Jane Lewis-Raymond is a partner in Parker Poe's Charlotte office, practicing with the firm's Public Company Growth & Compliance and Energy groups. She has over 25 years of legal experience, including a decade as general counsel and chief compliance officer of a publicly traded company, Piedmont Natural Gas.

PUF's Steve Mitnick: Where were you six months ago?

Jane Lewis-Raymond:Today is the six-month anniversary of the closing of Duke Energy's acquisition of Piedmont Natural Gas. My last title at Piedmont was Chief Legal Officer, so serving as the chief general counsel, I had the very distinct pleasure of structuring the acquisition of Piedmont by Duke.

I worked with incredibly talented outside counsel to help structure and negotiate the deal and the entire process that led up to the deal.

PUF's Steve Mitnick: Chief Legal Officer, Chief General Counsel of Piedmont Gas. That must not have been an easy job.

Jane Lewis-Raymond: It was a joy of a job because I never knew what was going to walk into my office on any given day. With a million natural gas customers in the states of North Carolina, South Carolina, and Tennessee, and as a publicly traded company with assets of around five billion dollars, my team and I were faced with the entire gamut of not only legal issues, but regulatory compliance issues as well. All of those needed legal oversight and management.

PUF's Steve Mitnick: When you're the general counsel of a big organization like that, and your executive says, "We're going to do an acquisition or a merger," how does that start off?

Jane Lewis-Raymond: Generally, what happens is the market has ended up in a state such that you know you're about to receive some incoming offers.

For example, immediately preceding the acquisition of Piedmont by Duke, Southern Company acquired AGL Resources. Immediately after that deal was announced, I began to get our legal house in order by doing a search for outside M&A counsel.

I wanted to make sure that our company and our board would be well represented if we ended up with some offers to buy Piedmont. Especially if they were so compelling that we knew that we had to take them to our board and consider a response that was in the best interest of our shareholders.

So the first thing I did was actually engage outside counsel. I looked at a couple of firms and went with the lawyer that I felt was going to give the best advice to my board. We needed advice that would give them great confidence that they were making the right decision in every step of the process.

PUF's Steve Mitnick: And this while you're doing everything else that a general counsel does for a big company.

Jane Lewis-Raymond: Yes, absolutely. If most days I wore four or five hats, during that process I was wearing six or seven.

It was a very surreal experience. You're still running the company and having to deal with day-to-day activities, manage risk and create budgets while you are also working on this major transaction.

PUF's Steve Mitnick: With your six or seven hats, were you a good general counsel?

Jane Lewis-Raymond: If you can measure how good I was by how much fun I had, I was a really great general counsel. I was not sure I would be when I took the job, I must confess.

I had been in D.C. for a very long time. I left the American Gas Association when I was Vice President of Regulatory Affairs to take the role as general counsel at Piedmont. I had never imagined myself sitting in that corporate C-suite before.

But I did OK by all accounts because, first and foremost, I understand relationships matter in this business; I have always placed value on the relationships that I have with my colleagues. That matters for people inside the company, with people across the table that we would be negotiating with. And with our customers, certainly with our regulators, and with all our employees. Especially my team at Piedmont, they were terrific and we knew we had one another's backs in every way.

Second, I know the industry, I love the industry and I truly loved what I was doing. I was really happy to go to work every day. Even the bad days when you might be feeling like there was a little mini-crisis, they were still fun because you believed in what you were doing.

The third thing that makes you a good general counsel is having incredibly positive relationships with your executive management team. To know the expectations that your CEO places on you, as well as the CFO and your other fellow executives. And to know that you can trust them and feel comfortable in the way that the corporation is making decisions, allows everyone in the organization, including the general counsel, to elevate their game.

PUF's Steve Mitnick: What do you mean by relationships and why is that so important for regulated industries?

Jane Lewis-Raymond: When I say 'relationships', for example, if you're dealing with your regulators, they might not always like what you're going to say.

But you're always going to be honest with them and not play games or hide the ball.

Direct communication, be it good or bad, is very important. In order to be able to do that, we need to understand that we are all human beings and we all get out of bed in the morning and put one leg on the floor after the other.

We all have other pressures and lives that exist outside of our work world. When we are in our role as general counsel or CEO or board member, that is all a part of who we are and that's a part of what everyone brings to their office.

To build relationships across the table with adversaries can make a better outcome, a better product for what you're trying to achieve. For example, if you're negotiating with your regulators, to be nice about it can really gain you a lot of credibility.

PUF's Steve Mitnick: Isn't it a little odd that when you're one of the lead people, you're basically working on getting rid of your job?

Jane Lewis-Raymond: There were a few days at about two-thirty in the morning when that thought did occur to me. When you're a general counsel of a company, you are charged with representing what is in the best interest of your shareholders, and that is what you must do.

As lawyers, that is what we do. We represent our clients to the best of our ability every day. You know that in the end, if you're doing your job well, you might be looking for new work at the end of the day. But you must have confidence that if you did the transaction well, the next thing will follow. You just put your head down and soldier through.

PUF's Steve Mitnick: Tell us what you're doing now in your new position.

Jane Lewis-Raymond: For the first time in many years I find myself back at a law firm. I decided to join Parker Poe because it is a super firm with the right set of values in a city I love. I joined them in March.

I am working on representation on corporate governance issues, compliance, and board issues such as cybersecurity response programs. I can use all my years of industry expertise representing companies, focusing on policy work, and working on state regulatory matters.

I look at my career in two halves. My first half being D.C.-based, representing natural gas distribution companies, and my second half being an in-house counsel, doing that as well as the corporate work. Now I find myself here at Parker Poe taking both halves of my career, marrying them together.

PUF's Steve Mitnick: Tell me how that works there.

Jane Lewis-Raymond: That is a very good question because there are a whole lot of lawyers in this world. I think my differentiator is that I was in-house for so long.

I have that experience in the boardroom. I have that experience in the C-suite chair. I understand what it is that general counsels are looking for from their outside counsel.

I understand the pressures of those internal budgets and being able to make budgets. I understand there are some issues a client might bring me that they want a solution for, but they don't necessarily want a research article on it.

I can present to in-house counsel in a way that will enable them to take the solution to their other executives on their management team. That's because I speak the business language as well.

I've been spending a lot of time just communicating with folks, sharing with them what Parker Poe is all about, the strength that the law firm brings, what a great energy practice we have here, what great lawyers we have. And letting them know the types of things I'm hoping to do with this next decade of my career or so.

PUF's Steve Mitnick: What are you going to be doing in three to five years?

Jane Lewis-Raymond: I would hope that I've got a busy base of clients. I hope that I am still a recognized industry expert.

And I hope that I can add value to corporate boards in the region. Even beyond the energy industry space, in terms of adding value to their compliance programs, helping them manage crises with their board, showing in-house counsel and their board how you can create compliance programs.

Those programs can really add value to any company and, frankly, add value to the bottom line. If I've done even just a little bit of that for a few companies five years from now, I think I'll feel good about that.

Mike Caranfa is a Senior Vice President, Sales & Strategy of Smart Energy, Honeywell Home and Building Technologies. He has served in a variety of sales roles and is currently responsible for leading sales efforts for the electricity and water businesses in the Americas. Caranfa is a retired Army infantry officer with 22 years of combined service in the Army and Army National Guard.

PUF's Steve Mitnick: What do you do at Honeywell?

Mike Caranfa: I lead our sales for Honeywell Smart Energy for electricity and water throughout the Americas.

That includes water meters, water measurement devices, and electric meters. The most exciting piece is around the smart grid technologies, communication, and data analytics. That's where we really get into the value of providing solutions for our customers. That package of products, solutions and services is my responsibility throughout the Americas. It's a lot of fun.

PUF's Steve Mitnick: Tell me some of the coolest innovations that you're putting into place at the utilities or on the grid.

Mike Caranfa: One of the things that's really front and center for us is an uptick in requests around energy storage. We've got some unique solution offerings around energy storage and storage capability at everything from the individual homeowner level up to utility-grade energy storage.

That's a technology that allows the utility to use renewable energy that isn't so predictable and make that a dispatchable energy resource. It's exciting news around distributed energy management and the overall battery storage technology. That's one piece.

We've got some other innovative technologies around thermostat capabilities. There's a tie-in with demand-response functionality with our new connected Lyric thermostats we've recently released.

Some of the real exciting stuff is a combination of the solutions that we bring together for utilities and smart grid, where we've got a meter that measures consumption and then communicates the data back to the utility, which stores that.

Then there are the data analytics capabilities, to analyze and create actionable intelligence out of data. That process of measuring, transporting, storing, analyzing data, then creating that actionable intelligence, has allowed us to bring some unique solutions to bear with some innovative and cutting-edge utilities. That's not just in the U.S. That's throughout the Americas and globally.

PUF's Steve Mitnick: Can you talk about some things that really make this work distinctive for your team?

Mike Caranfa: I believe we are the world's leading industrial Internet of Things company, when you consider the number of connected devices that Honeywell puts into the market. This is more than just the utility applications, which is why you hear us talk a lot lately about connected homes, connected buildings, and connected utilities.

We have a large level of industrial automation technology that we've put out into the marketplace that communicates, measures, stores, and can transport data back to a database of information. That information can then be used for actionable intelligence beyond just utility applications; it becomes very interesting to not only utilities but the larger industrial market.

PUF's Steve Mitnick: How do you see the pace of change for digital and automation?

Mike Caranfa: Historically, folks would look at utilities and think there's nothing innovative about a utility. They provide energy, and nobody thinks about them until the lights don't come on or the bill comes once a month.

That's not good enough for utilities anymore. Their regulators and their leaders within the utility space are driving this innovation to go faster. We recently spoke with a large U.S. utility that has an executive in charge of an innovation center. The reason they have an innovation center is because they're looking to do more cutting-edge technology applications around efficiency and for consumer engagement.

If, as a utility, you don't have the ability to present consumer data through a portal to your customers, you're behind the times. That becomes important to the utility, to not only gain but keep and enhance that customer interaction, that customer engagement.

How will utilities become relevant beyond just keeping the lights on? Most utilities these days are looking to do that.

In the United States, they're further advanced with that. In other emerging parts of the Americas, they're only now getting into that space and trying to figure out innovative ways they can engage with the consumer.

Utilities are asking themselves, how does it benefit the consumer in general if I can communicate with them more frequently in a meaningful way? To help them to better manage their energy use but also make them more likely to pay the bill? That becomes important to utilities.

PUF's Steve Mitnick: Utilities in the U.S. vary by size, type of ownership, regionally, and in their politics. When you call or visit an executive at XYZ Power and Light, what do they ask?

Mike Caranfa: There are generally some common themes. They want to better engage their consumer. They want to keep energy costs low. That's always a focus of almost every executive we talk to.

They want to enhance their customer experience. Some of them are really focused on things like J.D. Power ratings and high marks from their consumers in general.

There's some utilities that are larger, with different styles of ownership and different regional impacts. Some are more focused on creating demand response programs that allow them to shave peaks to better manage power purchase agreements and keep their off-contract purchase lower.

Some are more focused on non-technical losses and abating them, where there are problems with non-payment. Some parts of the world have problems around non-payment at a greater rate than others do.

It's based on the ownership, the location, and the country. There are some variations in what their focus is, but in general, they all want to better serve the consumer with affordable energy, better engage with the consumer, and continue to provide reliable power.

PUF's Steve Mitnick: How did you get to this point in your career?

Mike Caranfa: I started with Elster ten years ago, managing a sales region. Then I gained added responsibility over the years, taking over a small sales team in 2009 and taking over a larger sales organization in 2011, then slowly growing up through the ranks within Elster. That was up until December 2015 when Honeywell bought the company.

As part of the Honeywell organization, I've continued to assume more and more responsibility.

PUF's Steve Mitnick: What's a typical day like?

Mike Caranfa: I'll give you an example of a day this week. I started out the day in a meeting with one of our future possible distributors, trying to make sure that we can better serve our customer base and get our products and solutions out to the market.

From there, I went into a customer meeting where I was talking with them directly about some changes in their approach to using our technology in the market.

We're going to have to review our technology roadmaps with the customer to ensure it aligns with their future technology desires. We'll then provide commitments to the customer so they can continue to plan for and effectively deploy our current and future technology solutions.

