Energy Efficiency, Nuclear, Solar

Utility CEOs of the Year 2014

Issue 1 and Volume 93.

by Kristen Wright, senior editor

The editors at Electric Light & Power magazine in the fall asked readers to nominate CEOs of North American electric utilities in two categories. The large utility CEO must work at a North American utility having 400,000 or more customers; the small utility CEO must work at a North American utility having fewer than 400,000 customers.

Theodore F. Craver Jr.   The CEO of the Year in the large utility division is Theodore “Ted” F. Craver Jr., chairman, president and CEO of Edison International. Rosemead, California,-based Edison International is the parent company of Southern California Edison, a 125-year-old electric utility that serves some 14 million customers.
Theodore “Ted” F. Craver Jr.,
Edison International
Joseph A. Isabella   The CEO of the Year in the small utility division is Joseph A. Isabella, director of Vineland Municipal Electric Utilities in southwestern New Jersey. The utility serves more than 30,000 electric and water customers.
Joseph A. Isabella,
Vineland Municipal Electric Utilities

“When Mr. Craver and Mr. Isabella took the reins of their respective utilities, they also changed the stories of their companies,” said Teresa Hansen, editor in chief of Electric Light & Power magazine. “Mr. Craver has led Edison International through some of the toughest economic and regulatory times in California, yet the company has emerged stronger. And under Mr. Isabella’s leadership, his New Jersey municipal utility has reduced rates three times and has incorporated enough solar generation to save the city $2.4 million annually. These execs teach all of us a great lesson: They love their jobs, and when others dismiss a goal as impossible, Mr. Craver and Mr. Isabella find a creative way to achieve it.”

Hansen presented the Utility CEO of the Year awards Feb. 2, 2015, in San Diego during the sixth annual Electric Light & Power Executive Conference.

Electric Light & Power interviewed the pair before the awards ceremony.

ELP: When did you decide to become a utility leader? How did you get where you are?

Craver: I joined Edison International in 1996 as vice president and treasurer-ironically enough, the same day Governor Wilson signed the California electric deregulation bill. Educational background: double major in economics and international relations for my BA, 1974, and an MBA, both from the University of Southern California.

I started my career in banking in 1973 while finishing my senior year of undergrad. I was in banking for 23 years with three different banking companies-Security Pacific Bank, Bankers Trust Company of NY and First Interstate Bank-before moving to the utility business. My predecessor, John Bryson, recruited me to Edison International in part because I had experienced deregulation of the banking industry, and he believed I could help Edison navigate its journey into deregulation. At Edison, I had a succession of responsibilities in the regulated utility (Southern California Edison (SCE)) mostly involving implementing deregulation: CEO of our unregulated retail business (Edison Enterprises); CFO of Edison International, including during the time of the California Energy Crisis in 2000-2001 and the restructuring of our competitive generation company in 2003-2004; CEO of our competitive generation company (EME); and finally as CEO of Edison International in 2008. These varied experiences allowed me to gain experience in the various parts of our regulated and unregulated businesses and in various leadership capacities.

Isabella: I don’t recall deciding to become a utility leader. Where I find myself today is the result of an evolutionary process. It started with where I would go to school and progressed from there. Many seemingly minor decisions were made along the way, any one of which, if made differently, would have changed the outcome.

I graduated from the U.S. Merchant Marine Academy with a BS in Marine Engineering and an obligation to serve at sea for a minimum of three years. I sailed the required time as a ship board engineering officer but knew early on that I wanted to continue my career in the utility industry. After all, a ship at sea is really a self-contained, mobile, vertically integrated, small electric, water and sewer utility.

My first job ashore was as a turbine engineer with General Electric for three years. I then moved to an investor-owned electric utility for 25 years, holding various positions ending with general manager of energy supply. After a merger, I moved on to two other jobs in the energy supply and regulatory areas until coming to Vineland Municipal Electric Utility as head of energy supply in 2003. I became director of municipal utilities in 2008 and have held that position since. During my early career I went to graduate school, earning a master’s degree in engineering management from Drexel University.

