, you want to have what we call in Southern a 'major.' My major was finance. You know, I was CFO of the international company, CFO of Georgia Power, CFO of Mississippi Power, CFO of Southern. But I was also all these other things — strategy, CIO, blah blah blah. You really get a chance to test yourself in unfamiliar waters. And I think every bit of stress, if you will, whether it's personal stress, experiential stress, etc., not knowing, not being the expert. Very often when you live in a linear organization, you grow because you know more. One of the things I give Southern a lot of credit is they move people up not based on what they know, but what they can know, and how they can build personal networks, and really expand their horizon. So I think that's really important. And let me give you one other thing. When you live in an environment that continually challenges you, you learn to recognize people like you. And that is Southern Company. Clean, safe, reliable, affordable, stock price that looks like this over 50 years. Highest customer satisfaction, highest reliability. We are terrific. But the greatest harbinger of future failure is past success. And what you always have to do, in my view, and this is you, is celebrate the revolutionaries.

Look at people that will always ask why and why not. When you're in an organization that is a high-performing organization and you have such great results, people try to kill the revolutionaries. They try to say, 'Hey, wait a minute. What are you trying to change? Look how good we are.' You always have to attack your conventional wisdom, my words, creative destruction. You always want to test the boundaries and you always want to ask why and why not. So, I think those are things, and in fact it was funny. In my career, the most important thing that happened to me during my career was not some great brilliant strategy or whatever. It was a moment where I had an ethical dilemma that was enormous. I was effectively the CFO of our international company. And a president we had hired from AES, Applied Energy Services, Jeff Hamburg, in my opinion, but there's lots of case law here, tried to pay a bribe to receive favorable treatment on a deal in Portugal. And I was the only guy that stood up to him and of course we stopped it. We didn't pay the bribe and ultimately Jeff Hamburg left the company.

At that time, I was newly married. I had a two-and-a-half-year-old, a six-month-old, and I even one day resigned from the company because of this and they talked me to come back. But that was the most important thing I did and I can remember after it was all over, they invited me in. I was just a young kid. I was 30. And they bring me into the board meeting and it caused a lot of turmoil inside the company as you can imagine. Ford gave me a standing ovation. That to me said a lot. So, and I know I'm going off of this simple question.

The issue is as you think about your career, there are the 'what's.' But there are the 'how's.' And in my opinion long-term, the how's are way more important than the what's you do. And if you can demonstrate this idea of cultivating talent, this idea of ethical behavior during the worst of times, I think that really shows a lot.

I am a classic dumb guy. No, I mean a dumb guy in the best sense possible. I always make a joke. I say, women start out smarter than men and men catch up. Men never catch up. I told my wife that. My wife, Sarah, is the youngest chief counsel in the history of the United States Senate. She was the senior vice president of the Washington office of Travelers and all this other stuff. She's just brilliant. She has a law degree, a photographic memory. She's like every man's nightmare.

But I am — you know what? And I've made a lot of money over my years. What is it? The theory in economics about the permanent income hypothesis? I act like any guy that just graduated college. I worry about my personal budget. I love sports. I just do dumb guy stuff. I love being a parent, I love hanging out with my wife. I am not some guy that puts on airs. I'm just as normal and blue collar as they come. My parents — my mom was really smart, full scholarship to Smith. My dad never went to college, enlisted in World War II in the Marine Corps. He was a really tough hombre. And I think he instilled in me this idea of being completely blue collar. And maybe you're smart, maybe you're not, but by God, you're not going to get outworked. So the idea of personal sacrifice, having a calling that's bigger than tactics. It's funny, I tried to turn that into a funny story in my life. And it's like thinking about companies, but it's also people.

There's three kinds of companies in the world. There's birds of prey, moving prey, and road kill. Fundamental to your persona, it's kind of your ethics and your just fundamental beliefs, that's road kill. If you can't abide by something that other people can rally around in terms of values — the how's, not the what's — then you're road kill and wrong. And then the fun thing is what's different between a bird of prey and moving prey. And I think it's how you define success. I always, both personally and as CEO of a company, define success in the long term. So I always aim at that North Star, and I can massage near term what we need to do. But I never lose sight of that. Too many companies in America define success by hitting next quarter's earnings or by hitting some short-term light post. My view is if your long-term strategy is resilient and correct, then you can change it every now and then. It doesn't mean you're stuck with it. But you can move around in the near term in order to stay faithful, but get there. I think people that set short-term objectives as their North Star imperil their long-term and really hurt their shareholder base or their long-term personal outcomes.

Somebody shoot me.

That's on site.

With COVID.

Nuclear is a dominant solution in America. It's — how do you get there.