Beyond that, we have another prospect that we're trying to win some business with. I spent part of my day with my team that is preparing for some meetings that they've got coming up in a couple of days. They're going to present our entire suite of technology solutions to that customer from a Honeywell perspective and see if we can earn their business.

Part of my day is spent making sure everybody within the business has the support and resources they need to continue to do their jobs in each of the regions.

Then from there, I might end up spending some time talking with our solution architect team. They are really the voice of the customer back inside the walls of Honeywell. We want to make sure that we're focused on the right roadmap solutions and products for the next set of customers that we'd like to work with.

I can tell you everything I do is focused on the customer. It's a busy job.

PUF's Steve Mitnick: Looking to the future, where is your business going to be three to five years from now?

Mike Caranfa: Three to five years from now, I think that we will continue to serve the utility market with a different suite of products that are very software-focused. The hardware becomes a reliable, back-of-mind product that is in the field, but the communication and the analytics are the key.

We have so many values that we can bring to a utility. We can provide an entire suite, measuring consumption at the meter, communicating that data back to a head end that massages it into a storage software package. The head end then can analyze that data and use it to monitor and manage the distribution grid. The utility can then better manage the distribution and consumption of energy. They can also integrate renewable and distributed energy resources, as well as demand response and energy storage applications. A utility that implements this combined solution is much closer to being a connected utility.

It goes beyond just the storage of data and the analysis of it. There's a service component. We can help utilities better create and use actionable intelligence out of that data.

We have moved into a software-centric, service-centric model from what historically was a hardware-centric model.  

I spoke about shareholder activism with Chris Young, Managing Director and Head of the Contested Situations Group at Credit Suisse. Chris is a lawyer who moved into investment banking in the technology sector. He spent a little over six years at Institutional Shareholder Services. Chris joined Credit Suisse seven years ago and leads the Contested Situations Group.

Tom Linquist: Chris, you refer to activism as "contested situations." Perhaps it's helpful to define terms upfront. Shareholder activism, in some type of planned and directed form, conjures images of corporate raiders from the 80s - the stuff of Predators' Ball and Barbarians at the Gate.

The contemporary form of activism seems less hostile. Or perhaps the euphemism sounds a little less hostile if it's described as "contested situations." What is activism, and how has it evolved over time?

Chris Young: I think the current activists are the next generation of what we used to call "corporate raiders." I think the major difference is that back in the 80s, the raiders would make plays to take over a hundred percent of the target company.

I heard a well-known activist state that the genius behind activism is you can take a non-control position, a small stake, not pay a control premium, yet exercise some degree of control over the company. That's why they are willing to take on all the costs and added bandwidth to run campaigns. It's an expensive, time-consuming way to invest rather than to just pick a stock and sit back.

I think that's the biggest difference.

Tom Linquist: What do activists want and how has that changed over time?

Chris Young: I always talk about four buckets of activism. First, mergers and acquisitions. Sell the company or a subset of what would break up the company and get re-rated on different businesses, or sell your non-core businesses and focus on your core. That would be all mergers and acquisitions-related.

Second, balance sheet, is straightforward. Usually the argument is that you have too much cash on the balance sheet. You can return it in various ways, either through a dividend or a share repurchase.

The third area is governance. This is not usually the focal point or the driver for activism. Often there is a request for board representation. Or a request for some changes in compensation practices and other things.

For hedge funds, that's not usually the driver, but it's a means to an end if they can get on the board and have some say from the inside and implement balance sheet and mergers and acquisitions changes.

The fourth bucket is what I call operational. To me, it's one of the more interesting developments because it's the hardest and therefore, the rarest kind of activism you see. It focuses on the income statement more than the balance sheet.

It's where the activist purports to have ideas on how to run the business better.

Historically, that's been a hard form of activism to deploy, because companies and advisors can say, "Hey, these guys are a bunch of traders, what do they know about running a power producer or a utility?" Or whatever the case may be.

Over time as the asset classes mature, at least in the U.S., the activists have been able to almost morph into a pseudo-private equity sort of structure where they have recruited operators, retired CEOs, COOs in the industry.

They used to have difficulty doing that because of the stigma attached to activism in the early days. But more recently, we have been surprised by what you would consider very conservative individuals who have strong personal brands to protect, who have been willing to say this. "I'm going to have a little fun and agreed to work with an activist on their fight here, and I'm going to add my expertise on operations on how to run a company."

Some will take over leadership of the company.

Tom Linquist: So, you have three areas: mergers and acquisitions, balance sheet and operations performance, where I can't envision influencing events without the governance change. How, in the absence of getting representation on the board, are they able to get control of the three other areas?

Chris Young: That's a good point. That's why I usually say governance. That bucket is a means to the end and the end is the other three: mergers and acquisitions, balance sheet, and operational.

I would say that you have plenty of examples where the activist does not get on the board, just threatens to run a proxy fight and then the company decides not to fight. Maybe they've gauged investor sentiment and determined that they may lose that vote and therefore, they agree to do a buyback, for example.

Or they agree to sell a non-core business line without any of the governance changes. The activist is able to accomplish one of the other three goals without actually having to change the governance.

Now the threat of changing the governance typically has to be stated overtly. It's the elephant in the room that everybody knows is there. That is the weapon. It's the stick that the activist can use while you are negotiating what we call a settlement.

You either decide to fight because you determine that the activist is wrong, and it's in the best interest of the company and the shareholder to fight. Despite the expense and the bandwidth that you must devote to a fight.

Or in many cases, and the data shows this, there are settlements that you meet halfway and you agree to do part of what the activist is looking for and maybe refuse to do something else. Sometimes the settlements do include board seats. But a lot of times maybe those board seats are not the principals from the hedge fund.

Again, the quality of the board nominees that the activists can recruit has improved over the past decade-plus. Often, the principal of the hedge fund wants to be on the board, too, to have a shareholder watchdog in the board room.

But increasingly, many of them are happy just to have influence on maybe two seats and say, "These are two people that we would like to have on the board. I don't need to go on the board as Mr. Activist. I'm comfortable that if you agree to do this buyback and do one other thing and then put these two individuals, who are independent of me, on paper at least, then we are happy."

That would be a version of the governance change. It doesn't have to be the activist or a principal from the fund itself that goes on the board.

Tom Linquist: Yes, but you must move the chess pieces that are in place to have the powerful influence absent the governance.

Chris Young: Yes, you either have to have that or you have to threaten to force your way on the board and then the company has to determine, "Oh, that's a credible threat and therefore, let's find a way to not go through all of that brain damage."

Sometimes it's the right call for the company to refuse it. It's all going to depend though. Everyone has to remember the activist is an outside investor, meaning they are investing based on publicly-available information, unless they are doing something wrong. They can get it wrong. Some of them are very smart and just by using publicly available information, they can have good ideas.

Other times, they don't have the full picture, because they don't have the access to non-public information. Therefore, their prescription for creating shareholder value is erroneous and therefore, you need to educate them.

Tom Linquist: What drives the timing for an activist?

Chris Young: The activists decide when to go public. With rare exceptions, a company does not want to go public because they know that will change their share registry and then their employees are going to be distracted. The activists can just decide when it wants to go public.

What controls the final escalation typically is the board nominations deadline. We all talk about circling that date on the calendar. The activist has it circled. The company has it circled and they know typically after that date passes the company's leverage increases for another year.

This means typically, unless there is a way to act outside the calendar.

One of our jobs along with outside counsel is to examine a company's charter and bylaws. Is there a right for shareholders to call a special meeting?

At what threshold is their right to act by written consent? At what threshold can they remove directors? Because activists have been willing to use those tools and tactics to act outside the annual meeting calendar.

Tom Linquist: Surprise attacks.

Chris Young: Surprise attacks or just not being bound to that nomination deadline, so it's not that same little date circled on the calendar. They can act three hundred sixty-five days a year.

Tom Linquist: With that single date, is there a "hunting season", is there an "activism season?

Chris Young: There's a hunting season and the pressure, yes, it builds up to that date, I think for both sides.

Tom Linquist: Let's discuss your vulnerability framework. What are those principal areas that you advise a CEO and a board to make sure they are watching?

Chris Young: I think a lot of it is common sense, of course. Shareholder return on a relative basis against the peers, the index. If you are underperforming from a shareholder returns perspective, you are going to have an unhappy shareholder base.

That shareholder base is going to be more open to an activist coming in and presenting what I mentioned before, that free option.

Tom Linquist: You mentioned that you have not seen a lot of activism in the utility space. But you talked about one of the fundamental settings in which you find activism. It was when the industry was ripe for consolidation. There has been a long trend over the last twenty-five years in the utility industry.

Twenty-five years ago, there were in excess of one hundred independent utilities. Now there are less than fifty. Do you have any advice specific to a consolidating industry?

Chris Young: If you are in an industry that is perceived to be ripe for consolidation, then you are vulnerable to being pushed into consolidating.

It's one of the easiest strategies for an activist. It's a home run for them to take a position in a company, whatever sector it is in. But if you are talking utilities, they will take a position in a company they believe will be consolidated, the target company.

They will agitate to make that deal happen and capture the expected takeover premium over a pretty short period of time, often using leverage. When you do all the math, that's a tremendous sort of annual rate of return for that investment.

Tom Linquist: What can you do?

Chris Young: The best defense, again, against activism, it's a cliché because it's true - high performance, high multiple. To extent that you are one of the smaller firms in a sector and therefore, by definition, would be considered maybe a target rather than the acquirer.

If you are trading at a high multiple because you are performing on all cylinders and one of your peers is trading at a lower multiple, that peer is going to be more vulnerable than you are because you are more expensive.

It's easy to say, perform better, but that's really it. Among your peer group try not to be the laggard. It's like that old joke with the bear and the two guys, "I don't have to be faster than the bear. I just have to be faster than you."

To hear the full interview, please search for the podcast Leadership Lyceum: A CEO's Virtual Mentor, available at Apple iTunes. Search iTunes Podcasts, with the keyword Leadership Lyceum.

Jackalyne Pfannenstiel, the first woman to chair the California Energy Commission, and the first woman to be a corporate officer of Pacific Gas & Electric (vice president - strategic initiatives), died on April 26, 2017.

Michael Picker, president of the California Public Utilities Commission, wrote this memory of her:

"I knew Jackie from her work at the CPUC and with AEEE, but first really got to know her when she was Assistant Secretary of the Navy for Installations and Environment. She was first in so many ways: first strategic planner at PG&E, first female chair of the California Energy Commission, first female undersecretary."

Christopher Warner, chief counsel, Pacific Gas & Electric wrote:

"My wife Cathie and I knew Jackie through our work lives when she was a glass-ceiling breaking leader at PG&E and later at the Energy Commission and as Assistant Secretary of the Navy... We will miss her and will always honor her in our hearts."

Bob Howard, former vice president - corporate planning and logistics, Pacific Gas & Electric, wrote:

"Jackie was a manager who had an immeasurable impact on my career in 1980 when pricing and demand-side management were emerging paradigms in the utility industry. She was a patient leader that gave each employee plenty of space to explore the creative side of my interests in pricing research. 

Coming from a regulatory background, she understood and counseled me on how to build relationships and to work collaboratively with the commissions, educational institutions and research organizations like the Electric Power Research Institute and EEI."

Brian Cherry, former vice president - regulatory affairs, Pacific Gas & Electric, wrote:

"Jackie's accomplishments were many and she was a woman who was recognized by many as a trailblazer by being the first woman to break the glass ceiling in many of her endeavors."

John Chamberlin, executive advisor, ScottMadden, wrote:

"I first met Jackie back in the early 1980's, when I was working on a number of the EPRI/EEI Rate Design Study "grey books," and Jackie was served on several of the project task forces as the representative of PG&E. Back in those days, things like marginal costs, time of use rates, and "load management" were very controversial topics, and many of the task force meetings were heated. Jackie had a way of offering criticism without seeming critical, of making suggestions without grandstanding, and was generally one of the more thoughtful and articulate people I had met - before or after that time." 

Bill Prindle, vice president - energy efficiency, ICF International, wrote:

"I knew Jackie through one of her many public service roles on the board of the Alliance to Save Energy. I was immediately impressed by her passion for service, whether it was on the Energy Commission or with the Navy.