ELP:What has been your most difficult utility decision, and what was the outcome?

Craver: There have been several, mostly involving the major changes we needed to implement as the industry transforms. Any major change involves a need to look down the road and around corners strategically and manage stakeholder issues effectively-be they with employees, customers, politicians, regulators or the communities we serve. The 2013 decision to permanently close our nuclear plant before its license expired is one of the most difficult decisions our company has had to make, and certainly one of the most difficult ones for me. But ultimately we concluded it was, on balance, in the best long-term interests of our customers, communities and shareholders to do so.

Isabella: By far, the most difficult decisions I have had to make were about people. The engineering mind is trained to solve problems, which always seem to have clear definition between right and wrong answers. In contrast, decisions about people always seem to present various shades of gray. What pleases someone will make another mad. In my job, even though people decisions are most difficult, they are the most important ones I am called upon to make.

My primary role is to build a team. The team and I develop the strategy that provides for the best chance for success. My main job is to monitor the team, make sure they have what they need to do the job and remove obstacles which get in their way. The outcomes depend on the effectiveness of the team in dealing with the defined issues, as well as any emergent issues that arise.

Craver holds regular sessions with employees in the field, such as this session at the Long Beach Service Center. These events are popular and well-attended
Craver holds regular sessions with employees in the field, such as this session at the Long Beach Service Center. These events are popular and well-attended.

ELP:What problems are unique to your utility, and how have you overcome them?

Craver: Our principal business is our regulated utility in Southern California. A major-perhaps the major-policy imperative in California, from the governor, to the Legislature, to the voting public-is to aggressively address climate change. California policymakers recognize that the state can’t solve all of global warming entirely within its borders, but it believes that being the equivalent of the eighth-largest economy in the world by GDP, with a population of 37 million, California can lead the way in developing the policies and mechanisms for addressing global warming. As a utility in a state with this strongly held belief, we feel it is critical to find the means to support these policy objectives while still delivering on our core mission of providing our customers with safe, reliable and affordable power. Ultimately, a utility can only be successful if it serves the will and needs of its customers and communities. This has led us to invest heavily in our distribution and transmission systems to create a 21st-century power network that facilitates carbon reduction through renewable generation and distributed energy resources-distributed generation, storage, electric vehicles, energy efficiency and demand response programs-and that integrates seamlessly with the bulk power system. We are well on our way to creating this modern system that flexibly and reliably manages two-way flows of electricity.

Isabella: As a utility in the municipal sector, I’m certain that VMEU’s major challenge is not unique. Our major challenge is operating a highly complex and technical business with long planning horizons in a political environment. We are a function of local government and do not have an autonomous board of directors. Local government has elections every four years with all the vitriol and disagreements that local elections bring. Utility strategy is often at issue, and rarely is there universal agreement. The utility strategy implementation horizon is almost always longer than four years. Thus, there is a real risk of being stopped midstream. The major challenge for us is to make sure the baton is passed cleanly from administration to administration. Clear communications presented at a level that normal, nontechnical people can understand are critical to overcoming this challenge.

In addition, communications with the community is also very important. I find bill stuffers to have limited value. Most people throw them away without reading them. Social media is taking on a more important role. I have found direct communications with the citizens to be most effective. We hold regular utility forums where our managers update the community on major projects and issues. People are encouraged to ask questions and offer input. We listen.

In essence, the best three ways to overcome the political challenge is to communicate, communicate and then communicate some more.

ELP:What is a typical day for you?

Craver: Currently, I’m away from my office at least a third of the time meeting with policymakers, customers, industry leaders and community leaders. When I’m in the office, I am frequently engaged with our senior team, mostly on strategy and people issues, and with our employees, listening to their concerns and ideas and explaining our strategy and priorities. Like most CEOs, a good deal of time is also spent with the board and with investors.

Isabella: One of the joys of my job is that there doesn’t seem to be a typical day. There are always new issues and challenges awaiting resolution. It is not unusual that what I planned to do on a particular day has no resemblance to what actually gets accomplished on that day.

