Companies continue to embrace the back-to-basics strategy, and investors seem to think that it is paying off.
The CEO Forum: The Ultimate CEOs: David L. Sokol
Chairman and CEO, MidAmerican Energy Holdings Co.
can’t achieve that today with our neighboring utilities where we operate anyway, as long as we are willing to share the savings between each other. Ultimately, when you are running a utility—whether it is a vertically integrated or partially regulated—it comes down to working every day to manage your cost structure so that you have the lowest [possible] overall cost for delivered kilowatts of power. Our model of ownership is owning regulated assets in various locations around the United States or around the world and just operating them to the greatest efficiency so we can provide the lowest cost, sustainable energy rate to the customer.
I don’t think there is a substantial benefit [to combining] neighboring utilities [compared to] ones that are separate. It really comes down to [whether] the operations are as efficient as they can be in dealing with the requirements and the demands of their state and their customers. You need to keep in mind that in this business all states don’t view the requirements the same. Some states are prepared to pay a higher price for different fuel types and transmission capabilities. Some states have decided they would prefer their utilities always have a surplus of power available. Some states are more comfortable with their utilities having a short position on power and filling it in the spot market. So, the fact you might have two different utilities neighboring, if the preponderance of their customers are in different states they still have to be run to the constituents [they serve].
Fortnightly: Do you think your organization would be more efficient with a regional transmission organization (RTO) structure overlaid over your market or utility operations?
Sokol: I think an RTO or independent system operator (ISO) that makes sure the transmission is operated efficiently, and is open access and not inappropriately being manipulated by parties, is certainly fine. It is only rational that if you have an RTO that oversees transmission over multiple utilities, the net cost shouldn’t be higher. It should not cost more for an ISO to come in and be dealing with a much larger footprint— and therefore an efficient footprint—than what it cost the individual utilities to do the work themselves. Frankly, some of the ISOs and RTOs have had a cost structure that is clearly not in the best interest of customers. And I think that is a focus FERC does have to pay attention to, and is. But assuming the RTO is in fact efficient and not building a new set of overhead and infrastructures that aren’t sustainable—because ultimately the customers pay all those costs—I think their function is certainly one that can be valuable and useful.