“NexGen” Utility Leaders

Back in August, we had a great conversation about “NexGen” utility people. It seems to me that “NexGen” utility leaders will be equally, if not more, critical to utility success going forward.

Last week, fellow Xpert Stewart Ramsay and I had a long discussion on this topic. Innovative, risk taker and cultural change leader were just a few of the traits that Stewart felt a future utility leader should possess.

Here are your questions:

How critical will new utility leadership be to the success of utilities in the future?

What traits and characteristics will these new leaders need to possess?

Of current utility leaders, which ones are modeling these attributes today?

MICHAEL HEYECK

I have read many leadership books, including numerous presidential biographies (being a history buff for decades), and I have been amazed how many times in our history there were indeed challenges that needed to be met with innovation, risk taking and cultural change. This is really not new.

Washington had no precedent to define what the United States aspired to be. Lincoln was focused on preserving the Union and culturally moved us beyond the “United States are” to the “United States is.” FDR and Reagan were optimists who inspired us to be optimists, too. You think we have challenges in the utility space?

My point is that we can learn from foundational elements of the past to inspire a future with what I call “Catalytic Leadership.”

So, as I usually do (and in my most humble opinion), I want to take you back in time so that our next generation leaders may be able to extrapolate the foundational elements needed for the next-generation utility (or whatever that space becomes). Below I excerpt from one of my AEP “sage advice” communications I wrote before I retired in 2013 to help next-generation leaders.

Over the years, I have read the writings of Philip Sporn, including his 1964 book, “Foundations in Engineering.” Sporn was American Electric Power’s (AEP’s) president from 1947 until 1961. He was AEP’s CEO, though the CEO title was not customarily used years ago. For most of Sporn’s time, AEP was known as American Gas & Electric Co. In November 1961, Sporn spoke about the “locus of discontent.” What is the locus of our discontent? The answer is we should always be discontent with the status quo.

[Aside: Sporn also held long ago the position of CIGRE U.S. national president for many years. I proudly hold that position today, and hope I can attain even half of his inspirational leadership.]

If you think we are changing fast today, think back to Sporn’s time. From his early years, he witnessed the birth of the electric utility industry, the U.S. moving from the rank of 40 something in the world militarily to number one in the world, the birth of nuclear power and the Cold War, and the average life expectancy advancing from about 45 years of age to well over 70 years of age. Sporn knew no boundaries and was a real change agent for our industry. When you think about it, changes in recent times have not been close to the order of the day in Sporn’s time. Yet, he pushed the envelope far more than anyone in our industry.

Sporn believed AEP (and all utilities) to be a technology-based business to fulfill a critical purpose in society. In fact, in 1963, several speeches by Sporn lamented the decline in engineering talent. Sound familiar? He thought engineering was the foundation and critical linkage between science and society. He believed utilities were vital to society, and it was our responsibility to advance for society.

Sporn in one of his 1963 speeches at Cornell University suggested one key to advance is “spotting the obvious.” He cited a key barrier to developing super-critical generating units was the strength of the piping. He noticed at AEP the turbine engineers were advancing turbines and the boiler engineers were advancing boilers. He asked both to work together to minimize piping. Voila! The turbine is now very close to the boiler reducing piping needs.

But there are times when the obvious needs to be ignored to foster advancement. In another of Sporn’s speeches, he cited the best thinkers of aviation in the 1700s and 1800s were trying to develop a vehicle that defied or countered the Law of Gravity. Yeah, they developed the balloon and other lighter than air vehicles, but society needed something better. They were stuck. Two brothers in a Dayton bicycle shop ignored this thinking to “foil” the obvious. Voila! We have an airplane.

Let me drift to Albert Einstein to reinforce this point. I have used his saying many times that “imagination is more important that knowledge.” Einstein worked in a patent office in Lucerne, Switzerland. Near the train station was a clock tower. He was bored with his patent duties and was daydreaming. He was trying to imagine the exact notion of an observer looking at the clock tower from an approaching train versus the observer on the platform. This was the birth of his Theory of Relativity, which replaced the theories of the day.

