(September 2012) Our annual financial ranking shows some remarkable shifts among the industry’s shareholder value leaders. Despite flat demand and low commodity prices, investor-owned...
The 40 Best Energy Companies
pipelines, transmission systems and power plants, which it can build in Virginia under a 2009 rate case settlement that provides special power-plant riders with a 12.3 percent rate of return.
“We refocused to become a low-risk energy infrastructure company with a growing dividend,” McGettrick says. “We were able to grow our dividend by 30 percent from 2007 to 2009, and we’ll continue growing it for the next two years. At the same time our payout ratio is modest, now 55 percent and going to 60 or 65 percent. That gives us flexibility that many other companies don’t have.”
Further east in New Jersey, PSEG has refocused its strategy by divesting international assets and concentrating on domestic business. And the company recently completed a cap-ex program that improved environmental performance at its coal-fired power fleet. “Other states now are questioning whether they should invest in coal plants,” Dorsa says. “We’re relatively set up, because we try to take a long-term view and think about the issues well ahead of time.”
Toward that end, PSEG now is investing in unregulated solar generation, including a 12-MW, $100 million photovoltaic installation in Ohio and a 15-MW project under construction in Jacksonville, Fla. “We don’t look at these investments as loss-leaders or early incubation things. They generate value for our shareholders,” Dorsa says. “We’re pretty excited about it and look to grow that business.”
To the west, in Pennsylvania and Illinois, Exelon is likewise looking to expand its rate base, while also making the most of unregulated business opportunities. The company considers this a “protect-and-grow” strategy, according to Patterson. “We’re protecting the value that we’ve created, and we’re growing the long-term value,” he says.
Specifically, Exelon is uprating its nuclear fleet to add 1,500 MW of new capacity, which Patterson says the company can accomplish “for half the cost of a new reactor, with substantially less risk and no incremental O&M (operations and maintenance cost.)” The company is planning regulated transmission investments to serve reliability needs and to take advantage of FERC incentive rates, as well as merchant transmission investments to support its wholesale energy business. And finally it plans to spend $700 million on distribution infrastructure, including a PECO project that won a $200 million ARRA smart-grid stimulus grant.
Like Exelon, PSEG and Dominion, companies throughout the F40 ranking exemplify a multitude of strategic approaches—with greater or less emphasis on regulated and unregulated investments. “There’s no homogeneous answer to what drives long-term performance,” Laurens says. “The most successful companies are those that execute a strategy that’s consistent with the company’s core competencies and its market context—whether it’s a regulated or non-regulated business.”
So the unifying element for success isn’t a formulaic strategy, but a rigorous approach to strategic planning and execution. Perhaps more than anything else, the F40 makes this clear, with a diversity of sizes, strategies and geographies represented among this year’s top three companies, all of whom have been perennial performers in the F40 ( see Figure 3 ). Exelon, for instance, has consistently ranked in the F40’s top five, with a multi-market nuclear-focused