I truly love my job because the people are my community. We are small enough that I know all of the employees. I know many of the families. I make it a point to spend a portion of each day moving around, talking to people, and finding out how they are doing on their jobs. In the process, I often find out how their child is doing in school or the status of a sick family member. Employees often share life’s joys and sorrows with me, and I feel privileged to be part of their lives.

Joseph A. Isabella at the Clayville Unit 1 construction site
Joseph A. Isabella at the Clayville Unit 1 construction site.

ELP: How have you kept your company afloat in these difficult economic and regulatory times?

Craver: By remaining focused on the future-not so much as we wish it would be, but as we realistically think it most likely will be. My team of senior leaders and my board are exceptional. We have been through a great deal together. We remained focused on the issues at hand and had a strong belief that we could overcome the challenges and emerge better for the experience with a stronger, well-positioned company.

Isabella: The last several years have been very trying; however, some of the symptoms of the poor economy have proven advantageous to us. Over the last six years, our main focus has been to rebuild a utility which had been rendered obsolete by the lack of investment over the previous 30 years. Inherent within the recent economic downturn have been record-low interest rates and extremely competitive building trades contractors. These were ideal conditions to rebuild the utility. We seized the opportunity. We retired our old, environmentally challenged generating units and replaced them with new, efficient, natural gas-fired units. We upgraded and hardened our distribution system to improve reliability. We upgraded our customer information system. In essence, we took advantage of the opportunities presented by the tough economic times to rebuild our utility for the future so we would be ready for the economic recovery.

ELP: Mr. Craver, are you tired of talking about San Onofre Nuclear Generating Station?

Craver: We made the decision that had to be made for the overall benefit of our customers and communities. Going forward, we have two main objectives. One, secure replacement energy resources needed for grid reliability; and two, decommission San Onofre safely, efficiently and as quickly as practical.

ELP: What’s your best summarization of the decommissioning and what it means for California, and the nation?

Craver: We want to do an excellent job of decommissioning SONGS. The communities surrounding the plant have been host to 40 years of safe, low-cost power generation from SONGS, and we want to do a first-class job of restoring the site and managing the radiological material. We want to be a model for how to decommission a nuclear plant and do right by our host communities. This means we need to be excellent in working with all the various stakeholders in the communities, a good steward of the decommissioning funds, and safely and quickly complete the job. Obviously, over the years to come, there will be several nuclear plants in the industry that must be decommissioned, and we want to provide good learning for others. For instance, we think our Community Engagement Panel, a cross section of nearly 20 community leaders who operate as a conduit for identifying issues, education and input between the community and the company on decommissioning, is an example of how to strengthen engagement with the communities around the plant.

ELP: Mr. Isabella, under your direction, Vineland has decreased rates three times. How in the world does something like this happen that many times?

Isabella: Back in 2008, at the beginning of my appointment as director, VMEU was faced with many seemingly insurmountable challenges from the energy supply perspective. Fuel and spot energy prices were surging. PJM initiated a new capacity market, which had the immediate impact of increasing capacity charges in our region by a factor of almost 200 with no offsetting decrease in energy costs. On top of that, Vineland is located at the eastern end of the West-to-East transmission-constrained PJM system. This resulted in high transmission congestion costs during high load periods. VMEU’s generation at the time was old, unreliable, high-cost and had trouble meeting environmental permit requirements. Thus, it was an ineffective hedge to these market-driven upward pressures on rates.

Where to begin? First, the old units were retired to protect the environment. They were replaced with a well-designed, well-hedged, multiyear energy supply portfolio. This reduced cost and allowed time to install permanent fixes-the first rate decrease.

Second, with the state’s high value of solar incentives coupled with the federal investment tax credits available for solar, the time was right to go out for a request for proposals for solar development within Vineland. As a result, five long-term power purchase agreements were signed at below-market prices-the second rate decrease.