So I leave you the elements “locus of discontent,” “spotting the obvious” and “imagination is more important than knowledge.” Place these into action, by being a “catalytic leader” as follows...

CATALYST >> Inspire, nurture and encourage those (particularly) young in their careers to develop ideas into actions.

WITHOUT BOUNDARIES >> Imagine the idea. Spot the obvious. Then do it. No idea is too small.

SOLUTION ORIENTED >> Challenge the status quo. Remove impediments. Move beyond the dreams of one way to solve the problem.

Ideas without action are merely dreams, but there are times when a catalyst is needed. Make being a catalytic leader your mission as next-generation leaders.

A NEXT GENERATION LEADER IS...

• A leader who steps up and does not care about job and silo boundaries.
• A leader who sees a process improvement opportunity and follows through.
• A leader who does not work alone.
• A leader who teams with others to accomplish.
• A leader who cares for the safety of others.
• A leader who points out unsafe practices and stops a job.
• A leader who recognizes good efforts by others.
• A leader who is candid about areas that need improvement.
• A leader who is coach and mentor.
• A leader who does not have to wear a title.
• A leader who inspires others to lead by their actions.
• A leader who leads.

MATTHEW CORDARO

New utility leadership is of course very critical to the success of future utilities, as it has been since the industry began. Yes, new and different challenges are evolving to threaten the very existence of the traditional utility model, but hasn’t that always been the case. And hasn’t it always been the case that new leaders have continued to emerge to successfully guide the industry in dealing with these challenges.

Thinking back in my career, many critical developments had emerged with the potential to seriously impact the industry, similar in many ways to what we see today. For nostalgia purposes remember: regional blackouts; the birth of environmental rules and regulations; PURPA; OPEC and the Arab oil embargo; unprecedented inflation and recessions; extreme variations in the supply and cost of oil, gas, and coal; the ups and downs of nuclear power; deregulation and restructuring accompanied by rolling blackouts and both wholesale and retail competition; mega mergers and acquisitions; private versus public power; load curtailments in the face of rapid growth; labor strikes; and navigating lightning fast changes in technology. Of course there is much more, but this is what quickly came to me off the top of my head.

For heaven’s sake, how did we ever survive? Well, we did because of talented leadership that guided the industry in developing and implementing strategies to achieve success. Are there new leaders out there today with the traits and characteristics necessary to lead the utility industry through its current mine field of challenges? Of course there are.

I had the opportunity to teach classes on leadership to graduate students at a university. Not to go through the ABC’s of leadership I bored my students with, it is my opinion the most successful leaders are born and not made. They possess a charisma that is inherited and, ultimately, refined and developed along the way with training and experience. So even though we can list desirable traits and characteristics for new utility leaders, and that is okay, the very best have a quality that cannot be taught.

Most surely, new leaders are stepping forward today qualified and prepared to deal with major threats to the industry much as their predecessors were going back in the history. Although there are many present leaders who stand out, I would cite Ralph Izzo and Ralph LaRossa of PSEG and Anthony Earley of PGE as good examples. Apologies to the others not mentioned who should be on the list.

RICHARD LADROGA

I just had the distinct pleasure of reading Michael Heyeck’s response to this topic. I thoroughly enjoyed his step back to the past, which he used so well in order to frame his thoughts about what would be needed in the future. It also reminded me of the old adage, attributed to George Santayana “Those who cannot remember the past are condemned to repeat it.” My thoughts turned back to Nikola Tesla, Thomas Edison, George Westinghouse and other key pioneering figures in the electrical power industry, and the ongoing Industrial Revolution, which was taking place all around them. It was an exciting time to be sure, and new developments, inventions and ideas were exploding into society at a blistering pace. However, it was certainly not without its problems, setbacks and naysayers.