Her mind grasped the full range of policy issues, while at the same time valuing the many forms of human connection."

Jackie's article in the January 2008 issue of Public Utilities Fortnightly, co-authored with Ahmad Faruqui, of The Brattle Group, can be found here.

The chief financial officers of the three large southeast utilities (Dominion, Duke Energy and Southern Company) sat with us and took our questions. In this fascinating discussion, they demonstrate overall strategy is just as important in their work as the traditional number-crunching of a utility's financial leader. Part I of the discussion follows. Look for part II in August 2017’s Public Utilities Fortnightly.

PUF's Steve Mitnick: What is your aspiration for where your company will be five years from now?

Duke Energy's Steve Young: We have to engage with our customers in a very different way. We have to be a true partner in how they efficiently and effectively use our product and our energy. We are at a point where technology enables us to interact differently. Our customers are interfacing with Amazon, Google, and Apple, and they expect different things from us.

Our industry's been based on building generation plants. Now, we have to develop a different set of assets, the grid, and deal with our customers in a different fashion. I think it's going to be a more customer-focused, more grid-oriented business than what we've traditionally seen in the past.

Dominion's Mark McGettrick: Dominion will focus on several areas. First, to continue to be able to provide industry-leading shareholder returns, as we have in the past, including having one of the top dividend growth rates in the industry.

Second, we have a little bit different structure than most of the utilities in the country. We have a Master Limited Partnership and a parent company.

We are using this tax advantaged structure as a financing vehicle for the parent. We will optimize our balance sheet by reducing debt, increasing dividends, supporting capital growth and repurchasing shares.

Third, we have to strengthen our balance sheet. Like a lot of the companies in the country, we have levered up our balance sheet to grow over the past decade, taking advantage of very low financing costs. We will use a significant amount of cash flow from our business to de-lever our balance sheet, which is quite important.

Fourth, we want to continue to improve the company's safety performance. Although we've made great strides over the past several years, we're not at zero accidents yet. We'll always continue to have a goal to improve safety year-over-year, no matter what our performance was the previous year.

Finally, we have to, as an industry and as a company, maintain our focus on sustainability and the environment. Everyone's doing a lot. It's an area not fully appreciated by the public.

I know all the companies in this industry are very environmentally conscious. We need to continue to talk about that over the next five years, and articulate with outside parties the leadership role we have and will take on the environment.

Southern Company's Art Beattie: When we look at the next five years, we mainly focus on principles. Principles that have served us well to get us where we are today. That begins with the fundamentals. Making sure our customers are well served. That we provide them clean, safe, affordable, reliable energy.

We think that's a standard that won't change over the coming years. People are using energy in a different way and we're having to adapt to those changing needs. Either the way we bill them or the way we serve them, and the way we communicate with them.

But when you think about how we do it, it's partnering within our communities. Being a citizen wherever we serve is one of the sayings that Preston Arkwright, the first president of Georgia Power, developed ninety years ago. That serves us well in our regulated communities.

When I think about a CFO's role, we're responsible for the financial health of our companies. But we have to remember how we got there. We got there by satisfying our customers. If we can't satisfy our customers, it's unlikely we'll be able to have successful financial results in terms of our balance sheets, and in terms of our prospects for attracting capital into our business.

That's the balance that, as CFO's, we've got to remember. At Southern, we've got a number of other issues in the forefront of our scope, but an important aspect of that is energy innovation.

How can we create innovation within our workforce to adapt to the changing world? Those are the key kind of fundamentals that we work for over the next five years.

PUF's Steve Mitnick: You talked about the customer focus. There's probably a lot of work behind that?

Duke Energy's Steve Young: There is. We've always said, "Hey, we're customer focused." But I think - truly - we're at a point now where the technology does make a difference with what we can do with the customer.

Digital and technological break­throughs allow so many more offerings. The expectations of our customers are tremendously advanced, compared to where they were in terms of billing options, information about consumption, information about outages, and the status of their situation in the power grid. Options for distributed generation and other capabilities. These things are technologically viable.

We've talked about them throughout my career, but they weren't really technically viable to provide. Now they are. So we have people on the ground setting up what is a viable innovative technology to provide for customers. They provide billing options, consumption options and knowledge, and updates about the status of the grid.

We have people studying that and trying to put those products and services in place. It's quite an advanced effort that we're putting in place to keep up with these demands. What's different, is that technologically we can provide different services to customers than we could at the beginning of my career.

Navigant's Jan Vrins (also a questioner): There's a lot of discussion about new energy products and services. How do you provide and integrate them?

Duke Energy's Steve Young: You can gather data in a number of ways, but what are you going to do with it? Do you have the people that can assimilate it and communicate it to the customer in the appropriate fashion? Can the customer use it? Can it help provide benefits on both sides of the equation?

That's where we've fallen short historically in the past. But we have infrastructure now, where we can provide customers with options for billing payments, and provide customers with options for electricity usage around their businesses or their homes. And all of this requires a combination of people, technological resources, and physical assets.

PUF's Steve Mitnick: A lot of customers are looking for more on sustainability. How do you approach that?

Dominion's Mark McGettrick: I think it's going to tie in with technological improvements down the road. But most of the companies are doing quite a bit in this area already. And the customers and public at large probably don't fully appreciate the positive actions the industry has taken.

We need to have a louder voice on sustainability, whether it be on solar, energy efficiency, weatherization, or carbon reduction, et cetera. If you look at the history of most of the companies, they will show a commitment to environmental stewardship and sustainability. Our voice has to get louder here.

We have to get better at communicating, and we have to continue to step up our efforts. Investors want us to do it. Customers want us to do it, and I think all the companies in the industry want to do it.

PUF's Steve Mitnick: Please talk about how partnering figures into this.

Southern Company's Art Beattie: The world's changing dramatically in a lot of different ways. In my era growing up, electricity was a commodity. You wanted kilowatt-hours, you got kilowatt-hours. We decided the cheapest way, along with our regulators, to deliver that. And it was like when Henry Ford said, "you can have any color car you want as long as it's black."

So now you've got more specifications being demanded. Sustainability being one of them. People want kilowatt-hours, but they want it from a particular source. So, it's becoming much more specialized.

How do you go from a commodity to a more specialized, "designer electron," so to speak? We need to be able to deliver to mostly industrial and commercial but also residential customers what they want. We're dealing with that in a regulated environment. But we're also dealing with it outside of that.

Last year we acquired a small company called PowerSecure that allows us to help companies beyond the meter who are interested in doing that.

We're still very much involved in the regulated central station power, generation, and grid modernization efforts. But we're also looking at the other side of the meter, and trying to give customers what they want. It's a way for us to put our foot in the water and test to see whether there's something there.

It's just amazing the way the world has changed, and the partnering that can go on in the name of sustainability, reliability or affordability. Whichever way it goes, we're going to have to start partnering with those companies in order to meet their needs.

Dominion's Mark McGettrick: The companies in this industry are not marketers typically. They're infrastructure companies, and they'll always be infrastructure companies.

So, the question is, how much advancement can you make, and where do you draw the line on enhancing the services you can provide? Are you going to go beyond the meter with products and services?

There will be some companies that try to take this approach. Other companies will rely more on their expertise in infrastructure to continue to support the needs of gas and electric customers.

Jan Vrins: Providing or even orchestrating those platforms on which those products and services are being provided, whether it's electrification of transportation, or energy management.

Dominion's Mark McGettrick: There's a wide spectrum in what you just described. You can do that at a certain level and provide those services to customers. Or you can do it at a different level, and then you're competing against a different set of providers.

I don't argue with that at all. But it's where are these companies going to fall in the spectrum - and they're going to be all over.

PUF's Steve Mitnick: From the perspective of the CFO, what are the most important challenges?

Duke Energy's Steve Young: A couple come to mind. One is the lack of organic load growth, the term we use for growth in the sales of electricity or basic products (even in the consumption of gas).

Particularly on the electric side, we see organic load growth around maybe one-half of one percent a year. That's very different than it was a generation ago, obviously.

That then leads to a very different model for growing the business. And it shifts away from generation assets that were so necessary when you saw five percent growth per year, to more of grid-oriented investments for reliability and customer interaction.

That brings me to the second challenge we face. If you're shifting to those types of investment opportunities, and you're facing a low load growth paradigm, then the regulatory recovery mechanisms are the next challenge. Because they've got to change.

The regulatory recovery mechanisms of base rate cases typically have been timed with the completion of a large generation plant, where it was generation-focused, and there was lots of load growth to carry it between these rate cases.

Now as we make smaller, but more numerous, incremental grid-type investments, or even smaller combustion turbine-type investments on the generation side, you've got to have more interaction with the regulatory bodies.

Redefining that construct to move towards grid mechanisms, unbundling, those types of things need to come into the forefront. Those are a couple of challenges that I see, sitting in my spot.

Dominion's Mark McGettrick: Most companies in this space say they're going to grow their earnings per share by four to eight percent annually.

That's a wide range. Some people are going to be able to do that, while some people won't. To me, the number one challenge in this area is how are you going to identify those growth opportunities to give you premium growth in the industry?

Our growth rate is six to eight percent. We feel good about that with the projects we've identified over the next three or four years. But what's going to happen in year five, in year six?

Gas infrastructure build-out in the country has been unbelievable. Is it going to slow down? Don't know. Generation is going to be a different mix for sure. It's not going to be as expensive as some previous options. So, a lot to pick from.

The second major challenge is the solar puzzle, whether it be generation solar or residential solar, the price points now have gotten to where they are somewhat competitive in the east. The midwest and west coast are dealing with this already. But the east coast is just in its infancy of understanding the issues.

As you try to meet that customer need, I think Dominion's probably been on the forefront of that on the east coast, mainly driven by data centers in the state of Virginia who have been very aggressive in solar installations. How are we going to match that customer need going forward and handle rate impacts along with that? Grid modernization will be critical to handling this new dispersed solar generation.

I think people underestimate still the speed at which solar is being developed. The grid itself is not designed to support this distributed type of solar generation.

With the advent of lower cost technology, you're going to have a lot of investment to adapt the grid to support a much higher level of renewables. That's going to put pressure on rates, which we're going to have to manage carefully.

PUF's Steve Mitnick: I thought being a CFO would be fun. It doesn't sound as much fun now.

Southern Company's Art Beattie: No, it is a challenge, but it is also a tremendous opportunity to better serve our customers. The way our customers are using energy is changing dramatically.

A lot of younger people are willing to move into multi-family homes, and they use less energy than a single-family home. Our commercial customers are reacting and picking off low-hanging fruit, either through their lighting or their HVAC system. They're taking advantage of bonus depreciation, low interest rates - all of that is driving a lot of their decision-making. It's impacting our sales numbers.

But the real challenge that I want to focus on is cost control. Because we've got to make sure that we manage our rates, and that's one of our most important principles going forward - affordable energy.

We can't get in the habit of going back to our regulators and saying, "well, our sales are zero, therefore, we've got to charge more." We've got to find a way to manage the cost increases to what's happening on the top line in addition to modernizing the grid. And helping make sure that those additional investments don't put undue pressure on our customers.

As I said at the get-go here, it's all about our customers. We've got to make sure we remember who they are, and who's paying the bill to make sure we've got reliable financial outcomes for all of our investors.

PUF's Steve Mitnick: Are there some good strategies out there?

Duke Energy's Steve Young: There are strategies. The three companies here have a great history of implementing strategies and responding to the changes that are in front of us.

When I think about the strategies that Duke is employing, there are a couple that we've put together. We have three core businesses that we're focused on. First, our electric infrastructure business - the strategy behind that is to enable our franchises to modernize the regulatory construct.

We have put forth stakeholder outreaches in our jurisdictions to discuss the types of investments that are going to make a difference to our customers. It's more grid-leaning than it has been in the past, so we talk about smart meters and storm-hardening equipment and targeted undergrounding.

A strategy here is to broadly discuss the benefits of these investments. This isn't just shifting to a new way of spending money to earn money. This is customer facing, and it has true benefits, so our strategy there is important for us.

When it comes to sustainability, we need to show how we are generating cleaner energy and making those efforts. That's another strategy we have.

