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The New CEO's

Michael G. Morris
Fortnightly Magazine - June 2004

president and CEO of Consumers Energy; president of CMS Marketing, Services, and Trading; president of Colorado Interstate Gas Co. and executive vice president of marketing, transportation, and gas supply for ANR Pipeline Co.

The Company

Market Cap End of 1Q2004: $13.03 billion
Revenue 2003: $14.5 billion
Net Income 2003: $110 million
Employees: 22,075

What is one of the top issues that you hope to address this year as a new CEO?

Of the operation and maintenance expense at American Electric Power, our O&M account for the year, including both the utilities and the corporate center and non-utility activities, is just south of $4 billion. Because of that there are obviously opportunities to save. So, what I'm asking the team is to be as cost-effective as we can.

We benchmark ourselves against other utilities on O&M per kilowatt delivered and O&M per worker in the field, and we feel comfortable with where we are. What I am not doing, and what I personally don't agree with, is a new CEO coming in and making a bold statement about, "We are going to cut O&M by $400 million or $500 million," or some such number. I think that does two things. One, it probably sets a false goal that may be too deep and may not be deep enough; how would you know the day you walk in the door? But more importantly, it sends a shudder through the organization of, "Oh my gosh, what does that mean? You are going to fire people or lay people off." Everyone spends all their time wondering what does that mean to me, rather than spending all their time making sure the customer is well cared for. I would much rather have my team energized and trying to save money by working hard and working smart than fearful and shuddering over whether they will or won't have a job.

A recent Fitch reports states that Midwest power prices will be depressed for a long time to come because of abundant coal and nuclear resources. Do you agree?

I do in fact believe Fitch is right. I think we are overbuilt in the upper Midwest, and I think demand growth will be about 1 to 2 percent per year. What that will do over time is sop up some of that excess capacity. But to me, we are blessed with cheap coal plants because we are competing against expensive gas plants. The market-clearing price for our off-system sales … has been very handsome. … So, when we look at the overall growth in our typical service territory of 2 to 3 percent per year, we see earnings growth on top of that, not only from the opportunity to sell off-system sales and to haul more energy for other players, but as you know, we are also blessed with an opportunity to spend $3.5 billion dollars to extend the environmental life of our low cost structure. I think that is an enviable position to be in and we intend to pursue that with all vigor.

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