Someone once made a very telling comment during the advent and heyday of the use of steam power to drive the Industrial Revolution. The verbatim quote escapes me, but the essence of it said “There will be no more inventions now that we have steam power.”

Obviously, the quote was made as a result of the huge paradigm shift steam power brought to the Industrial Revolution, when compared to the use of windmills, waterwheels or animals. But the comment is completely laughable at this point in history. Here are a few other quotes (from people who are considered to be very intelligent leaders, who advanced technology of one sort or another), which emphasize the crippling nature of listening to those who would simply state that it cannot or should not be done, while discouraging those brave souls who may try something new — by suggesting to not even dare the attempt:

“Professor Goddard...does not know the relation of action to re-action, and the need to have something better than a vacuum against which to react....he only seems to lack the knowledge ladled out daily in high schools.” — 1920 The New York Times editorial on Robert Goddard’s rocket work. [The New York Times printed a retraction to this in 1969, when the Apollo 11 astronauts were on their way to the Moon.]

"You’ll never make it – four-piece groups are out." — Anonymous record company executive to the Beatles, 1962

“I can accept the theory of relativity as little as I can accept the existence of atoms and other such dogmas.” — Ernst Mach (1838-1916)

“X-rays will prove to be a hoax”; “Radio has no future”; “Heavier than air flying machines are impossible.” — Lord Kelvin, president, Royal Society, 1895

“The energy produced by the breaking down of the atom is a very poor kind of thing. Anyone who expects a source of power from the transformations of these atoms is talking moonshine.” — Ernest Rutherford, 1930

“There is not the slightest indication that nuclear energy will be obtainable.” — Albert Einstein, 1932

“As far as sinking a ship with a bomb is concerned, you just can’t do it.” — Rear Admiral Clark Woodward, 1939. (It’s interesting to note that he would be forced to rethink this position following the events of December 7, 1941.)

And then there’s this little gem: “Fooling around with alternating currents is just a waste of time. Nobody will use it, ever. It’s too dangerous. . . it could kill a man as quick as a bolt of lightning. Direct current is safe.”— Thomas Edison. Edison went to great lengths to impress his beliefs on society. He held public electrocutions of animals using the deadly “AC Power” of Tesla and Westinghouse. Tesla knew that his system was intrinsically better, and Westinghouse knew it, too, so they persisted. And the rest, as they say, is history.

My main point is that we are at a very important crossroads in the history of our planet, and it will take real visionaries to lead us into the future. In 1960, the world’s population was approximately 3 billion people. The world’s population has now grown to more than 7 billion people, and is projected to further increase to 9.5 billion by the year 2050. The demand for electricity continues to grow at a rapid pace, especially in developing regions such as China, India and the African continent. The advent of personal communication devices, tablets and computers has helped to drive the need for electricity all around the globe. The world’s electricity consumption was approximately 18,000 to 20,000 (TWh in 2012. The World Energy Council sees world electricity consumption increasing to more than 40,000 TWh in 2040. If we were to create a visual graph, it would illustrate the fact that we are rapidly approaching a tenuous point in the function that plots increasing population, increasing electrical and corresponding energy demand, and declining global resources, all converging at a critical knee point.

Future leaders in the electricity and energy industries will need to think way outside the box in order to find solutions to an extremely large problem. Mankind’s harnessing of electricity in the late 1800s was a major breakthrough that changed the entire world. At the time of its introduction to society, electric power was considered a modern miracle, a luxury only for the wealthy and an interesting curiosity. Now some 125 years later, mankind’s relationship with electricity has become one of total dependence. Literally all sectors and functions in modern society depend on the safe, reliable delivery of electricity. In fact, even our national security depends on it. We will need new breakthroughs of equal or even greater magnitude in the coming years in order to meet the growing demand. At a point some generations from the present, the energy resources we now use will become seriously depleted. Coal, oil and natural gas currently make up approximately 70% of the energy supply used to generate electricity today. These resources are non-renewable. Therefore, we will need advanced technologies that can replace the current supply.