We have a goal for a forty percent reduction in carbon output by 2030. We're at twenty-nine percent since 2005. That's our anchor year. We want to get to forty percent reduction from there.

So, we look for opportunities to retire our carbon-producing assets early, and replace them with renewables or natural gas-fired generation. It's typically coal that we're looking to retire early. We look for stakeholder involvement to make that happen, so it's not just a mandated thing.

We now have legislation in North Carolina to retire a coal plant early and build gas and renewables in its place. We had to work with stakeholders to pass legislation. You have to have stakeholder involvement. That's a way to decarbonize that shows involvement of everybody in the process.

A strategy related to these efforts is to generate cleaner energy.

Our final strategy is to develop natural gas infrastructure. That's a critical piece of the pie going forward.

Generally, the southeast is a bit "light" in terms of gas infrastructure, and gas is a lower-carbon alternative than coal. It's the remaining base load generation source that's available on the electric side, so we need to strategically communicate the value of and need for that infrastructure for both gas and electric businesses, and energy consumption as a whole, to take advantage of the technologies that bring natural gas pricing down. Those are some of the strategic efforts that are underway.

PUF's Steve Mitnick: All of your companies have been going into gas.

Dominion's Mark McGettrick: The best way to deal with some of the opportunities we've discussed and support future growth is to have a diversified portfolio. We have electric transmission, electric distribution, and electric generation.

We have gas distribution, and transmission. We have focused on diversification for decades. In any given period, you'll have peaks and valleys, growth opportunities in each of these areas.The key is to optimize those to offset one another to meet your long-term planning targets.

You're also going to see different structures develop. A perfect example is the Atlantic Coast Pipeline, where one company would have had to spend up to five and half billion dollars to build a pipeline. That would have been quite a strain on everybody with all the other capital needs that they have.

But instead we developed a partnership with the three companies in this room to build a transformational pipeline in the southeast. We all need it because we're switching a large part of our generation fleets from coal to gas.

These types of partnerships will expand when it makes sense to defray capital costs, provide good returns, and fit the needs of multiple companies.

Again, a diversified portfolio, provides the best opportunity to support the highest growth in earnings per share over the next decade or so, than the single focus business of pure electric or pure gas.

Southern Company's Art Beattie: We've been a user of gas for a lot of our electric generation over the years. But last year's acquisition of AGL Resources, now called Southern Company Gas, and then the subsequent fifty percent equity investment in the Southern Natural Gas pipeline system (which geographically lays over our southeast territory), is for us a bit of a vertical integration move.

But it also expanded our geographic footprint into other regulated environments such as Illinois, Virginia, New Jersey, Maryland, Tennessee, and even south Florida. We consider one of our greatest strengths being our ability to operate premier state-regulated utilities and develop constructive regulatory relationships to the benefit of our customers.

This is giving us an expanded opportunity. But it also diversifies our offerings and provides us a more diversified energy mix to better serve our customers.

Jim Matheson is Chief Executive Officer of the National Rural Electric Cooperative Association (NRECA), the national service organization that represents the nation’s more than nine hundred private, not-for-profit, consumer-owned electric cooperatives, which provides service to forty-two million people in forty-seven states. Jim joined NRECA in July 2016. Prior to joining NRECA, Jim served as principal, public policy practice for the international law firm Squire Patton Boggs. From 2001 to 2015, Jim served seven terms as a United States Representative from Utah.

PUF's Steve Mitnick: What has been especially memorable during your first year as CEO at NRECA?

Jim Matheson: The opportunity to meet with our members across the country has been meaningful and instructive for me. There's a culture in the co-op world. People have a sense that they're part of something bigger than themselves. It's palpable.

I've had relationships with the co-ops from my earlier time in Congress and I had a sense of that culture, but the opportunity to interact with members every day has really reinforced that for me and it's had a great, positive impact on me.

PUF: Have you been traveling around?

Matheson: One thing about co-ops is we like to meet, and I think it's valuable to have the opportunity to meet with folks throughout the country. Our business model and our whole process is based on a bottom-up process. NRECA itself is a co-op. We're owned by our members.

The co-op model is based on member-driven governance and a member-driven agenda. That engagement with members keeps us true to who we are. We've got a lot of smart people working here at NRECA. We can come up with a lot of great ideas, but that's not how it should work.

We need to engage our members and learn from them and act on their behalf. So, I feel strongly that there's a real benefit to be spending time throughout the country and meeting people at the co-ops as much as I can.

PUF: Can you think of a couple of things that were inspiring for you?

Matheson: Yes. One is that you hear about the notion of a member-driven business model and the democratic process. I went to an annual meeting at Berkeley Electric Cooperative in South Carolina. It's one of the largest in the country. The members come to the meeting and they rent the county fair site, where we meet.

We went in for the actual business meeting with several thousand people in the room. The co-ops conducted their meeting. Then it was time for question and answer, and any individual could stand up and ask whatever question they want. It's the way it ought to be. That connection with the consumer is something that the co-ops have that no one else has.

I saw several thousand people on a Saturday morning, spending their time together, and talking about their electric co-op. They were voting on resolutions. I just don't think you find that in the energy world outside of co-ops. That was a pretty special thing for me to see.

Another thing that was interesting for me was when I visited the Delaware Electric co-op in southern Delaware. I went to meet with the employees and see the level of innovation that's embraced by people working there.

It's pretty clear what the culture within that co-op is: every day they think in terms of "What can we do to serve our members? We don't need to do the same thing we did yesterday. What can we do today? What should we do tomorrow?" I spent time with the employees at the co-op and listened to how they think about their job every day. And every day they're looking to do something better. That was inspiring.

PUF: Do you feel like there's change on the way? You have younger people coming up. The business is becoming more digital. Are the co-ops seeing that too?

Matheson: Change is the watchword in so many ways.

Of roughly seventy thousand employees in co-ops across the county, we've seen over fifteen thousand retire just in the last five years. We're dealing with a workforce turnover.

The next generation workforce has different skill sets and different challenges because of the next component of change. Technology is driving so much change.

For years, the utility industry was structured under one basic model. You generate power. You move it over the lines. You deliver it and you bill the people for the kilowatt hours.

Today, with home energy management systems, with distributed energy opportunities, consumers now want to be in control of everything from their smartphone. The co-ops now have a new set of issues and services to provide that did not exist before.

We are all about serving what that member needs, so we're very tuned into making sure we have the capacity to offer those services, the technology, those options that technology has created.

Dealing with change can be challenging because we all get into a comfort zone, but because of our member focus, we tune in to members. It makes the work interesting for folks working at co-ops, to find the best ways to address these technology changes.

PUF: Are there priorities for the rural co-op world? Does the NRECA list them, one, two, three?

Matheson: Yes, it's a big list. In the policy world, we have some priorities. Priority number one is looking for regulatory relief.

We want our co-ops to be able to take whatever actions they want to take to meet their consumer needs. In the current administration, we think we've got some opportunities to recognize and realize regulatory relief.

We're interested in infrastructure investment, and any federal policy that assists with that. Energy infrastructure, but also looking at broadband as well.

Just like we electrified rural America in the 1930s, rural America should not be behind when it comes to broadband access. A lot of our member co-ops around the country are very interested in finding ways to serve those rural areas.

Areas with lesser population density create economic challenges for developing broadband, just like it was challenging to electrify those areas years ago.

But we're looking for a policy agenda that can help facilitate the investment for that type of infrastructure as well, because it's so important for rural America.

Those are some priorities on the policy side. We want to make sure our co-ops are best equipped to serve their members in this changing environment, whether it's figuring out how to do broadband, cybersecurity issues, or distributed solar energy.

If a member wants to put solar panels out there, how do we accommodate that? How do we provide him with the right options?

If someone wants to have a home energy management system with a lot of activity going on behind the electric meter, how do I, at a co-op, make sure that the consumer has the best information to make the best decision?

As a trade association, we can assemble a lot of information to help co-ops. Our members have a lot of expertise to make those good decisions, so those are the big priorities for me. Number one, on the policy side of what we can do, and number two, on the information side, how we can equip our co-ops with good information to make good decisions.

PUF: It seems that NRECA has a lot of intellectual firepower in service to the other sectors.

Matheson: We do have a tremendous pool of talent within our association. I think what gives us an interesting leg up right now is this transition that's happening.

Technology's creating more choice at the consumer level, and that makes us well positioned because we've always had that consumer focus. The other people in the utility industry have not had quite the same focus.

They have other obligations. They have the shareholders or regulators, and rate base issues. We're all about the consumer, and every decision we make goes to the bottom line of the consumer.

While this has always been a solid business model, in some ways, here in 2017 it's even more important, where technology is creating so many new choices for consumers.

That's another resource we have, beyond the smart people you referenced here in this building. We benefit from our business structure and our member consumers: forty-two million of them out there across the country.

We want our consumers across the country to treat their local co-op as the best source of advice for them, because these are complicated decisions consumers make.

You've got a lot of stuff coming at you at once. I've had someone knock on my door and say hey, would you like to put solar panels on your roof? How do I figure out if this is a good idea or not?

You're really left to your own devices; who can you talk to help you make that decision? A lot of people just go on the internet and try to look up information. For our member consumers, we want them to know that they can go to their co-op and get good advice.

PUF: There are always challenges for the co-op world. One is the lack of population density. And, in some areas, economies are thriving, while others are not. How is NRECA dealing with that?

Matheson: In several places in rural America right now, economic development is not taking place in ways we would like to see.

Populations are declining in certain rural counties. But electric co-ops are not just poles and wires company that offer electricity. We are part of the community. The community owns us.

Our local boards are made up of community leaders in the area, so we have a strong interest in economic development in those areas. Providing low cost power is an important building block for having economic development opportunity, but another is access to broadband.

If you want economic success in the twenty-first century, you need good broadband service. There are parts of rural America that don't have that. That puts them at a tremendous disadvantage. That's why this is gaining greater importance within NRECA.

PUF:Have you started to look ahead two, three years from now? Is NRECA evolving?

Matheson: I think it's important that we do evolve. Get what our members need. It's not a static situation. Technology and market forces are driving changes.

Look at what fracking has done in terms of natural gas prices. It's changed the whole electric industry. Political and regulatory decisions are driving change. It's important for NRECA to be nimble, to make sure the products and management services we're offering our members provide value to them.

Five years from now, that may very well be a different set of issues than what they face today. Don't get me wrong. We're not going to do a wholesale overhaul of everything NRECA does.

Our core mission, our core business is going to look similar, but we need to think aspirationally about where we want to go for the next three to five years.

There's no better business model to address that than the cooperative business model.

PUF: Is your job fun?

Matheson: I'm having a ball. It's a great job. A great culture, great people; every day when I go to work, I'm happy.

PUF: There are tough challenges too. It can't all be easy.

Matheson: We always face the challenge of making sure that we're doing the best we can to create value for consumers. It's not always easy to articulate the optimal path for that. In a changing environment, it's not easy to always stay on top of that change. Sure, there are challenges, because we're so motivated to want to do the right thing.

We just completed an employee engagement survey of our organization. We talked to employees. You know, ninety percent of the people working here say they truly believe in the mission of this organization.

No organization has that kind of cultural underpinning among the employees. We're part of something bigger than who we are individually.

Our annual meeting took place at the end of February. We had a big celebration for our seventy-fifth anniversary. We took a retrospective look at what we've accomplished over that time and how it informs us going forward.

As much as there's all this change that we face going forward, there are some fundamental principles and values that have carried us all the way through and they've continued, in spite of changes in the environment.

It sounds a little clichéd, but we want to look backward and forward at how we behave and how we best serve our members.

We're also meeting what the consumers want. So, with the movement into different opportunities, like solar that I mentioned, we've learned that the economics of solar are better if you have a larger scale plan. 

We've offered something that we've been aggressive about - community solar - where people can buy panels and put them with a bunch of other panels in the same place.

Seventy-five percent of all the community solar in America is owned by electric co-ops because we have a subset of our consumers who want it, and we are meeting their needs.

Our solar capacity is probably going to double in 2017. We've got a lot going on that's innovative. I've got to tell you one other story you've probably heard that's a great innovation story. That's Great River Energy in Minnesota.