Two words, vision and courage. No one would build a nuclear plant on the basis of a short-term perspective. You've got to have a real vision as to what you want to be. And I say we can get — I'll let you guide me how far you want to go on this, but there's really two kinds of energy markets in the United States. There's the integrated regulated markets that are generally seen in the Southeast and in the West. Southern Company is one of them. Then there are the so-called — they're not — organized markets: PJM, New England, MISO, Texas, California, that I think are kind of a disaster. Nobody's going to build long-term assets in those markets without changes. So let's kind of start there. So when we think about new nuclear, we think about a commitment. You've got to have a long-term view. If the market doesn't avail you a business imperative that provides a long-term view, in other words, if the markets are always short-term, energy-driven, lots of volatility, you ain't going to build a long-term asset there. It won't happen. Capital won't flow to those places. So we're going to start with half the country. And if you have the right market, then you have to go to — I think there are a lot of the challenge. In fact, I was on Squawk Box now about two months ago when the big announcement came out. Was it ChatGPT or somebody wanted to build 10 gigawatts of nuclear to support their —

Okay. And the guys at Squawk, who I've developed a friendship with over the years, called me and said, 'Would you please come on and talk about what it's going to take to build new nukes.'

I mean, I think AEP could do it, but I don't think Meta could do it. Nobody is going to build 10 gigawatts by themselves. Even Southern won't.

No, hell no. So here's what you got to do, in my opinion. Is you got to set a standard in which somebody will be able to execute on a long-term vision, right? So, I think we need revenue assurance. We need protection during construction.

But a niche.

Partnership is a little scary word to me, because at the end of the day somebody holds the bill. Unless — what I said on Squawk was that we need everybody in the boat. The federal government, the private sector, maybe even some funding sources we haven't thought about, sovereign wealth funds and a variety of other things, and then the states. And maybe the states should think about not only their state, but a region.

Now, Southern we have this dogma, and it is religious. And but what we believe is you keep every problem inside one state jurisdiction. Vogtle was a Georgia problem. It was never a system problem.

I started thinking about this, and this is heresy to probably most people in the United States. A great friend of Ernie Moniz, when he was energy secretary, brilliant guy, and in fact he joined my board. Wouldn't it be great if we had a national energy plan? And wouldn't it be great if we said, 'You know what? We got to build as a matter of national security this kind of portfolio of generation across America.' We tried to reflect that, interestingly, on one of the Obama initiatives where he was going to control the emission of NOx, SOx, particulate matter, CO2.

Yeah. So and EPRI responded with something called PRISM. And then PRISM 2.0 was the idea that there are regional solutions to a national energy portfolio. That's not a dumb idea. And so what if the United States said, 'We need to add 20 gigawatts of nuclear. We need to get it built by 2040.' Now, let's work with the states. Let's work with the private sector to figure out what are the things that we need in place. What are the — I tell you two of the big inhibitors right now, but we need national solutions.

It's going to work there. We were the only game in town after Westinghouse went bankrupt. I know. And 9,000 people, we couldn't find enough electricians. Only game in town.

Instead of nuclear plants. Pipefitters.

Right. We need to reinvigorate the development of skilled labor in America. That should be a national imperative that both parties can get into. And we need to align ourselves not only with independent workers, but with the labor unions. I can tell you a great partner in the work that we did at Vogtle was Sean McGarvey, US Building Trades.

Guy is fabulous. And so this idea of somehow union labor is terrible and that is the dumbest thing I've ever heard on the planet. We need everybody in the boat. Next, everybody in the boat. This again is going to be, I think, bipartisan. We've lost our production — industrial production capability in the United States. When we were getting large metal forgings, we had to go to Maranatha in Italy, and China, Japan, big equipment from Doosan. It doesn't exist here anymore. Well, we need to develop that. And so now here's your idea, big beautiful bill. Hey, let's start strategically investing in industrial production capability in the United States and growing that again. And now, when you think about the coming buggy-whip impact to labor that AI will give, we have an avenue for people to leave and go into some growth area. All this makes sense, but that's where we need everybody together thinking and agreeing to pursue. But if industry wants to give the government the Heisman, if the states don't want to work with the federal government, we'll never get anywhere.

Wait a minute. The organized market — Georgia Power just agreed, I think, and I don't want to speak for Georgia or Southern — but they just agreed to a three-year rate freeze. PJM, the organized markets are seeing volatility like nobody —

Well, but in these organized markets, volatility — I think I'm in PJM now. I've moved to DC to help birth my national security business. I think we're seeing rate increases in the 25 to 35% range. So it's happening.

Listen, I think we need — it was funny when I started talking about this, it was all the 'arrows in the quiver' and that got — Obama took that over as 'all the above.' I should have trademarked it. We need everybody pulling together with a national energy strategy. It is a national security imperative to build this stuff. Look, this work I'm doing right now, when you think about — and I hate to talk about it — but weapon systems and national security systems, they're going to be driven by AI and quantum computing and all that's behind that, we can't afford as a nation not to supply the power necessary to get to where we need to be. This is not like I need another refrigerator. This matters to the sanctity of our nation.

Listen, there are lots of ways to get this done and that's what I kept telling everybody on Squawk was to say, 'Look, this is a hard problem. Smart people if they're working together can figure it out. And if we get everybody in the boat,' that was my kind of metaphor, 'then I think we can get through this. We can do it. But it's going to take — check your ego at the door — vision and courage.' Some of this idea about courage isn't some, you know, 'I'm Superman.' It's more courage based off the fact that one of my little value equations in life and in business is value is a function of risk and return. If I can think through preserving returns but reducing risk, I create enormous value. And I think acting in a way — now when you reduce risk in a company or in an industry or in a country, it isn't like you put a skin on the wall and say, 'Look what I just did.' It's a lot of hard work behind the scenes, changing the way we think. This idea of having courage to change a winning strategy heretofore or creating something new. This is where we're going to get the job done. And I think we got to get the CEO infrastructure in the utility sector.