Third, a generation replacement program was initiated where the old, inefficient steam units were being replaced with efficient, natural gas-fired, simple-cycle gas turbines. These have the effect of cutting the top off the energy cost curve, providing the transmission congestion hedge, and providing capacity to fulfill PJM capacity requirements without being subject to volatile RPM capacity costs. The first unit went commercial in June 2012-the third rate decrease-and a second unit is under construction and will come online in June 2015.

To summarize, VMEU has been very busy on the supply side eliminating high and extremely volatile market costs and replacing them with stable, controllable and below-market internal costs.

ELP: How do you expect the electric utility industry to change in the next 20 years?

Craver: A few years ago, I started using the phrase, “The electric power industry will change more in the next 10 years than it has over the last 100 years,” mostly to dramatize for our employees that we needed to change how we think about and manage our business going forward. Of course, no one really knows how the industry will evolve. My best guess is we will be surprised by just how efficient we become in all our uses of natural resources, including energy, meaning I am skeptical that total kilowatt-hours of demand from utilities will increase even as more of our economy becomes electrified. I also believe technological advances in how energy is produced, delivered and consumed will only accelerate. This inevitably will produce significant changes in the role of the regulated utility. And I think we are more likely than not to be surprised by how quickly it changes.

One area on which we are heavily focused is building the next-generation grid. The 21st-century grid must be capable of facilitating distributed energy resources and customers’ demands for more flexibility and choice. It must be able to handle two-way flow of electricity while remaining stable and reliable. It must be made “smarter” to integrate digital meters, smart appliances and electric vehicles. It also must be hardened to guard against cyberattacks and better withstand storms. In my opinion, many of these changes will be previewed in states like California, New York, Massachusetts, Minnesota, Maryland and Colorado. Although challenging, I believe it is generally an advantage to be located in these test case jurisdictions because we will have to figure it out first. The ability to develop innovative approaches to enable this massive transformation will be one of the key distinguishing characteristics of the successful power companies.

Isabella: The industry’s controlling factor for the foreseeable future will undoubtedly be environmental pressure. In my opinion, the debate about global climate change is over. The world now recognizes the dire consequences of the status quo. The long-term impacts to the utility industry will be profound. I don’t know about 20 years-it undoubtedly will take much longer-but zero-carbon emissions will ultimately be the goal. This will mean intense interest in energy efficiency to reduce the amount of energy consumed. Nuclear power and renewables such as solar, wind and hydro will be the means to eliminate carbon combustion and achieve zero-carbon emissions. Combustion will be limited to hydrogen for uses such as peaking generation. The cost of zero-carbon electric generation will be significant. It may change our energy standard of living.

ELP: The next two generations of utility CEOs likely read Electric Light & Power magazine if they’re currently in the industry. What should they do to get your job when you retire or after your successor retires?

Craver: It is difficult to pick out a few things, but I will give it a shot. First, as your question implies, it is important to be a lifelong learner, to have a deep curiosity, to constantly read from a wide range of sources both inside and outside the industry. Technology, ideas, creativity and innovation are only going to become increasingly important-which isn’t the same thing as simply knowing what’s the latest gizmo, fad or what everyone is talking about. Second, to accomplish things requires encouraging people to move to a common goal. This requires people skills, which I believe starts with genuinely caring for the people you interact with and helping them, inspiring them to be great. Third, the CEO job is naturally difficult-ask any CEO. You need to find the thrill, wonder, fun and humor in what you do. Finding the fun and funny side when you are shoulder to shoulder with your colleagues makes all the difference in the world. The sense of camaraderie with my teammates has been the secret sauce for my enjoyment of the job.

Isabella: My advice to them is threefold.

First, answer the previous question for yourself. Find a way to be the go-to person in your company on what you see as the major challenge facing the industry in the future. To be safe, pick a few.

Second, get familiar with the actual physical work necessary to make a utility successful. What does it take for a line crew to recover from a serious storm both quickly and safely? What challenges do power plant personnel face in recovering from forced outages? What does it take for customer service representatives to be empathetic yet firm when dealing with irate customers? Effective leaders understand what they are requiring from their people.