That means we will need to advance existing technologies and also develop new ones. We will need to increase efficiencies in renewable resources such as solar, wind, thermal and ocean-based technologies. Those technologies currently provide a maximum of 5% of the energy used to generate the world’s electricity.

But it is doubtful that those technologies will be able to supply much more than 15% to 20% of the electrical demand at any time in the near future. Nuclear power is a more likely candidate. There are currently 438 nuclear reactors positioned around the world, with a new group of 67 reactors under construction or coming online. China, India and several other nations are leading this effort, with a total of 15 countries building these new nuclear powered generation facilities. Modern reactors have significantly improved safety margins, which should make this technology a more acceptable and trusted solution with regards to the general public. Rising electrical costs and dwindling resources may also factor into the acceptance of nuclear power as the major energy source driving generation. Nuclear fusion unfortunately seems to be as far off now as it was 25 years ago.

The technology needed to contain the “energy of the stars” is formidable, but I personally believe that if the world collectively pooled their resources and decided to really go after this technology, like the U.S. did with the Apollo Space Program, the difficulties could be overcome. The advancement of renewables, along with the development of improved nuclear fission technologies, and additional technologies such as fusion are key to the future of mankind. The demand for energy is not going to decline, and the continued burning of fossil fuels will have a detrimental effect on the earth’s atmosphere.

Lastly, we will need to go much further than just these technologies. There are a number of very forward-thinking ideas and concepts under consideration. These include undersea turbines that rely on ocean currents as the prime mover; anti-matter reactions; fuel cells and hydrogen technologies; thermonuclear fusion; sonoluminescence; advanced biomass technologies; high-altitude hovering wind farms (the spinning blades serve the dual purpose of keeping the equipment aloft, while generating electricity); green cell phone/tablet/PC chargers; and a whole host of other fascinating pioneering technologies.

The challenges to develop these technologies will be very formidable and technically quite difficult, but as long as the future leaders push ahead, as did their colleagues before them, the world’s electricity needs should be in good hands.

MIKE BEEHLER

The NxG utility leader will have many stakeholders to satisfy to include: customers, regulators, employees and the community. Foundational to this challenging mission is finding ways to balance these sometimes divergent interests while delivering shareholder value. The NxG utility leader will need to be:

• Visionary — Strategically lead the business to a place it might not normally go
• Ethical — Trust and integrity of character are the pillars of a good leader
• Communicative — The leader must articulate the vision early and often
• Collaborative — The leader will need to find internal champions and external partners to tangibly deliver the vision
• Entrepreneurial — Exploring and implementing many small ideas on the fringes of the current business.

MANI VADARI

Setting the context

The utility business is in the throes of change, the likes of which, we have not seen since the advent of wholesale de-regulation. Several major threats and opportunities have arisen over the horizon, some of which are listed below:

• The advent of distributed energy resources (DERs) and the proliferation of smart meters have brought an increased potential for retail-level deregulation, one in which others can intervene in the relationship between the utility and its customer by providing new and differentiated services.
• While reliability and resilience have always been important for the utility, the advent of storms such as Superstorm Sandy, which are becoming more prevalent, has led to the coining of a new term “resilience” and more utilities are being placed on the spotlight for lack of resilience.
• For the longest period of time, the entire relationship between the utility and the customer was as a meter location and a bill payer. This is now changing with the customer becoming at the center of the utility’s service delivery process resulting in increased focus on customer service and satisfaction.
• Customers are beginning to incorporate energy-related options into their premise; installations such as rooftop solar photovoltaics, storage, generator sets and electric cars are changing the dynamics of the relationship between the utility and the customer. In many of these cases, the utility is ending up paying the customer for delivering the customer’s excess electricity back to the grid.