They've got times of day when electricity is priced basically at zero. That co-op has all this excess cheap wind power in an off-peak time. They've got over sixty-five thousand grid enabled hot water heaters in homes or businesses there. The utility controls when the hot water heaters fire. They're essentially batteries the rest of the time.

We can store a gigawatt of power in those water heaters. That's how co-ops think: how can I make a better mouse trap? What can I do to maximize what I'm doing?

Great River has an interesting energy storage program that's really a simple technology. We can use the grid enabled technology to remotely control all those hot water heaters as a newer type of technology, but we're talking about just storing hot water.

So, it's an exciting opportunity and that's what co-ops do. They're looking for ways to be innovative.

At the recent EEI Annual Convention, PUF's Steve Mitnick and Tom Flaherty of Strategy& sat down with five utility CEOs to discuss how they are encouraging innovation at their companies. Below is an edited transcript of the interview with Chris Crane.

Chris Crane is president and chief executive officer of Exelon Corporation. Headquartered in Chicago, Exelon does business in 48 states, the District of Columbia and Canada. Crane previously served as president and chief operating officer of Exelon Corporation. Crane joined Exelon (then ComEd) in 1998, and was named chief nuclear officer in 2004. 

Tom Flaherty of Strategy&: How have you been working to stand up innovation over the last couple of years?

Exelon's CEO Chris Crane: We're looking at innovation from a broad perspective, and in more narrow terms. The first focus was how do we improve and become more efficient with emerging technologies?

We started off in two ways. We already had a technology ventures investment group that was looking at emerging technologies, and how we could apply them to the system.

At the same time, smart meters were coming on. More technology was coming onto the grid for the first time. Everything was focused toward a better customer experience at a lower cost.

That drove the digitization of the system. This brought us many possibilities to improve around customer operations, customer service, system operations and reliability.

That's been a big issue for the Exelon utilities going forward. The other part is engaging employees and asking, what do you see out there in the technology space?

I want us to be a learning organization, making sure we understand things are constantly changing, and adjusting so we can benefit from that. We should be leading change. We see technology not as disruptive, but enabling.

We started a small corporate organization with coaches and mentors that go out when the employees request it. They help them set up their projects and their business plans. It's grown to be pretty exciting over the last four years.

Soon we'll be in Washington for our annual Exelon Innovation Fair. [It took place on June 27.] We'll have over three thousand employees there. Out of our thirty-four thousand total employees, we'll have almost ten percent of them in Washington. There are always some amazing things there.

The latest one that I've viewed is the creation of a couple of engineers who are working with a company to develop an app. You take a picture of a degraded component in the field, and the app is tied into the G.I.S. system.

The G.I.S. system identifies a unique component ID of that asset, and it sends it for a work order. Then, as these work orders are being planned, behind the scene is an AI device that starts to learn. An example may be a broken arm on this type of component that creates this part.

What we want to do is eventually get to the point where work orders are planned based on pictures being taken. The orders would be prioritized. We can then dispatch trucks.

When we have it working right, all our customers get the app. Then the customer sees something really ingenious.

PUF's Steve Mitnick: The customers could take a photo as well?

Exelon's Chris Crane: Yes. If you're a ComEd customer, you can get the app and see if you're having an outage. You can also see where all the outages are, check your bill, and check your usage. Reporting damage is something we would try to incorporate in that app.

We had a gas technician at Philadelphia Electric that supervised the techs that went out for gas service. When they got a gas leak call (we must be there within an hour if there's an odor call), our policy was to shut off the gas. Typically, if there was an odor, it was not caused by a utility device.

We'd put a red tag on it, tell the customer they had to to call somebody to fix it, and then call us back. We said we'll try to get somebody out at some point, to turn your gas back on. That made our customer mad. We inconvenienced them.

So, this individual came up with a tool kit. He worked through legal, worked through regulatory, and came up with the common fittings that are leaking in somebody's house. Now, he's got the program put in place where you call us, we go in, and we say, do you want us to fix it?

They say yes, and sign a form. It says, please fix it. Our guys fix it, and turn the gas back on, light the pilot lights, and leave. It saved a truck roll and helped the customer.

Tom Flaherty: Did you have any capabilities that you were trying to develop through this innovation process?

Exelon's Chris Crane:We needed to develop the communications link, to talk about the emerging technologies, and look at the use-cases for them. We pulled together a diverse group from all the Exelon companies.

As we look at the individual that runs Constellation Technology Ventures, he's out putting seed money into energy management systems, battery systems, and things like that. These are things that we think we can commercialize through Constellation. We are taking emerging technologies, and discussing them within this group.

We've done that with fuel cells. How can we commercialize the use of fuel cells? Do our customers want them? What's the benefit from them?

We're doing it with hydrogen. We have a team right now that's going to visit Toshiba's hydrogen research facility, and see if there is more of a market growing in the hydrogen space. Is there a business case for us to be in this technology?

One of the things that we've done is make sure that we're partnering with outside providers. GE is one of our biggest suppliers. They are really working very hard on the digital future of controlling and driving the efficiency of machines. They have a program called Predix. IBM has Watson. Everybody has something dealing with artificial intelligence and analysis.

We have partnered with GE on predictive tools for our nuclear, gas and wind turbine fleet, to drive better efficiency and utilization. We're now looking at all the big data we have within the utilities sector and asking, how do we best utilize that for efficient operations?

It's not only doing it by yourself. It's about picking some strong partners that are really leading the technology revolution, and getting those organizations to share and communicate.

Typically, what we would do, when we wanted to do something the old-fashioned utility way, was write a request for proposal. We'd have everyone come in. We've done some of that. You really want to look at what the partner has, versus the bottom-line price. You have to look at what you can build together and drive efficiency.

PUF's Steve Mitnick: Where does the regulation fit in?

Exelon's Chris Crane: Constellation Technology Ventures is in the Constellation organization, which is our retail wholesale merchant. It's a non-regulated business. The reason we have our investments in that area is the freedom to fail forward, to test something.

Not every investment works. You must be willing to take a loss at times. That doesn't fit into the regulatory space. In the regulatory space, we need to make sure it's proven, that it's a technology that can pass a prudency test. It's got to show that it supports customer reliability and efficiency.

I think there are conversations we need to have about the utility of the future. Including the regulatory compact.

Tom Flaherty: How do the utilities get to be efficient partners in the smart city or the utility of the future?

Exelon's Chris Crane: Bloom Energy, the fuel cell technology based on natural gas, is one strong technology coming forward. It has unique applications.

We have national account customers that were interested in utilizing the technology to help with reliability. After Superstorm Sandy, with the northeast and New York not getting any backup diesel fuel, we wanted something that could be potentially much more reliable.

We got into that and it's been successful. We've also had Bloom utilized in utility applications, where it offsets the expense of transmission buildout, or switchyard modifications.

We've invested in Proterra, which is an electric bus company. We're really trying to help that company bring their product to market.

They've got a unique design. We think there's potential that could be utilized in our cities. We think the electrification of vehicles will help a lot from the environmental standpoint. It fits in with our growth.

One of the most innovative things that we have done around energy storage and energy management systems, is the formation of a company called Volta. The purpose is to commercialize DOE's national lab technologies at a faster pace. They have a very deliberate mechanism to do that. We were the seed company to stand it up. We worked with Argonne National Lab to get it approved.

We're getting other founding shareholders, equity holders, to come in and invest in Volta. There are some large companies that are very interested in it.

As we do that, there'll be a special-purpose entity where the companies can come in. It's about driving the technology, leading the application, and crafting our future. Versus our future being crafted for us, which is what happened around fracking.

I think the biggest wake-up call we had as a company, and the biggest wake-up call as an industry, was that none of us saw the extraction of natural gas would be happening at the rate that it did, with the success it had. We weren't involved. We have to be involved with the next technology that is going to change our business model.

Tom Flaherty:How do you grow the culture of innovation?

Exelon's Chris Crane: You must make it very public, make it very known, make sure it's known as a priority. You must dedicate your own management time to supporting the projects. You also need to be able to say when to shut a project down.

I got a lot of advice from GE CEO Jeff Immelt. He came and spoke to our whole leadership team. He talked about how he was driving risk-taking around innovation at GE. He said he had to be personally involved.

He had to make sure that people had a place to come to, and could try something. If it failed, it failed. But we gave it a shot.

A big part is communicating and rewarding. If something fails, you figure out why it did, and you move on.

Tom Flaherty: How do you insure that the incentives are aligned appropriately for people to take a risk?

Exelon's Chris Crane: There are recognition awards. There's a story of an instrumentation technician from Braidwood Nuclear Plant who has done a lot of design work on how to better test security equipment.

I found out about him because he was nominated for an award. It's only given one time a year to a nuclear employee or power employee. It comes with a good amount of money. It's a ten-thousand-dollar check thanking him for the contribution.

I also found out that, to go and take his training, he took his family on a personal vacation. He went to Kansas, and went to training while his family stayed at the hotel.

That is the kind of employee we have. You need to reward that. You need to recognize that, and make sure that their supervisor sees what they're doing. You have to celebrate it. You have to reward it.

PUF's Steve Mitnick: Somehow you manage to get that across throughout a big organization.

Exelon's Chris Crane: We need employees to share good ideas to make their jobs easier, better, more efficient, and safer. There's a lot in the nuclear area around robots, cameras, and even simple things.

For example, we are finally not doing paper work orders. We're on iPads now. Before, you would see a mechanic rebuilding a pump with a ring binder, flipping the page, trying to figure out what the procedure is. There are so many things that employees can now do. We're coming out of the dark ages.

Tom Flaherty:Do you see embedding incentives and recognition around innovation as part of the annual incentive plan?

Exelon's Chris Crane: We haven't gone there yet. We've done individual awards. There'll be winners at the Innovation Fair that will get rewarded. It's something else we should look at.

Tom Flaherty: Can you think of something that you could impart to the rest of the CEO community?

Exelon's Chris Crane: You need to know when to pull the plug. At the beginning of this, we had a large hopper of issues that we were going after. We kept some of them going too long, when they were not going to be successful, or it didn't fit the business model, or the balance sheet. We are recognizing and communicating and letting people know it's okay if we need to stop somewhere.

If we don't start, unless we're sure something's a hundred percent going to work, we won't start. I think that's one of the biggest issues. That, and you can never over-communicate.

I have a meeting coming up. It's called the Entrepreneurial Growth Board. It's like a mini "Shark Tank." But everyone's polite. This is where people come in, and they've got bigger projects.

Different people from the company evaluate these requests. I think everyone knows about the Entrepreneurial Growth Board. We've got employees coming in all the time.

I had at least two hundred forty people at the VP and above level at the Exelon companies in my annual meeting. I asked, "Does everybody know what the Entrepreneurial Growth Board is?"

Only three-fourths of the room raised their hands. I'm thinking, this is the VP level. Communication is critical.

We send out emails explaining this. But we all don't have time to read those emails. That means you have to communicate in different ways.

PUF's Steve Mitnick: How can the industry commercialize faster?

Exelon's Chris Crane: One thing is having the seed money set aside. It doesn't have to come out of the line operations budget. There's too much delay in that area.

The Entrepreneurial Growth Board is where they get to bypass that process. We can look and say, good idea, here is the check.

We learned that from GE. We hold our operations strictly accountable to their budgets. We don't usually budget those kinds of things off to the side without the controls. That's a deterrent to allowing the commercialization efforts. So, you need to make sure you have a way around that.

Read more interviews here: Nick Akins from AEP, Warner Baxter from Ameren, Tom Fanning from Southern Company, and Pedro Pizarro from Edison International.

At the recent EEI Annual Convention, PUF's Steve Mitnick and Tom Flaherty of Strategy& sat down with five utility CEOs to discuss how they are encouraging innovation at their companies. Below is an edited transcript of the interview with Tom Fanning.

Tom Fanning has been chairman, president and CEO of Southern Company since 2010. He also serves as chair of the Federal Reserve Bank of Atlanta and as chairman of the Edison Electric Institute. Fanning has worked for Southern Company for more than 35 years and has held 15 different positions in eight different business units. Most recently, Fanning served as chief operating officer of Southern Company.

