A Conversation on Change, Challenges, and the Future of Energy: Q&A with PowerSouth CEO Gary Smith
During CHELCO’s 2026 Annual Meeting, CEO Steve Rhodes sat down with Gary Smith, President and CEO of PowerSouth Energy Cooperative, for a candid and insightful conversation about the past, present, and future of the electric utility industry. Smith, who is retiring after 26 years at the helm, reflected on major industry shifts, the rise of data centers, and what lies ahead for cooperatives like PowerSouth and CHELCO.
Below is a recap of their discussion.
Steve Rhodes: "You’ve been the CEO of PowerSouth for 26 years… What have been some of the biggest issues and challenges you’ve faced over the years?"
Gary Smith: "So I'm a little unorthodox, so y'all just have to put up with that. So perspectives are different from what we (PowerSouth Energy Cooperative) do to what you get. Your members, your perspective about electricity, number one, is primarily focused on cost.
What did it cost me (the member)?
It's what it costs until the lights go out, and then you're really worried about reliability.
“When are the lights coming back on?” That becomes primary. We (members) are willing to pay anything when they’re off and then not so much when they're back on.
I do a lot of what I call “Rotary Club” talks. And I ask the question, pick somebody out, where does electricity come from? 40% of the time, statistic, they say out of the wall.
How'd you get in the wall? I had one in Monroeville, Alabama, say they put it in there and built the house. But it's a different perspective.
Your (CHELCO) perspective is the end user. My (PowerSouth Energy Cooperative) perspective is the production, the transportation, trying to get it there.
CHELCO is about the distribution of taking to where we drop it and put it down.
So our perspective is a little bit different.
We (PowerSouth Energy Cooperative) run power plants. We have billions of dollars, with a B, billions of dollars invested in power plants, thousands of miles of transmission lines, hundreds of substations, trying to get all that done efficiently, effectively, hedging fuel costs so that we can meet your number one goal, which is cost. And so that's the perspective.
So in behind that, what are the events that I've seen that have changed PowerSouth, changed the industry, changed me, and my perspective about things?
Number one, when I came to Alabama Electric and the legal department back in 1989, we were completely coal and hydro, no natural gas at all. So we had a huge, huge coal plant over in West Alabama. And that was the most important piece of our generation mix.
Our risk management plan in 2001 said:
“What’s the biggest risk? Losing Lowman coal plant.
“What's the cost? Bankruptcy.
And then just 20 years later, in 2020, September 20, 2020, unfortunately, I had to close the coal plants because of environmental issues, cost issues. And so closed the coal plant, which in itself, it wasn't that large, Steve. But at that time, we were down to 138 employees.
We started the coal plant and normally had 185 (employees). And so the time we got to the end, I had to turn 130 of our people, good employees, out. We gave them some severance packages, but 130 people who've gone to work for us. Christmas Day, I don't have a job for them anymore. And so that's a huge culture change.
That was not a high moment of my life, but it allowed us to make a transition to scale big natural gas plants that are efficient.
And so we built the Lowman Energy Center there now, which was a huge step for us. Today, it is one of the most efficient plants in the country. It has one of the best costs in the country because our fuels team put together very good deals on natural gas location and pricing.
And so we moved from, if you would, a smaller company to a larger company. We're still not a selling company, but down here, old Gulf Power, we're as big as Gulf Power.
And so that was a remarkable change for us.
So, we closed coal, and we moved into nuclear. We own 5% and a long-term lease agreement, long-term deal with Municipal Electric Authority of Georgia with Vogtle. It's the only nuclear power plant built since the 1980s in Augusta, Georgia. We own 125 megawatts of it.
Works great, costs a lot.
But that was a big change for us. And probably the most important change is joining the Southern Company pool.
Now I'm in the weeds with you.
I mean, you're worried about cost and reliability. I'm talking about power pool.
But culturally for us, to join the pool, we gave up some balancing authority. But that was a huge cultural change. And it has been so beneficial for us. I thought it would be a good deal, but it's a better deal than I ever imagined. So we started kind of a small utility, even though we've become larger, laying off 100 people.
So we moved from coal and hydro to natural gas today, like 88%, maybe 85% of our total energy comes from natural gas. A little bit comes from hydro. We have solar and we have nuclear about 9%. So we made a complete transition.
Y'all (CHELCO) didn't know anything about it because you're focused on cost reliability. Our (PowerSouth) focus is how do we keep costs down, take the volatility out of it and go to the future. Does that make any sense?
Steve Rhodes: It sure does. It's been a huge transition since 2000 when you became CEO. And there's just a lot of change to come, too. And we'll talk about that in a moment. But you've seen a lot in the 26 years since you've been CEO.