This means that the utility’s role in being the primary deliverer of electricity to the home is being challenged and the shape of these challenges over time could go in several directions, some that we may not even be able to contemplate today.

So, what does this mean to the utility?

It is probably fair to expect that the utility’s role as the infrastructure provider regulated by the state PUCs may remain in the foreseeable future even though some have even begun to question that over a longer period of time. However, if the future of other regulated services such as telephones are any indication, one can definitely conclude that the future state will be very different than today.

Today’s utility leadership can no longer expect:

• The old regulatory regime of buying equipment that has a life-span of 40 years or so and amortize their investment (and the rates) over this amount of time. Some of the newer equipment being installed, such as Smart Meters may have a life of 5 to 10 years.
• The ability to install new generation based on the old regime of following the unit commitment and cost curves. Older coal-fired plants are being retired, newer ones are not being permitted and replacement generation is coming from a variety of sources, some gas-based and some based on renewable sources supported by a regime of trying to flatten the load curve. Some disruptors on the horizon include small nuclear and storage.
• Customers to be just purchasers of energy and paying a bill at the end of the month. The relationship between the customer and the utility is becoming much more complex with money flowing both ways resulting in new participants from other industries coming into the marketplace. These new entrants could even be other service providers such as internet, cable and so on, who already have a customer-service provider relationship with the customer.
• And others.

What does the next set of utility leaders need to be like?

The next set of utility leaders need to completely change the old paradigm of the relationship between the service provider and the customer. They will need to quickly move to the new paradigm, one in which there is competition for their customer base, one in which (for the first time), their customer base could get eroded.

The new utility leaders will need to be innovative, take risks, think outside the box and be completely transformative both within the organization and with the customer and the regulator. Let us look at some of these points:

• Innovative: The new leader must look ahead, look for competition from other sources (possibly from the customer itself) and be ready to tackle these new challenges both within and without.
• Transformative: The utility of the future will need to be nimble which will also reflect on the leadership. No longer, can one expect to lead a utility for the next 10+ years. The average life of the utility leadership is about 3-5 years at most. The person at the key roles will need to demonstrate the ability to deliver change and results in this time frame.
• Risk taker: The utility can no longer be just a regulated electricity provider. It will need to think outside the box and provide alternative products and services, some that could be regulated and some that may be unregulated.
• Culture change leader: As time moves forward, and as the customer may have more options to procure those same set of services as provided by the utility, it is imperative that the next set of leaders will need to drive culture change within the utility, one in which customer service increases dramatically.
• Redefine the customer and regulatory relationship: These changes coming down the pipeline, also impact the customer and the regulator. This means that the next leader will need to educate both these target segments of the population and bring them along the change curve.

The future looks very positive for the electric utility and its leadership – but only for those who embrace change. We may not be able to define what the future holds for the utility of the future, but we can confirm that it will be very different than the utility of today with more inclusion of DERs, customers having more choices from more providers and other changes.

Those who change will survive and even thrive in this new future. Those who don’t will go the way of the AT&T being bought out by a former upstart such as Cingular.

STEWART RAMSAY

These are great questions. It is appropriate for us as an industry to reflect on these and focus on finding meaningful answers and taking the steps necessary to build those leadership capabilities. In coming up with my response, I have had several conversations with my colleagues to get their perspectives from their work in helping to develop leaders and leadership within organizations. My special thanks to Gloria Kelly and Dave Hawkins for their significant contributions on this topic.

First, we need to acknowledge that the industry continues to go through significant change. This has been the case throughout my career. It seems now though, that the rate of change and the dimensions of change are far greater than they have been in the recent past. They also appear to be accelerating at a rate that we have not seen in this generation. The changes are both technological and policy or regulatory and are driven at least in part by desire on the part of our customers.

So, in answer to the first question, leadership will not only be essential for the success of utilities. Without strong and effective leadership helping to lead the organizations through the continual changes, the utilities as companies and as an industry will likely fail, or, in the best case, be relegated to a shell of their former selves.