Third, make sure you properly balance your life between work and family. Success in your professional life will mean little if you burn out along the way or, more importantly, miss your children growing up.

ELP: Mr. Craver, you received more than one nomination for this award, and each mentioned your humility and down-to-earth interactions with employees and the community-I hear you even send handwritten notes to employees and you’ve served food in the employee cafeteria. Is all this interaction a result of an innate personality trait, or is it a learned business tactic-I know, the question sounds funny, but entire customer service conferences are devoted to this.

Craver: Truth be told, it is the contact with our employees that consistently rescues my mood. I’ve lost count of the number of times I have gone into an employee roundtable, on a facility tour or simply gone to the cafeteria or walked the halls where I come away feeling re-energized and recommitted. I think it is because it makes me get outside of myself and whatever I’m thinking about and gets me into thinking about what is important to them. As human beings, perhaps especially as CEOs, we can become too self-absorbed. Talking with employees face to face, finding a way to say, “Thank you for being here and helping our customers or helping the Edison team,” helps keep me grounded in what’s important. And I must say, it is amazing how much employees and customers appreciate a simple handwritten note. I enjoy writing them, and I like that the notes make people feel good and recognized. That’s why I write them.

ELP: Mr. Isabella, in 2015, Vineland will be the only municipal electric utility in New Jersey that can supply all of its generating capacity through renewables and your own natural gas-fired generators. Tell me more about that. You’re kind of known for your solar.

Isabella: The history of the beginning of VMEU helps explain its current generation ethic. VMEU was formed in 1899. The city fathers at the time were determined to install these new-fangled electric lights along the city’s main artery, Landis Avenue. No regional electric utility wanted to make the investment to serve such a small and remote load, so the city fathers decided to do it themselves. They erected their own power plant and small distribution system. Thus, VMEU was born with a chip on its shoulder and a do-it-yourself generation ethic that still exists today.

What prompts our current generation strategy has more to do with economics. In 2006-2007 when PJM initiated its new capacity market, capacity costs for VMEU went from next to nothing to close to $200 per megawatt-day. In layman’s terms, VMEU’s cost went up about 12 percent overnight for no apparent reason. Capacity pricing is, in a large part, based on the cost of capital for a developer to install generation. As a municipal, VMEU has access to lower interest rates through tax-free municipal bonds. We were able to install our own capacity to serve our customers at a fraction of the PJM capacity market clearing price. Hence, we were able to follow the established generation ethic and lower customer cost at the same time.

Solar is an outgrowth of the generation ethic with a personal touch for me. I personally believe that global climate change is the most significant issue facing the utility industry today. We, as the leaders of the industry, are in a position and have the obligation to do something about it. Between VMEU’s long-term solar PPAs and customer behind-the-meter installations, Vineland has approximately 35 megawatts of installed solar power. This represents about 20 percent of VMEU’s peak capacity and produces roughly 7 percent of its total energy requirement. Coupled with the hydro power contract in its supply portfolio, Vineland uses carbon-free energy equivalent to the carbon emission of 10,000 average cars. That number seems insignificant in the overall scheme of things until one considers there are only about 30,000 cars registered in the city. A third of the carbon emissions emitted by cars in Vineland are offset by our energy supply program. I’m no expert, but I suspect that if that were the case worldwide, global climate change would be slowed considerably.

It is important to me to be able to look at my grandchildren and know that I have done what I could to leave them a sustainable earth.

ELP: How do you spend your spare time?

Craver: I love competing in sports-triathlons, cycling, running 5k’s to marathons, backpacking, kayaking. I have a wonderful, fun and supportive family I enjoy being with. My wife of over 40 years is my best friend and the person I most enjoy being with.

Isabella: I spend most of my spare time doing family activities. We like boating, fishing and traveling. I also have a private pilot’s license and like to fly. My wife would also tell you I watch too much TV, especially professional football-I would have to agree with her. Go Eagles!

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