Gary Smith: At times, too much.
Steve Rhodes: Okay, we had, in the video here, we had data centers. And I'm guessing most of you have heard about data centers and the energy, the huge amount of energy that they use, and AI and all of that.
So, I did want to ask, Gary, about data centers and a couple of factoids before I ask you to comment on data centers and what that means for us (CHELCO) and for PowerSouth. But it was reported recently that for the one-year period ending June of 2025, companies like Google, Amazon, Meta, Microsoft, OpenAI, Oracle, and others spent an estimated $40 billion. That's billion with a B, $40 billion in one year on data center construction.
Data centers are projected to consume 7–12% of U.S. electricity by 2028… It's currently about 4%. And depending on what you read, that number could be even higher. That percentage could be even higher.
So it's something that has our attention in this industry and certainly on the power supply side. But Gary, what are your thoughts about this phenomenon?
Gary Smith: Well, we have 16 minutes. I could probably talk two hours or longer about thoughts on data centers. And I was just talking about culture changes. Our industry's gone through culture changes in the past. We were not the only predominantly coal utility in the 80s and 90s. Nearly everybody was. And then now everybody just about has moved to natural gas. People had smaller units moving to larger units. So, in our world, the culture, the change, the herd is moving in a different direction.
Now I'm going to lead that right into data centers. I think data centers will be the next big movement for electric utilities. I think this is the next change.
Probably one reason I'm retiring is this change. Jim Vann, my predecessor, said once, “I'm glad it's you and not me.” I wish it would be me, because I think it would be really exciting to be in this business, but it will be different.
In the past, I mean, utilities are big, Southern companies are big, AEP is big, Pacific Gas Electric, they're big. We're relatively small. But when you compare those companies to these artificial intelligence companies, these data center companies, it’s on a different level altogether, because huge money is about to flow into our industry.
This happened in the 90s. Enron, a lot of people that read, Enron came, that was hedge fund money. A lot of money came in, and that was a shift in what we do and how we operate. And so now big money's come in. I checked Google's balance sheet last week. It was giving another presentation and checked their balance sheet. That day, their balance sheet was $128 billion. Not what they're worth, just how much cash on hand they had.
It's incredible.
Meta. They're dragging well behind. They're at $87 billion cash on hand. So these people need huge amounts of electricity. And they get put out with us (PowerSouth) because we say, well, and what we're saying right now, if you want to come to us, data center, we'll provide service to you, but it's going to be 2031, 2032 before we can get it to you because we do not have the power plants to serve that sort of load overnight. It's not like hooking up a new house when we hook you up in one day.
These take time. It takes transmission. The data centers that we're quoting right now, the transmission cost alone, $100 to $300 million before you ever start with building a generator. So the whole perspective is changing.
I don't think it will be as big as its height. I think those numbers are too high. But I think the numbers are still high. Those are just extra, very high.
Because what we're seeing is, occasionally we talk to hyper-scalers, Meta, Google, Microsoft, the big five or six. But most of the people we talk to, we don't know, we don't know who they are. They're developers. They may have property. They may be trying to find electric. It's hard to tell who's who.
I don't know, has anybody ever heard of Compass? They're a big real estate company out of California, one of the biggest real estate companies. But they're also a big data provider or data processor. They have huge data centers, one in Meridian, Mississippi, that's trying to fill up, one that's going to Tuscaloosa (Alabama). They're all, you know, they're real, but you never heard of them. I don't know anything about them.
So, but I think data centers, I'm with you most of your time just on data centers, because I think it's one of the most important issues you'll see.
My wife lives in Birmingham in a development, and everybody's up in arms about data center coming five miles away.
“We don't want it.”
“Why do you want it?”
“Well, the noise…”
“You won't hear it across the street.”
“Well, the traffic…”
“They don't have many employees.”
It's not like the Dollar General distribution center across from them.
You know, there's a real upside to data centers. You don't want them in your neighborhood, but they're going to bring hundreds of millions of dollars in taxes to that area. And so if we don't, as a community, I'm not talking, I'm going to talk about the other side in a minute, electric utilities. But from the community perspective, you're talking about a lot of tax revenue that's available. And to say we don't want it, I think is being very, limited in thinking. Every four years, three to four years, they upgrade the servers. Another $300 million goes in taxes. Taxes get abated, but education taxes do not get abated. There's a big benefit here.
On the other side, for every time there's a benefit, there's a big risk on the other side. And the risk is an electric utility where we go build billions, with a B, dollars of power plants. Our last power plant we finished in 2023, we paid $540 million for it. If we had to build it again today, it would cost $2.2 billion.
So, if you build that plant and they don't come, who pays for it?
