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CFOs speak out: Growth Strategy for the 21st Century

For The 21st Century
Fortnightly Magazine - October 2004

For The 21st Century

Interviews by

So it begins again. After several financially tumultuous years, executives at many of the nation's top utilities can once again look to the horizon and ask the growth question worthy of a Caesar: "What worlds to conquer?"

Utility executives are emboldened by bulging free cash flows, improved credit quality, lower operations and maintenance costs, favorable regulatory treatment, growing service territories, and increasing demand for power.

But even as confidence is returning to the industry, today's utility executives say they will not venture far from their core business. Never again will they put their companies at risk or be driven by pie-in-the-sky growth fantasies that are too good to be true. Back-to-basics is where the industry has come, and back-to-basics is where it will stay, the defenders of the new orthodoxy say.

Yet, as with any orthodoxy, there are limitations. The back-to-basics mantra harks back to an earlier time in the utility industry's history, when all utilities were viewed as a low-growth, low-risk, high-yielding investment.

However, some say turning back the clock on the industry is impossible. Wall Street analysts and other investment executives wonder whether this formula is the right strategy in the 21st century, when the utility industry faces a myriad of new risks. Will back-to-basics growth be enough, they ask, to retain investors who may be attracted to higher-growth investments as the economy improves? Will the strategy be competitive with fixed-income investments as interest rates increase? Will investors gravitate toward outside growth industries that have adopted a strong dividend policy? And can utilities retain high yields when they must plan large-scale transmission and generation development programs, or meet more stringent environmental restrictions?

Without question, seeking the 21st century growth strategy will be infinitely more complex than yesteryear.

This year, annual finance issue offers exclusive interviews with four utilities that have some of the strongest free cash flows in the industry. The chief financial officers from FirstEnergy (Ticker: FE), KeySpan Energy (Ticker: KSE), PSEG (Ticker: PEG), and PG&E Corp. (Ticker: PCG) discuss how they plan to invest in growth in the coming years.

All share a common challenge. FirstEnergy's CFO shares a strategy on infrastructure and technology investment that all utilities may want to hear, particularly after last year's blackout. KeySpan Energy's financial guru shows just how good gas can be. The CFO at PSEG, with its wires business and unregulated generation business, discusses the ups and down of doing business in a deregulated market. And PG&E Corp.'s CFO talks about life after bankruptcy.

From all of us at the , we hope you enjoy this year's finance forum.

Richard Marsh , Senior Vice President and Chief Financial Officer, FirstEnergy

"At the top of my list is operational excellence. You want to avoid mistakes. You want to provide outstanding service to customers. That's how you build credibility with regulators and customers."

How do you think FirstEnergy should deploy its free cash to achieve growth?

Richard Marsh: FirstEnergy is one of the relatively few companies that has stuck with its integrated utility business model. Over

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