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The CEO Power Forum: The Best of the Best
this year, next year or 2005. We believe the current excess capacity will be soaked up partly by improvements in the economy and partly by continued environmental pressure to shut down some of the least efficient of the old units.
Do you believe the growth strategies of yesteryear, such as international and independent generation, will again be available to utilities and supported by investors?
Personally, I believe the right strategy for our company is to focus on the United States, to focus on generation, transmission, distribution and focus on trying to serve customers and make money by integrating those operations more successfully and across broader regions. I think the most important single lesson from California is that total disaggregation is a bad idea for customers and a bad idea for investors. But that doesn't mean that you will not see a resurgence of international expansion. There is nothing inherently wrong with it.
I think you will see a resurgence of the independent generation business, but it will not be as cushy as it was when they got long-term contracts from utilities, nor will it be as aggressively self-confident as it was three years ago when P/Es were astronomical. I think you will see continued evolution in retail competition but slower than we used to think. I think you see a very high recognition today that utilities still have the obligation to keep the lights on and you have to keep some muscle for them to do it.
What will the Exelon of 2050 look like?
It will be very different and it will change beyond my comprehension several times before we get to 2050. My wild speculation is that it would be a company that would be the nation's leader in the next generation of nuclear technology and in biomass and distributed generation, because I concur with the EPRI vision of a system of the future that mixes local generation, peaking, biomass, and baseload power in a very complex interactive system. Maybe by that time it will be farther than the hydrogen economy that the president foresees. My strength as an executive has been that I have never thought my crystal ball was really made of crystal. So, if I can see two to five years ahead, I'm doing pretty well. Seeing 50 years ahead is something I disclaim.
You announced a cost reduction plan aimed at target savings of 5 percent to 10 percent from current capex and non-fuel O&M budgets ($6B combined). How will you reach these savings? How dependent are forward earnings forecasts on your ability to meet these targets?
We have launched The Exelon Way initiative as a long-term, all-encompassing effort to transform how Exelon defines and conducts business. Areas currently under evaluation include restructuring of our business units, realignment and integration of support functions, standardization and simplification of processes, and optimization of investment. Our target is $300 [million] to $600 million in increased cash flow from operations by the end of 2004. Current earnings guidance for Exelon is $4.80 to $5.00 per share in '03 with growth