The people in this room pay for it. And that's not right.
And so it will raise the average cost. So we do have to find a way that would protect you, the consumer who's been with us for a long time, from those cost increases by trying to isolate the costs and then protect those costs if we go forward, which is harder than it sounds.
I mean, I'd like to have a parental guarantee 20 years ago from Sears Roebuck. Wouldn't get you anything today.
You have to be careful because a guarantee from Microsoft feels really good today, 20 years from now, and we'll still be paying debt 20 years from now. Won't feel quite so good. Possibly.
So I think there's benefits, there's risk, and so we have to figure out how do we get on the path and get there with parental guarantees, other things.
There's a lot of thought to be put into this, but there's, they are going to interject that money into our business because they're going to drive the production of electricity. They're going to try to make money off of it too. And so we're going to see, I think, transformational change in our industry.
It'll be another change in culture as you go forward.
So data centers are more than just producing artificial intelligence or cell phones or Facebook or whatever, because it's already a lot of data. It's going to change the way that we do business.
What we're concerned about is managing the cost and reliability on the backside. Openly, our goals are the same as your members’.
Steve Rhodes: Sure. I'm glad you mentioned the cost up front. For all of your benefit, on large loads like that, like Gary described, we (CHELCO and PowerSouth) would work together on those and for what's most important to you would be the fact that, as Gary said, that they pay their way. And that cost does not get pushed down, and you end up paying it in your rates. We don't want that. We want to protect against that. So if somebody like this comes in, a data center, huge. By the way, these loads are huge. And megawatts may not mean much to you, but what we used to think of and still do, a large load would be 20 or 30 megawatts. Some of these data centers are a thousand megawatts.
Gary Smith: Or larger.
Steve Rhodes: Huge.
Gary Smith: Yeah.
Steve Rhodes: And so we want to make sure if something like that happens in our territory that they pay their way and none of those costs end up on your bills at the end of the line.
Gary Smith: So yeah, a little perspective, a megawatt, which I'm willing to bet 1% of the people here, no more than 1% understand what a megawatt is. This megawatt is about the amount, it's a one-time, high watermark of use, about the size of a Walmart.
The Walmarts that our members serve are about one megawatt.
So our total peak, which we hit on February 1st of this year, was 2,831 megawatts.
So it's 2,800 Walmarts, kind of, if you're measuring Walmarts.
And so data centers, we're talking to some that want 1,200. Our peak's 2,800.
85 years to get there, and then one customer comes in one day, I want 40% of what your peak is.
Meta, Facebook, is building in Montgomery, served by Alabama Power, thank goodness.
The transmission costs on that are over half a billion dollars.
1,700 megawatts is where they're headed.
It will take a decade, 15 years to get there, but they're doing it 200 megawatts at a time. They're up to 400 now. But I mean, we're talking about huge loads that change the face of what we do, how we do it.
Steve Rhodes: Well, it's interesting. So when everybody's using AI probably in one form or another, even if it's just to write an e-mail or something for you, there's a lot going on behind that AI and the data centers, and that's what we're talking about here. And how we go forward from this point is going to be important. And PowerSouth and CHELCO, we're working on those large issues like that together.
Gary Smith: Even an old man like me uses (AI). My best friend is ChatGPT. He's about cured. I mean, he's told me what's wrong with what went wrong with sinus surgeries, but he hasn't given me the solution to it yet.
Steve Rhodes: Well, our time's getting short, I had a couple more questions, but I guess I'll skip to this question is, besides data centers, when you look into your crystal ball, Gary, over the next 5 or 10 years, is there anything else that you see in the industry that's coming at us?
Gary Smith: Good question.
Yes, but I don't know what it is.
How about that?
So, we've seen remarkable changes, we're going to see more remarkable changes. I mean, people are working right now, a lot of all that money at Google, they're working on coal fusion.
So, nuclear power is where you break the atom apart.
You’ve heard (the joke), “He's not smart enough to split the atom.”
So, you're splitting it, it causes heat. Coal fusion is where you fuse the material together, and it doesn't have the radiation, it doesn't have the danger that nuclear power has. People are working on that, they've been doing it. It goes and comes. It's kind of like the fuel cell, with the 50th anniversary of five years from getting this done.
But I think over the next decade, there will be something that happens in that area. I don't know what it will be. I don't know how much it'll cost, but I think we'll see something there.
I think you'll see a nuclear renaissance. I think the SMRs, they're really expensive, small modular reactors, not the big reactors like we've invested in, the small ones. I think there will be a breakthrough there too, Steve.