Utilities do not accept change easily, and that is understandable. For most of their history, utilities have been focused on the long game, with investments based on meeting the needs over 30 to 50 years. Change brings uncertainty and uncertainty becomes problematic in a regulated environment that is dependent on certainty for investor support that in turn fuels the capital that enables the investments.

What we need to recognize is that customers, technology developers, our work forces and now even the regulators are moving at a much faster rate, and the long view is no longer valued or safe. In many jurisdictions, the fundamentals of the industry and our structure are being rewritten. So, in essence, the biggest requirement for leaders in the industry is to become outstanding leaders of change. It is critical that leaders fully accept and embrace that ‘Change’ is necessary … to not change may mean we don’t survive.

Many organizations already focus on change management, which implies that we are actively managing the change. In truth, change is happening around us, to us and in many cases without any direct input from us. To believe that we can control change is naïve. What we can do as leaders is lead and help our organizations make sense of the changes and see how they can be successful in the face of change or as a result of the change. Our efforts to control, to push, to dominate are based on assumptions that don’t serve us as effectively as others might.

We lead people, we manage tasks and things.

Effective leaders recognize that our organizations, the collection of human beings, are ‘up to something’ together, be it in our businesses, in our charitable work, in our community, etc. Our goal as leaders is to open new futures, to be an example for others and to move forward always knowing fully that change is a constant and our only endeavor is to change proactively and successfully (versus trying to hold it off and ignore it).  We can take the perspective that the organization as a ‘living system’ includes wholeness (versus parts), listening to the environment (versus isolation), experimentation (versus doing only what we know), relationship (versus separateness) and agility (versus rigid structures).

It is also critically important that we recognize that leaders are made by people choosing to follow. We all know of people in leadership roles that are not leading, and we all know of people in our organizations that lead without being in leadership roles.

So what will it take to lead utilities into the next generation? We suggest the following characteristics, believing that to lead change is to:

• Be trusted as a leader by our people – in our sincerity and in our competence
• Be trusted as a leader by our people that we act in accordance with what matters to them (as well as to us)
• Attend to the questions:
  • Who are we?
  • Where is the world going?
  • Who are we going to be in a world that is changing?
  • What do we need to do to become who we want to be?
• Have a clear picture of where we are headed and be able to make that clear to our people as well, showing how this connects to what’s important to them
• Produce alignment with the new direction and know when this has not been produced and also know what action is possible next (alignment is not buy-in, we are not selling, we are leading)
• Declare a future that is compelling, not an extension of the past, a future that draws us and our people towards it
• Engage and work with others in ways that recurrently produce value and reduce waste, and serve as a role model to others
• Make strong declarations about not only the future destination, but also about strategies, accountabilities and resources available that enable the gap to be closed
• Manage impeccably the ‘things’ … these include (and not limited to) ensuring all key processes are present and aligned for the organization, ensuring all the HR processes support the goals of the organization, designing best structure for fulfillment, ensuring the needed IT processes are in place and that the assets are managed effectively.
• Communicate in a manner that focuses and remembers at all times that it is what our people hear and interpret that matters
• Learn to change ourselves continuously and with courage. This involves re-examining our assumptions, our beliefs, our thinking, our habits. Looking to where we are producing value for others and where we are not, and wherever not, finding new capabilities that better enable us as leaders. This also entails seeing that when we face a problem ‘out there’, we look first ‘in here’ for what needs changing.

We, as leaders, must look first at ourselves for personal learning and change. Only then can we reasonably invite others to learn, grow and change. Leaders recognize that change is a choice that is made by the individual. We cannot change others. We can lead them and invite them to change through our example.

Leading — particularly in times of change — is a practice of agility and of building strong networks of relationships throughout our organizations as well as with customers, partners, stakeholders and adversaries. It is about caring for those we are leading and about tuning to the world around us for windows of opportunity through which we can move forward.