Tom Flaherty of Strategy&: How have you been building innovation in your company?

Southern Company's CEO Tom Fanning:One of the greatest harbingers of future failure is past success. Southern Company for years has been one of the most successful franchises in the U.S., measured by almost any kind of customer metric: reliability, price, and customer satisfaction.

We see the whole model for this industry changing. Customers are requiring it, and technology is enabling it. Over the past hundred years, this industry has been focused on making, moving, and selling energy to a meter. Then that meter becomes a mechanical line of demarcation between the company and the customer.

Now, we find making, moving, and selling energy completely bypassing the meter and taking place on the customer's premises. It's part of the customer's fabric. What's fascinating now is we must challenge our century-old business model, which has served us so well for so long, through a process I call "creative destruction."

We invested last year in a company called PowerSecure. Then we essentially doubled that investment in a strategic joint venture with Bloom Energy, to provide a suite of distributed infrastructure solutions for customers.

When a lot of people hear the word "distributed," they say, "distributed generation." But it's not just generation, where people typically think of a rooftop solar panel. It may be a fuel cell, storage device, switching gear, electric vehicle charging station, backup generation, or a microgrid.

We first saw this happening with the Department of Defense. DOD had a dual mandate: to be severable from the grid in the event of a natural disaster and to utilize more renewables.

We clearly are seeing that same concept taking hold, particularly with the advancement of the digital age. Everybody is going forward with server farms and digital technologies. The big box stores are getting obliterated by a whole new delivery model, utilized by Amazon and others.

Now, because the reliability requirements are so stringent in that environment, we see creative destruction really occurring in that space. It's particularly evident in commercial sectors, and it's advancing to other manufacturing sectors as well. It's gone way beyond what was required by DOD. It is really catching fire.

Tom Flaherty:How do you get the organization to change?

Southern's Tom Fanning: Let's go through a couple dimensions. First, how do you encourage diversity of thought? One way is to have diversity in your representation.

People typically think diversity in terms of race and gender. But we know that diversity, in its broadest sense, is much more than that. It includes sexual orientation, religion, age, national origin, income, and all kinds of things.

What you want is not so much the "check the box" diversity in representation. You want what that enables: diversity of thought. Broader cultural bandwidth.

We want broader context, judgement, skills, and experience. If we can broaden our cultural bandwidth, we will have greater vision and courage with which to see the future. Representation across the cultural spectrum is important to enabling that.

Another way I try to lead through change is by tapping into the unasked questions. For example, "If you're so successful for so long, why would you ever change?"

We set up an internal war game, where we proposed what the world would look like in 2025. Through some cool mind mapping software, we asked employees to comment on that future.

It was fascinating to see how many people engaged. At that time, we had twenty-six thousand employees. Now we've got thirty-two thousand. We had somewhere around four thousand employees comment, which was pretty big.

Once we incorporated their comments, we said, "If this is what the future will look in 2025, tell me how we are going to thrive in it. Where are the barriers, and where are the opportunities?"

Those questions became the basis for an internal competition we called "SO Prize." Individuals and teams could submit bids. We paid out big money, tens of thousands of dollars, to the top twenty and ultimately top six teams.

When we selected the top twenty, fifteen were voted on by the employees. Then there was a team of management and outsiders (like Steve Specker, former head of EPRI), who helped select the other five.

Then we let them bid against each other. Teams could reform, almost like the TV show Survivor. They presented their bids to a panel of experts, which was live-cast on Southern TV. We quizzed them. That was a little bit like Shark Tank.

We selected six winners, and not only awarded cash prizes to those teams, we put our money behind their ideas. We're developing every one of them.

Some of their ideas were obvious, others way out of the money. But that's what research and development is. The point is to take something from out of the money and make it work in the money.

We found so many cool ideas about how to use unmanned aerial vehicles. That's an interesting business venture. We're one of the first licensed unmanned aerial fliers in the United States.

Another one was way out of the money, but we're still looking at it. I was really taken. Everybody understands electric transportation, but what about hydrogen vehicles?

You can actually use generating facilities to create hydrogen, when they're not producing electricity. Now, if hydrogen becomes a viable fuel for the future, we could be in the hydrogen production business, which is kind of cool.

Think about the simple concept of it. If you have a fixed investment, how can you add more revenue to create more value out of that fixed investment, rather than just letting it sit there?

Another idea was called "Water, Water Everywhere." Georgia, for example, is the only state in the United States whose waters solely originate within the state.

The idea was essentially promoting desalinization on the coast, moving the water north, and then allowing Atlanta to continue its pace of economic development. So, we solve an environmental problem and an economic development problem. By the way, desalinization uses a boatload of electricity (pardon the pun).

Another idea. We've got a lot of sites in Atlanta. We could basically use an old local office and create an electric vehicle sales ground, where you don't have to go to Chevrolet, and then Toyota, and then somewhere like Tesla.

We could put them all on one site, and put all the folks who are involved in the equipment, charging stations, and everything else right there. It would be a one-stop shop for electric vehicles, including buses, cranes and off-road vehicles.

We've been really successful with electric transportation. The Port of Savannah is now a hundred percent electric. The Port of Mobile is a hundred percent electric. All the vehicles associated with baggage handling at Hartsfield-Jackson Airport are electric. It's not just cars.

PUF's Steve Mitnick: Can the whole industry do this?

Southern's Tom Fanning: This makes so much more sense in a vertically integrated, regulated business. In the so-called organized markets, you don't have the same long-term price signals to invest capital and serve customers.

If you really want to be environmentally friendly, electrify everything. When you think about electrifying everything, that has tentacles into the concepts of make, move, and sell. You are much better positioned in an integrated business environment.

Southern Company is the only company in our industry that does robust, proprietary research and development. Why? Because we make long-term bets as a result of our integrated, regulated platform.

When you're in a so-called organized market, you're betting on every quarter, on the next pricing signal. You don't have the long-term kind of pricing signals to invest long-term capital in research and development.

PUF's Steve Mitnick:Seems like Southern Company is agnostic about where you get innovation.

Southern's Tom Fanning: It's about connecting and empowering people. It's this whole idea of being a one-stop shop for industrial, commercial and residential customers. We want to be their trusted energy partner, not just their energy provider.

That may attack and threaten our own business model. But here's our view. You can't keep the waves off the beach.

Because technology is enabling it, and customers are requiring it, we must play offense wherever we can. We can't play defense. That's why we're doing all of this.

Tom Flaherty:How do you maintain the momentum from SO Prize, and foster more innovation inside the company?

Southern's Tom Fanning:We've carried the notion of SO Prize into some other areas, like industrial safety. We had a "SO Safe" competition using the same mind mapping software.

We stood up an Energy Innovation Center, which really acts as a storefront for all these ideas. It's a way for us to celebrate innovation in a very high-profile way.

One of the things about building innovation into every aspect of our culture, is people can see real results for themselves. That was key.

In fact, we're now seeing that in all of our employee surveys. We get really high innovation scores.

I'm on the American Energy Innovation Council, a group of business leaders working to build broad bipartisan support for public and private investment in energy innovation.

I worked with both the Trump and Clinton campaigns, and now with the Trump administration, advising on energy policy. Innovation was an important part of those conversations.

We're also working with EPA, DOE and Congress on a variety of issues including tax policy, which has a hand in advancing innovation. This administration has been exceedingly business-friendly so far.

Think about the S-curve of innovation, where there is bench research, scale up, and commercialization. I think this nation needs to remain involved in bench research up to the very low levels of scale up and commercialization. Then industries like ours have to take over.

Either you invent your future, or somebody else will. I love the old book Barbarians at the Gate about RJR Nabisco. Point being, if you don't run your business as well as you can, somebody else will. If we don't play offense in this industry, somebody else will. We've got to do it.

Tom Flaherty: Any lessons learned from other companies that you think could help shortcut their path to the future?

Southern's Tom Fanning:Act at scale. Experiment. Be creative.

We need to create options that could have real value. Some of those options are out of the money today but could have real potential in the future.

You need discipline to identify winners and losers. Be quick to kill ideas that don't have real value. But if they start looking like they're winners, put big money there. For example, after we acquired PowerSecure, we doubled our investment in them some months later with Bloom.

There's a funny Far Side cartoon where a mosquito is biting this guy's neck. The other mosquito says, "Pull out! You've hit an artery!"

That's kind of where we are with PowerSecure. The challenge isn't a lack of opportunity. The challenge is to take something small but successful, and scale it quickly.
 

Read more interviews here: Nick Akins from AEP, Warner Baxter from Ameren, Chris Crane from Exelon, and Pedro Pizarro from Edison International.

At the recent EEI Annual Convention, PUF's Steve Mitnick and Tom Flaherty of Strategy& sat down with five utility CEOs to discuss how they are encouraging innovation at their companies. Below is an edited transcript of the interview with Pedro Pizarro.

Pedro Pizarro is President and Chief Executive Officer, Edison International. Pizarro has been the President and CEO of EIX since October 2016. Prior to that, he served as President of EIX from June 2016 to September 2016 and President of SCE from October 2014 to May 2016. Pizarro has held a wide range of executive positions at the EIX companies since joining EIX in 1999. Prior to his work at the EIX companies, he was a senior engagement manager with McKinsey & Company.

Tom Flaherty of Strategy&: What are your experiences over the last two years, as you focused on innovation?

Edison International's CEO Pedro Pizarro: Innovation, for us, takes a lot of different approaches.

Within the utility, the hub is our advanced technology group which we view as a broader corporate resource. That's where we have labs and can pilot and try out new technologies. We can work very closely with vendors and work closely with academia.

We sponsored some research projects at universities, including at Caltech. The hub is a nice place to have folks inside the company with engineering depth. They can help to test and adapt technologies for use on the grid.

When you look at our industry, I don't think any of us are doing basic research. With the utility structure after deregulation, there isn't the support for very basic research.

However, there's EPRI, whose board I serve on. EPRI is the industry's doorway to basic research. That's one broad category.

And, we've made a small number of minority investments in startup, late-startup, and early and mid-stage kinds of companies. Those are ones we're not controlling. We'll sit on a board or an advisory board, and bring learnings back. It is a way to be in the flow. We have also incubated and launched new businesses.

We've had a couple recently that we shared with investors. We tried them out, good ideas which didn't pan out for one reason or another. I think you must have the discipline to start them, to set some metrics. Know when to hold them, and know when to fold them.

One that we've been incubating or doubling down on is our Edison Energy platform for serving commercial and industrial customers. I put that one in the innovation category. It's not just providing commercial service. There's a big part of it that involves developing some data and analytics platforms.

We've done a lot over the last couple years to increase employee engagement and create more vehicles for folks to be innovative. They bring their ideas, and we give them sponsorship.

We had a program that was called our X-Change Program. That's one that allows utility employees to submit ideas, get teams formed, do work outside of the traditional chain of command, and get executive sponsorship.

We have several good things that have delivered bottom-line value. They have brought real innovation to how we do the work.

A big change we made was blowing up the procedure we have for doing interconnections of new solar customers. We compressed that time period from thirty-some days to a day. That required process and tool changes.

PUF's Steve Mitnick: Do you have trouble attracting and keeping good talent?

Edison's Pedro Pizarro: In order to keep talent, we have to focus on both attraction and retention. Those go together. We're able to drive a lot of the innovation standards and approaches. There's a lot of really good, fun stuff there that's attracting young engineers and folks out of college and grad schools.

Sometimes they come from California. Sometimes they come to California. We've had pretty good success in attracting great talent. We are located in a state that has a high cost of living, but some folks don't worry about that in this early point in their careers.

At some point, they start developing, growing their family, or worrying about schools. We pay well, but we're in a really expensive area. We still want them to think creatively, so we're looking for ways to support that. I believe that creating a culture, creating an environment, can have its own form of retentive power.

Tom Flaherty: What were the priorities that you laid out once you decided to innovate?

Edison's Pedro Pizarro: Three things. One is supporting a core business and our core strategy. Most of that action is through the regulated utility. Increasingly we have the competitive side that we're growing again through Edison Energy.

It's support for the core business, which includes people in innovation. Not just in the latest technology, but also in reforming business processes and finding better ways to do work.

The second objective is finding new growth priorities for the company and additional growth factors.