Right now, I mean, TVA (Tennessee Valley Authority) is headed that way. The cost is higher than Vogtle, which is way too high for me. But at the same time, I think you'll get the cost down. It's going to take a while. I think you see that I don't see distributed generation that people talk about where you have it in your house for a number of decades, “Back to the Future” sort of stuff where I put my banana peels in my garbage and I get electricity out.
I think that, I'm not saying we don't get there, but I think it's a little longer, a good bit longer to get there.
This, by the way, none of this is harder than it appears. It's pretty complex.
And so there's a lot of mix, but I think we'll see in the next decade a lot of changes. I think you'll see a lot of changes in our part of the woods. TVA is in real trouble.
And I think you're going to see a lot of just restructuring of the industry. And that money that we talk about is going to find our industry again and change things.
Steve Rhodes: There's a lot to come.
Gary Smith: There's a lot to come.
You talked about my retirement. You have to stop at some point. A big part of me says, this is so exciting. I wish I could keep on doing it. And the 72-year-old part says, you know, you really don't want to get out of bed this morning.
But I'm going to miss it a lot. But maybe I'll find something else to keep my hands busy, too.
Steve Rhodes: Absolutely, I was just going to close with that, Gary.
I was going to give you the opportunity for any closing comments, any thoughts you have as you approach retirement on your career or what's next?
Gary Smith: Well, it's been a really good ride. CHELCO’s been a big part of my ride. I look to your Board (of Directors). Some of them have been on my board. I've been friends with most of them for a long time.
Business, life, family. It's about relationships. And this business and the cooperative structure has allowed me to build so many relationships or have relationships built with me.
And the people are special because we're not trying to make money. We're not trying, I mean, we're all, I make a good salary, but I don't have any stock. We're not stock held. So it's not a matter of trying, like my friend Jeff Peoples at Alamo Power, he needs 8% growth stock, growth in their stock value year over year. You know, that's hard to do. We don't have that. Our model is a lot purer. We need to charge rates to pay the bills. We need to work hard to keep the bills reasonable. We have a really good structure. And it's been so refreshing to me to move out of the for-profit structure into the not-for-profit structure and then see people, see areas like CHELCO. Y'all have grown so much. And you provided people with a much better lifestyle than they would have otherwise. And I think that's what's been so redeeming about what we do. And it's not me, it's what we do to do it. And I'm proud of what we built at PowerSouth. I think we built a great company.
And I'll finish. I'd say I'm now under one minute.
I'm going to finish with y'all because there's prizes, I understand, and I don’t want to stand in the way of that, but... So we all have good days. I've talked about the good days, coordinated planning agreements, which I didn't really touch on much, but that was an idea that we had in 2007. It took us more than 10 years to implement it and get it put in place.
But you have bad days, too. And you showed a safety video, and those are good. If I cry, I'll tell you why in a minute. But you have bad days. My worst day of work career was in January of 2000. We (were) doing hotline switching, changing the switch out just east of Andalusia. We had our best crews out there. And what I found out is I had not provided enough information about how electricity works and the danger of electricity to our young lineman.
And we had a terrible accident.
Today, Michael Murphy works in our building and grounds. If you're at Power South and you see a man that has two claws, two hooks, he lost his left arm above his elbow and his right arm at his forearm. Best attitude in the world, 44 years old today, breaks my heart when I look at Michael.
Heath, another young man lost his right hand because he'd lost both hands if he had it on the cutter, but (had) his right hand on the cutter. Heath Williamson, so, you know, those are the kind of things, CHELCO has people. We have people that are taking those kind of risks for your cost of reliability.
They do it. They accept those risks. But I take a lot of personal responsibility for those two young men.
And your safety record, by the way, is more than remarkable. If you just take how many miles you drive-- our people drive three million miles a year. And we've gone two consecutive years out of no lost time, actually it's the best we've done. But your record's great.
I would encourage you and CHELCO to first congratulate you for a great record, but that's number one. Safety has to be number one every day out there.
Go home the same way you came to work, everything will be better.
I'll just sign off by saying, you know, it's been a great ride, been a great ride with you, Steve, your Board. I'm going to miss it, but y’all have a wonderful future in front of you, and I look for -- I'm going to be sitting out there somewhere probably just west of here a little bit.
But I'll be sitting there watching y'all do great things. So I appreciate the opportunity today. Appreciate your friendship. Thank y'all for all you do.
Steve Rhodes: Well, I appreciate you being here.
I'll close it out. I appreciate you being here, Gary, coming and talking with us today. Over the 13 years I've been here, I've really appreciated working with you as a colleague. We've become friends over that period of time, and I just have a lot of respect for Gary and what he's done at Power South, and in turn, what that's done for CHELCO.
So thank you, Gary, and we wish you the very best in your retirement.
Gary Smith: Thank you.