We got to partner with the people that are going to be the huge consumers of energy and we got to partner with federal and state governments. I'm speaking at a conference tomorrow. Mostly state and local people. They have a huge role to play. And we've got to have a human strategy and an industrial production strategy. We can get this stuff done. But in fact, I'll bet you you and I could sit down this afternoon and come up with a plan.

But it isn't our plan. It's got to be their plan.

Then we need to get them on board. So, this is politics in the best sort of vein. This is getting people together to accomplish something big. It's a moon shot. And that's what we need to do in America today.

It comes at all levels. More stuff. Leadership at every level. So, what we need are smart people talking and listening. The problem with this divisiveness we have in America is the fact that people stop listening. People are more inclined to raise their voice when they feel like they're not being heard. And so, one of the talents of leadership in America today is stop talking and listen. And then let's figure out where we agree and start working on those points of intersection to build something valuable. We can do that.

So, for nine years, just under a decade, I was the chair of the ESEC — Electricity Subsector Coordinating Council. I can't remember this stuff. And very quickly, as I was helping lead the electricity and energy sector, it became very clear to think about — well, every sector in our economy has a really pretty decent silo. Like, water's isn't very good. Energy is really good. Finance is really good. Communication's pretty good. But what we don't have is somebody that can figure out the interconnectedness of industry today. And that's where I just became consumed. It's a laughable idea now, but back then I called it 'Dinners Across America.' I tried to seek out leadership to say, 'Hey, we've got to redefine and reimagine what national security is now.' And because in a cyber sense, 85-plus percent of the critical infrastructure in America is owned by the private sector. In the old days, you know, we were protected by the Atlantic Ocean, Pacific Ocean, and friendly neighbors north and south. And we were safe, and the government handled national security. Well, that ain't the case anymore.

Southern Company gets attacked in a cyber sense during my time. I don't know what it is today. Three million times a day. JP Morgan, way more than that. And so, what do we do? How do we work together? What are they after? We know with exercises with the intelligence community, with government broadly, with the others, if there is an attack by a bad guy, they're going to hit us not just in a silo, but think about if we lose part of the grid, what are all the interconnectedness points, and what do we do about it? So, this idea of knitting together — created a group called the Tri-Sector Group, and it became energy, finance, communications. And so, we've been working as the Tri-Sector Group, a coalition of the willing, asset owners and operators. It's not an association that lobbies. It's people that try to understand problems and solve them. Very practical. Recently this year with the second Trump administration, with a lot of stuff he was trying to do, we and they decided it would be great for us to formalize. And so, now we have something called the Alliance for Critical Infrastructure.

And what we try to do is kind of four things. Illuminate the battlefield. So, we collaborate — is the magic word. That came out of my participation as the only private sector guy on the Cyberspace Solarium Commission. We collaborate. It's not 'share.' It's not 'cooperate.' It's 'collaborate.' We have a joint accountability for illuminating the battlefield. What are the bad guys trying to do? What are we seeing on our servers? What's the government seeing, intelligence community, everybody else? How do we work together to illuminate what's happening? And then it's almost like the old '60s lava lamp, where the thing always moves around, and it's always doing that. The attack vectors change. The attack surface changes. How should we evaluate those changes and start to do systemic approaches to skating to where the puck will be? So, let's take action now to lessen or eliminate the threats we're seeing develop. That's thing two. Thing three. If there is an attack, see Colonial Pipelines.

Think about — it isn't just a gasoline pipeline. There are so many interconnected issues that came out of that. How should we respond as a nation in a systemic way? We were chaos for a while around that. So, we're trying to knit together industries that will understand the impacts and then get America back faster, more effectively. Fourth thing, COTE. Every administration has an accountability to provide a plan in the event America gets knocked to the canvas. And that's called continuity of the economy.

So, we work very closely. If America does get knocked to the canvas, and let me just pull out what we call a polycrisis. Let's just say a bad guy takes out GPS. Say they take out part of the grid. Say they hurt the Fed's ability to help digital commerce. Say they infect our communication systems. Maybe they already have. Say they impair our ability to move in a supply-chain way big equipment, railroads, trucking, things like that. Say they take out a port, Port of Long Beach. Say all that happens at once. Who stands up first? Where do we stand up? The government doesn't know how to run the 85% of critical infrastructure. So, we flip. The government no longer becomes a regulator. They become the enabler, and the private sector must lead the recovery of America in those kinds of times. That's the COTE plan, and that's something else we work on.

Yeah, I don't — you know. I'm having a ball. I'm also — Moniz keeps grabbing me to help with nuclear and I'm trying to help people think about how to build new nukes and stuff. So, there's a lot to keep me busy. It's fun.

Great to be with you. Always good seeing you, my friend.

My friend.