The third is just being in the flow, because there's a lot going on in the industry. There's no better radar screen than actually being in the flow and being able to touch and feel what's going on.

Is it just about the latest technology? Or is there also work in terms of our inner business workings? It's both of those.

Let me give you a couple of examples. The application of technologies to business processes is going to drive fundamental changes in what it means to operate a utility in the coming years. As an industry, and certainly speaking for our company, we're just starting to scratch the surface here.

Last year we started standing up a data analytics capability inside the utility. We're also doing that outside the utility at Edison Energy. In California with the affiliated rules, we need to have pretty steep walls on the two sides.

We start by standing up the data analytics capability, bringing in that kind of talent, and looking at use-cases. One of the early use-cases was looking at how we forecast estimated restoration times when we have an unplanned outage. That's a really hard thing for utilities to do.

We all are equally bad at it. I believe the models from a year ago had about a twenty percent accuracy rate. We had to investigate, where is the outage? What happened?

We didn't know. We would later learn that a car hit a pole, or that a transformer failed.

If we tell a customer, "Well, we think it will take us five hours, but that's plus or minus a lot," the public doesn't understand that.

We then asked for outside help, too. We asked ourselves, "Are there big data resources? Are there big data and data analytics tools we can bring that can help improve it?"

That took about three months. It was hard, but it was not a two-year project. We were able in that space of time to rewire. We didn't create new data. We found additional data sources that we thought were relevant. We looked at the correlations behind that.

We created the pipelines to collect that data, and we developed some new forecasting models within that three-month period. That allowed us to increase that to sixty percent accuracy. Sixty percent is still just a little better than tossing a coin, but it actually is a significant improvement.

What's really exciting is that we believe the underlying analytics that we develop will drive their improvement. First, we'll be able to get it even better, but more importantly it has real implications for how we think about a bunch of things upstream. Then there's the logistics, the dispatch, the prioritization of work as we think about outage restoration.

That's one little example. I'll give you one more. On smart meters, we were early adopters. We completed the deployment of all five million smart meters around 2012.

They're working well as designed, but they were not designed for real time operations. We've got five million smart meters out there. Is there a way to use them for real time on real-time operations? We have to do some upgrades on communications infrastructure, but the vision that we're creating for folks is, can we do this? Can we make that customer phone call, to tell us that the lights are out, a thing of the past?

Shouldn't we know that the lights are out? In a sense, a smart meter knows it is. It just can't tell us.

We've got an effort right now to see if there are cost-effective changes, modifications we can make to the communications infrastructure so we can build smart meters into our real-time or near real-time operations. What kind of algorithms would you need to be able to actually develop the map of where the lights are out? It's exciting.

Tom Flaherty:How do you build and embed a culture of innovation so it's sustainable?

Edison's Pedro Pizarro: I can't tell you we have the answer, but I can tell you a couple of things that we're doing. It's got to start from the top.

Our industry has regulations. There's a high penalty for failure. You have to rewire the culture to embrace failure. Try multiple things. If they don't take off, value the learning opportunity.

That's hard to juxtapose with the typical regulatory model, a compliance-focused model. You have to help define where is it okay to have that kind of failure, and where is it not okay. Obviously, it's not okay to have the lights out. However, it is okay to try an experiment and know that it may or may not work. That's one piece of it.

Second is finding ways to deploy an X-Change Program like the one I mentioned, that's very visible inside the utility. It's got executive sponsorship. It's now sponsored dozens of teams that have done some good things.

Sometimes it might be something that saves us a hundred thousand dollars. Sometimes it might be something that saves us more, or creates an improvement in the customer experience.

Deploying that out there quickly, and in a visible way, helps people address problems. We've got twelve-thousand five-hundred employees. Most of them are a lot closer to parts of the action than I will ever be.

How do you empower them and give them the tools for it? Just creating a sense of support, and a sense that it's okay to try things out.

Knowing that they may not be perfect. But this is about learning.

Tom Flaherty: Do you have any parting lessons learned for your counterparts?

Edison's Pedro Pizarro: Two quick ones. Putting power in employees' hands is a wonderful thing.

I've sat down with multiple employees who have taken projects to the X-Change Program. They're energized. I think those are folks who will be retained for a long time.

The second is that our industry's going to change so much. The economy as a whole is going to change a lot. Data analytics and artificial intelligence are going to radically transform not only the things we do in the core part of the business, but also in the back office. This is a common theme across the economy. We're just starting to scratch the surface.
 

Read more interviews here: Nick Akins from AEP, Warner Baxter from Ameren, Chris Crane from Exelon, and Tom Fanning from Southern Company.

The chief financial officers of the three large southeast utilities (Dominion, Duke Energy and Southern Company) sat down with PUF editor-in-chief Steve Mitnick and Navigant Energy practice leader Jan Vrins to answer questions. In this second part of their discussion, they discuss the importance of innovation, the critical role of cybersecurity, and how they got where they are today. Part One appeared in July 2017's Public Utilities Fortnightly.

Navigant's Jan Vrins: How do you free up financial and human resources to innovate?

Southern Company's Art Beattie: Over the years, we've invested billions of dollars in robust, proprietary research and development to better serve our customers. We also opened an Energy Innovation Center, where our employees and partners collaborate to tackle some of the energy industry's most pressing issues.

But it's not so much that we've got a building and people dedicated to it, because we want all our employees to think about innovation, not just those within a building. For example, we had a contest a couple years ago. We called it "SO Prize."

We challenged employees to come up with their best ideas to make life better for our customers, and they came back with a lot of them. More than five hundred employees from around our company submitted nearly a thousand different ideas.

Some of them were kind of far out there. Some were a little closer to reality. The ideas ranged from drones and hydrogen-powered vehicles to desalinization and big data. There was a big panel that discussed them, almost like the TV show "Shark Tank." We selected six winners. There were financial prizes at the end of the day.

It was a way to spark innovation within our company. And to get people to start thinking about, "Well, we've done it this way for so many years; maybe there's a different path."

Jan Vrins: How do you deal with security and cybersecurity?

Southern Company's Art Beattie: Cybersecurity is a challenge for everybody. We're all attacked millions of times a day. We use a concentric approach to secure our facilities and our data.

We test all our employees with phishing attacks. It gets them to start thinking about good cyber hygiene.

Our CEO chairs the Electricity Subsector Coordinating Council, which coordinates government and energy sector efforts to prepare for, and respond to, disasters or threats to critical infrastructure. So, he is involved at the highest level of national security in the country.

Other people within our company are involved in that effort as well. We are contributing to, and learning from, all of the latest thinking around cyber and physical security.

Dominion's Mark McGettrick: One of the service territories we have is Virginia, which has a significant number of military and governmental facilities, like the CIA, and the Pentagon. We have been extraordinarily involved in cybersecurity, and also in physical security around our substations.

In terms of innovation, we have a multi-pronged approach to this. We invested in a private equity fund several years ago to make sure we keep abreast of new technologies. It was their charge to evaluate alternative technologies that could impact the electric and gas industry.

They invest in firms that are developing new innovative products and services. We test those products. Based on these reviews, the fund decides what to invest in, and what not to invest in.

I think it's given us a good appreciation of what's down the pike on energy storage and battery capabilities, among other things.

Last year we had many different people looking at improvements in technologies and innovation. We assigned a senior officer to coordinate these efforts and prioritize them for investment.

He's the "chief innovation officer." It's a little bit unusual in the industry, but we need to understand the breakthrough technologies coming to our industry.

Duke Energy's Steve Young: We have an idea lab in our technology department. We have a group of people that mix information technology skills with business unit skills. They develop applications for iPads and so forth.

They may use these applications in the field to photograph a machine. Then they transfer it back to an expert in the office or operations center who can say, "Here's what I think is wrong with it." As opposed to writing notes, and going back and forth, to and from the field.

Another area where we need more funding is security. This includes both physical and cyber. We have both twenty-four/seven physical and cybersecurity centers.

At our facilities, we've ramped up the security, fencing, and camera monitoring. The cameras feed twenty-four/seven.

On the cybersecurity side, we try to recruit people who understand penetration testing. We have an isolation area where we can take suspected malware. We isolate it, transfer it to law enforcement agencies, or assess it on our own.

What's amazing is the number of emails that don't get through to our employees. Ninety-eight percent of emails that come into our servers are rejected. I was stunned by that.

PUF's Steve Mitnick:Can you talk about some of your successes?

Duke Energy's Steve Young:There are a couple of things that we're pleased about. Over the past several months, we've been going through a portfolio transition. It's always challenging when you do that.

We exited a merchant generation business in the Midwest in 2015. We also exited a merchant generation business in Latin America, and closed the transactions in late 2016.

In this same period, we built a natural gas platform. That involves investments with our partners here in Atlantic Coast Pipeline and other pipelines, including Sabal Trail, and the acquisition of Piedmont Natural Gas.

Dominion's Mark McGettrick: I'd say our biggest success in the last ten years has been the successful execution of major projects.

We have built four or five very large scale gas plants, all on time, and on budget. We actually built a coal plant earlier this decade on time and on budget. We are getting ready to bring an LNG export facility online later this year. It's a four-billion dollar investment that's going to come in on schedule and on budget.

We have proved to investors that we can manage and execute large projects very effectively. Because of that, our shareholders have been rewarded with some of the highest returns in the industry for several years.

We've had excellent operation of our nuclear fleet, and our other generating fleet, as well as our distribution operations in terms of reliability. Safety is the number one focus for us in the company. Our safety record is excellent, but we can continue to improve.

Southern Company's Art Beattie: Last year was a great year for us.

The acquisition of AGL Resources expanded our footprint geographically and doubled our retail customer base. But we still maintained our risk profile in the regulated businesses that our investors are accustomed to. The fifty percent equity investment in the Southern Natural Gas pipeline system was a vertical integration for us.

We acquired a small company called PowerSecure, which will give us the opportunity to go beyond the meter, see what kind of growth that might provide, and what kind of learning we might get out of that in order to meet customers' evolving energy needs.

From a financing perspective, we raised more than twenty billion dollars last year. A lot was for these acquisitions. A portion of it was to issue equity for these acquisitions as well.

But even with all of this change, our traditional utility business model is still operating very well. In safety, reliability, and customer satisfaction, we have some of the top numbers in the industry. Southern Power - our competitive wholesale generation business - invested nearly four and half billion dollars in twenty-seven hundred megawatts, mostly renewable energy, last year.

That was more than two billion dollars more than what we thought we would invest. It was a very target-rich environment last year. By any measure, 2016 was a very successful year, both for us and for our customers.

PUF's Steve Mitnick: Can you talk about how you got to this point in your careers?

Duke Energy's Steve Young:Duke's the only place I've worked. I came out of college and immediately went to Duke Power in 1980. I was in finance and accounting. It's been a good place for me and I've enjoyed it.

Duke has always been a team-oriented place that looked at effort and collaboration and your ability to communicate and work through good times and bad times.

I've been fortunate to work for some very good people, including Lynn Good, my current boss.

Early in my career I worked on rate cases all the time, and I had a boss, the head of regulatory affairs, who took me under his wing. It was very helpful to me to work side by side with this very experienced person developing rate case information through the 1980s.

Dominion's Mark McGettrick:I've been very fortunate to have had the opportunity to manage many segments of our business.

I managed the generation portfolio for the company for seven years. I managed all the customer operations, gas and electric, for several years. I also managed all the corporate office, IT and HR functions, and I grew up in the electric distribution and transmission business.

As I moved into the CFO job, that background gave me a good understanding of how the whole company operated. I could speak to all the different lines of business with investors and explain our operations in detail.

I started in electric distribution after I came out of school and spent about six or seven years there. This was in residential, commercial and industrial line design.

There were two gentlemen at that time that ran our construction. They taught me several important lessons. First, they taught me the importance of customer commitment by our employees. These were the folks in charge of construction crews that were available all the time to keep customers' lights on and provide new service.

Second, they taught me that there are many different skillsets in a company. You must be able to communicate with all kinds of different people, whether they are craft employees, engineers, clerical employees, management, or customers. The final thing that they gave me was great respect for skilled craft employees.

