Kathleen Davis, associate editor
Bill Downey (left) and Mike Chesser (right)
These days our industry has two camps: One is building walls around a back-to-basics strategy and divesting unregulated businesses; the other continues to herald deregulation and opening markets and chides the first for lacking vision. They are on opposite sides of the power lake-with few canoe trips to visit the enemy.
Great Plains Energy, therefore, is a surprising and unusual find-a camper at home on both sides of the lake with little concept of how the dividing gulf got so very wide.
The company was established in October of 2001 and contains two major holdings, Kansas City Power & Light (KCP&L) and Strategic Energy. (A third holding, KLT Gas, is currently up for sale.) KCP&L keeps Great Plains in the regulated camp. The utility, headquartered in Kansas City, Mo., serves counties in western Missouri and eastern Kansas. Strategic Energy, on the other hand, is an unregulated arm that manages procurement for commercial, institutional and government customers in states offering retail choice.
In late June, EL&P spoke with Mike Chesser, chairman and CEO of Great Plains Energy, and Bill Downey, president and chief operating officer, about the company’s strategy for straddling tradition and vision-and the secrets behind its incredible annual growth rate (earnings per share) last year.
Chesser, a fairly new CEO to Great Plains who joined in October of 2003, has a long history in the industry, beginning his career with Baltimore Gas and Electric and serving as president and chief operating officer at Atlantic Energy, as well as president and CEO at GPU Energy. When asked how he plans to put his personal stamp on the company, Chesser chuckled and commented that such drastic action was “completely unnecessary.”
“I didn’t come in to Great Plains as a ‘fixer.’ There isn’t any problem with the company’s core strategy,” he stated. “In fact, I stepped into quite an efficient structure, one with a strong culture and a solid plan for the future. I’m just honored to helm such an organization.”
Such a statement should make Bill Downey proud. He’s been around-with KCP&L before Great Plains-since 2000 and was named to his current position at the same time Chesser came on board. Downey is also president and CEO of KCP&L, whose progressive plan for the future includes significant investment in wind generation.
Planning for renewables use-they plan to invest in up to 200 MW of wind generation over the next few years-is one of the areas that may seem progressive overall to other industry insiders, but for Downey and KCP&L, it’s just good business sense. Pointing out that environmental restrictions on traditional fuels are bound to get tighter (and the fact that Kansas is quite known for a good, stiff breeze), Downey stated that he didn’t know how any other decision would be logical.
“It just makes sense,” he said. “There’s no other way to say it. It’s positive fuel diversification. It takes into account our customers’ desires for greener energy, and it’s a good investment for the future.”
Indeed, Great Plains Energy spends a large amount of time and effort planning for the future-both regulated and non-regulated. When formed in 2001, they aimed for an ambitious annual growth of five percent earnings per share (ambitious for a traditional regulated utility, let’s say). When asked about their progress in this area during our talk, Chesser stated that, in fact, the company saw a good thirteen percent growth in that area just last year. He credits their investment in Strategic Energy as the source of that leap, and he warns other companies not to get too cozy in their “back to basics” strategy.
“Some might see our investment in a non-regulated company as a bit of a risk, but I actually think just the opposite,” Chesser stated. “I don’t think we’ll be returning to the exact structure of the traditional utility. So, our investment in retail energy and mapping out other strategies, is more about hedging against the future than any return to basics could be. It’s a bit of insurance.”
“The eggs are broken. They’re scrambled,” Downey added. “The industry is reconfigured, and you can’t be comfortable thinking we’re going back to basics or an old model-because that old model has changed dramatically. And, it will continue to evolve.”
“Having this foot in each camp, as Great Plains does, and understanding new technologies, it’s very cost effective,” he said.
And, Great Plains has some interesting ideas for charting the future, including a concept of seeing themselves as a distributed utility, utilizing distributed generation technologies and the Internet’s two-way communication capabilities to allow them to serve customers outside of their traditional regional island. It’s a unique concept that Chesser sees developing across the industry.
“If what I’m saying is true-that the distributed utility concept is likely to evolve-this particular model of ours gives us a lot of option value,” he stated. “On the utilities side, we obviously plan to pioneer the implementation of some of those [DG and communications] technologies and that kind of thinking. And, then, in other states, where Strategic Energy does business, they are ideally positioned to work on behalf of the customers to help them plug into the utility system more broadly. They can learn from us, and we can learn from them. There is actually some long-term potential synergy between the two businesses.”
While both Chesser and Downey see Great Plains with a unique vision of the future that involves using traditional values-winning culture, good customer service-to enhance new technology, Chesser also sees the overall industry moving in that direction as well, although perhaps not as quickly.
“I would characterize this industry as evolving. I do think that our infrastructure is aging and customer needs are increasing significantly-particularly for reliability and affordability,” he said. “There are significant environmental impacts that are going to get more and more attention-carbon, for example.
“The responsible utility will be one who has a plan in place that allows its company to evolve with it,” he added.
Downey agreed, stating that while the industry is currently in an “interesting lull,” technology and commercial realities of this business continue to move forward.
“I spent some time with the staff at EPRI just recently,” he commented. “And, what seems very clear long-term is that all of the technologies we currently use to make the product are going to be required, as well as something beyond that to meet the world’s energy requirements in the future.”
“Smart companies will be looking at that,” Downey stated.
It’s obvious that Great Plains Energy is positioning itself to be one of those smart companies, and, while Chesser gives credit for that to many aspects, including their corporate culture and five-year plan, he and Downey agree that their major company strength hinges on a more traditional concept: the customer. And, that’s a camp they won’t be straying from in the future, no matter what strategy they implement.
“What sets us apart? We deliver outstanding value to our customers, and the regulated side has low cost and outstanding reliability. It’s the energy security we have with coal and nuclear. We are recognized in the region as being an outstanding value provider. On the Strategic side, their whole business model was built out of their roots as energy consultants. So, they understand what drives value and have been very innovative in putting together packages to maximize that value,” Chesser stated.
“I think being recognized as that value provider is a key competitive advantage,” he added. “For us, really for anyone willing to take that time and make that effort.”