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2008 CEO Forum: Conservation Compact

Utilities test new models to encourage investments in efficiency and conservation.

Fortnightly Magazine - June 2008

and business, and if it is then we will work with regulators to move in that direction.

Dutton: The ability to have two-way communications with customers through the meter is a very attractive proposition and we’re very interested in it, consistent with the idea that we grow our business by investing in hard assets associated with delivering electricity. Included in that delivery proposition is using technology to help our customers save money. I think there’s some potential upside there for our customers that will have the effect of reducing their bills and making their lives better.

Fortnightly: Do you think the utility business proposition is changing in America, given the combined pressures of resource constraints, environmental concerns and evolving technology? If so, how does the regulatory compact need to change?

Dutton: It is changing, but I’d submit that’s nothing new. Really, since the late 1960s, when we stopped being a declining-cost business, we’ve been under pressure as we operate within the regulatory compact.

There’s no doubt that the carbon question, on a nationwide basis, will present us with some real challenges. Shifting away from a coal-fired base in electric generation is a major shift, and it’s going to require the efforts of nearly everyone. But we can’t just simply say we’re not going to do it because costs are going to go up. Society as a whole will benefit from that shift. We have to demonstrate the value in making the shift, and work with our political and regulatory leaders to enable investments in alternatives, so if costs go up there’s broad-based support.

Powell: There are good and valid reasons for utilities to have staying power and avoid getting caught up in the latest fad. But about four years ago I started seeing a tremendous shift in this industry, particularly on the issue of climate change and the role of utilities. It has gone from very traditional, with staunch support for coal, to now almost completely the opposite. CEOs are tripping on themselves to be leaders in the transformation, in terms of how the industry needs to meet the demands of society.

The fundamental fact is electric utility investors can profit from that, but unlike other parts of the energy sector, those profits are capped. Consumers should take great comfort from that. If the utility does well and earns close to our allowed rate of return, it’s a good thing for customers because it lowers the cost of our capital. It’s a good thing if we have good ratings and perform well, and run as efficiently and innovatively as possible. The focus, for regulators, should be on determining whether the investments are necessary, prudent and efficient.

Nuclear Progress

When Progress Energy CEO Robert McGehee died suddenly during a trip overseas last October, he left the company in the midst of a gauntlet of changes, challenges and projects—including plans to add four new nuclear reactors at sites in Florida and South Carolina.

Fortunately McGehee’s management philosophy included a careful focus on succession planning. Bill Johnson, formerly president and COO, was able to pick