I never did field work, construction work, electrical type work, or pipe work. But that's what makes these companies go, on the electric side and the gas side - those folks that are pipe-fitters, electricians, linemen, ground-men, substation employees and the folks that operate our generating stations.

These gentlemen molded my view of employees and the company - what it needs to look like and how to be successful. I thank them for that. They're both retired now. I'm sure they helped many others along the same way.

Southern Company's Art Beattie: Let me quickly echo Mark's comments. I have a lot of respect for our planners, operators, technicians, line crews and other employees who are on the ground every day providing energy for our customers.

As for me, I always think back to my first supervisor. In my first review, he told me I didn't say sir enough, and I said, "yes, sir."

I'm the CFO today. I'm wondering what he's thinking.

Anyway, I'm the poster child for getting into this slot in a different way than most others within Southern Company. Our CEO, Tom Fanning, talks about how he's done many jobs at many of our different subsidiaries. I worked at one subsidiary in various aspects, but all on the financial side. Be it accounting, finance, finance planning, regulatory relationships or corporate governance - it was all within one company.

Communication skills are important in your ability to deal with people at all levels. Just the translations for engineers to the accounting side.

I must tip my hat to several people I worked with along the way. A lot of them were engineers, not like me. They were considerate enough to sit down with me and explain issues I was oblivious to.

I would present information to them, and within five minutes they'd look at it and say, "There's something wrong here."

They taught me so much about how the business operated, and how to interact with other people outside of the financial world. Those were some of the skills that helped me along the way.

PUF's Angela Hawkinson, Editor, and Steve Mitnick, Editor-in-Chief, recently visited the Atlanta area offices of Burns & McDonnell, in Alpharetta, Georgia. We spent the day talking with some of the young and diverse engineers that are leading the way for our industry, and we took a ton of pics too. Here we excerpt five of the interviews, with Otto Buckle and Dotun Famakinwa, Jose Alvarez, Misam Taherbhai, Justin Kanitz and Hill Baughman.

These brief interviews are a fascinating window to see how today's engineers work. Times have surely changed. We didn't spot one slide rule the whole day.

Oko Buckle and Dotun Famakinw

PUF's Steve Mitnick: Oko, what do you do here?

Oko Buckle: I help run the office of Burns & McDonnell in the southeast.

We try to make sure that we are getting the right people on board. Then, we try to make sure those people are in the right seats.

We make sure that the people working here are very fulfilled so they stick with us for the long term. At Burns & McDonnell, our turnover rate is very low. I think there are some things we do right that make this business very attractive to almost all professionals.

That's the people side. Then we work with the managers to ensure that we are really working with the right clients.

We are fortunate to work with many great clients who appreciate the constructive value we bring. We seek out the toughest challenges and most difficult assignments and we earn the trust of our clients when we come through for them. One great example is Georgia Power, a client we have worked with for more than twenty years.

PUF's Steve Mitnick: How did you get to this point in your career?

Oko Buckle:It was a long journey. I didn't grow up in this country. I grew up in a small country in Africa; it's the best country in Africa, Ghana.

I went to school there all the way through university. I did my first degree in electrical engineering.

I come from a family of twelve kids. I just got back from celebrating my mother's ninetieth birthday, and it was the first time since 1976 for all of us to be in one place at the same time. All twelve kids with my mom.

I did my undergrad back home. Graduated in 1994. Worked for a company that worked for GE in Ghana, and was part of the team that started building the very first thermal power plant in Ghana.

Midway through that project I got accepted into Texas A&M.

I came to Texas A&M to do my masters' degree in power systems, electrical engineering, and graduated in 1998.

In 1999, I started working for a company in Kansas City. I worked there for seven years. That's when I got to know Dotun, here. We both had a plan to start a business of our own, to go off on our own.

Then I found Burns & Mac. I came here and thought, "Okay, this is actually the closest that you can get to running your own business." It's a company that empowers you to be very entrepreneurial, number one. And they expose you to all the tools and resources that they have to make you successful.

Here, for the first time, I would be working on a project and I knew exactly what my budgeted hours were, what the dollar amount was, and what the expected profitability on the project was supposed to be.

It put me more in control. That was when I called Dotun and said, "This is the place you need to come to." He's been here with me for some time now.

I started here as a senior electrical engineer, to help start the substation group of transmission and distribution.

My boss ended up quitting suddenly after about three years. I applied for his job to head the transmission & distribution global practice, and I was successful.

I surrounded myself with very smart guys. Dotun is one of them. They worked hard. When my boss decided to retire, I applied for the job, and with the successes that these guys helped me achieve, I was selected for this job.

It's been good mentoring, good networking, having the support of good people around you.

PUF's Steve Mitnick:Dotun, what do you do, and how did you get here to Burns and McDonnell?

Dotun Famakinwa:I help Oko run the transmission and distribution practice here in the southeast. Our region stretches from the Carolinas all the way out to Mississippi, Florida, Georgia, and Alabama.

I came to this country in 1994. I'm from Nigeria; it's the best country in Africa. In the U.S., I started off in North Dakota. I was supposed to go to the United Kingdom and be an oil man. Our country was heavy into oil at the time.

It's just by fate, I guess, that I didn't go there. My visa was delayed. I ended up coming Stateside instead. I was one of the first in my family to come to the U.S.

Oko and I started work about a week apart, at a company in Kansas City. I worked there for a while, and then worked building coal plants around the midwest. I was with a muni at the time, Indiana Municipal Power Agency.

Then Oko called me and told me about Burns & McDonnell. I came down here almost eight and a half years ago, also as a senior electrical engineer.

It's really about the people you surround yourself with, who can make it successful for you. We've surrounded ourselves with people who are very technically sound and very hard working.

PUF's Steve Mitnick: Tell me something about the diversity in this office.

Dotun Famakinwa: I think Oko would say that on a per capita basis, we are the most diverse in the company.

Oko Buckle:Eight countries are represented here.

Dotun Famakinwa: We pride ourselves on that. It brings a different sense of community to the entire office. If you look at the office when we celebrate our Diversity Day, you would see the different dishes, and the different foods. It's something to behold.

There are a lot of colleges around here that we recruit from, Georgia Tech being one of them. They have a very diverse student population that is a good conduit for bringing those people in.

Oko Buckle:He talked about the advantages of being diverse and that diversity of thought. It does also come with its challenges, because we have to learn about the culture of other countries, and we have to find the best way to deal with each and every person on a one-on-one basis.

I don't see it as a challenge. To me, it's fun, just trying to learn about people that way.

I think the other thing, too, that makes Burns & Mac one of the great companies to work for is the employee-owner culture. Everybody here owns a piece of this company, and you can see that in the way we work, and the way we interact with each other.

When I started working here I didn't know a lot of people, but I now can just pick up the phone and say, "Hey, I was told to talk to you about this issue," and they will jump in and help. They know that when I'm successful, they're also going to be successful.

Our compensation structure is such that it encourages us to really work as a team at all times. 

We're always looking out for each other.

José Rodriguez Alvarez

PUF's Steve Mitnick: What do you do here at Burns and McDonnell?

José Alvarez: I'm the substation department manager for the office in Atlanta, overseeing a team of eighteen engineers, drafters, and technicians.

I manage quality control, which means verifying the drawings before they go out. I'm also in charge of training for everybody within the drafting team and the engineers.

My background is protection control design, so I get involved in that part of the business too.

PUF's Steve Mitnick: How did you get to this point in your career?

José Alvarez:  Iwent to school at the University of Puerto Rico, Mayaguez. It's a top ten school down there. Southern Company went there to hire, and I was the first one hired out of Puerto Rico to work for them.

I moved here from Puerto Rico in 2003 with just a couple of bags and a lot of dreams.

I worked for Georgia Power as a test engineer. I worked there for three years before I decided to try something else. Then I moved to Orlando, Florida, where I worked for Progress Energy, now Duke Energy.

I was a designer. From there, I worked in maintenance, and then management. After a while, I got to lead engineer level and I wanted to try something else, so I started working in the consulting world. I worked for another engineering firm as a director of engineering, overseeing a team of ten.

When I left about four years later, our team was around thirty-five people. We tripled the revenue, and we were doing a lot of business through the southeast.

I decided I wanted to keep growing my career, and that's when I joined Burns and Mac initially, as a project manager down in the newly created Orlando office.

I was employee number four in the Orlando office. Now there are around fifteen, I believe. After a year, they knew my goal was to do much more. I had the opportunity to interview for the substation department manager position and I got it. I relocated to the Atlanta area a year ago to work in the substation power management division.

PUF's Steve Mitnick:What does that division do?

José Alvarez: Basically, we do the physical design, protection control design, telecom, and relays settings within the fence.

PUF's Steve Mitnick: What's the most fun thing about your job?

José Alvarez: It's just to see people grow. As a manager, my job is to help people grow their careers. The better they do, the better I do. If they fail, I'll fail. If we succeed, we all succeed. That's the part I enjoy the most. The way I see it, if they succeed in their careers I'm succeeding as a manager.

Misam Taherbhai

PUF's Steve Mitnick:Misam, what do you do here at Burns and McDonnell?

Misam Taherbhai: I'm the assistant substation department manager for this office. I have a couple of different roles.

One, I manage the junior level engineers and designers. I also manage the projects for Duke Energy Progress, who is one of our clients here.

PUF's Steve Mitnick:How are the junior people doing? Are they coming up to speed early in their careers?

Misam Taherbhai: Yes. They mostly have less than three years of experience. Part of it is training. Part of it is mentoring. Part of it is showing them what the service industry is all about: the engineering consulting world. I like it and I think that's part of the reason why I got the job.

PUF's Steve Mitnick: How did you get to work here?

Misam Taherbhai: This is my first job out of college. I've been with Burns and McDonnell eight and a half years now.

I started here, then went to Kansas City for about seven months in my first year, and met a lot of good people at headquarters. Then I came back here and continued working.

PUF's Steve Mitnick: Where are you from, and which college did you go to?

Misam Taherbhai: I'm originally from India, but I've been in Atlanta since '98. I went to Georgia Tech.

PUF's Steve Mitnick: Is your job fun?

Misam Taherbhai: I enjoy it. I enjoy the variety of projects, working with all the young people, and working with the client almost on a daily basis.

PUF's Steve Mitnick: Are you guys building something?

Misam Taherbhai:I do substation design projects for Duke Energy Progress on the physical side and the protection control side. There could be new substations we're designing for. Or it could be retrofits in existing stations where we are replacing equipment or installing new breakers and new relays in existing transformer yards.

PUF's Steve Mitnick: Why is protection important?

Misam Taherbhai: The electric utilities own a lot of infrastructure. Substation equipment is very expensive, so utilities install preventive measures such as protective relaying to safeguard that equipment. They also provide reliability so that if you turn the switch on, the light is going to come on; or if the lights go out, it's very momentary and they come back on.

There's a lot of work behind the scenes.

PUF's Steve Mitnick:What's a typical day like?

Misam Taherbhai: I come in every morning, and if I'm lucky, there are less than ten unread emails in the inbox. I go through those. Then I tend to each of the projects.

We usually have multiple projects going on and they're at different stages in their life cycle. Some of them are due to the client this week for final submission. Some of them are in between, where they're due to the client for certain reviews, and some of them are just due for internal reviews.

We have a pretty thorough internal review process, so some of them are going through that, just making sure that they're all on track.

Justin Kanitz

PUF's Steve Mitnick:What do you do here at Burns and McDonnell?

Justin Kanitz: I'm a project manager here in the Atlanta office. I'm the account manager for Southern Company. I help manage the relationship with that important partner and I lead many of the projects that we execute for them.

PUF's Steve Mitnick: Are you good at it?

Justin Kanitz: I hope so! They haven't got rid of me yet.

What I try to do is make sure that we see this as a customer service business. We're doing engineering, but my main goal is to make sure that they're well taken care of as a client.

I want them to know we're here to support them in any type of situation that comes up.

PUF's Steve Mitnick:What's a typical day like?

Justin Kanitz: Hopefully not putting out fires. But sometimes that happens. A typical day is checking in with my project teams, making sure that we're on track in terms of our schedules. That we're making progress on our designs, and that we're staying on our budget.

Managing the projects from a high level is typically what I'm doing. Then also interfacing with Southern Company, making sure that we're meeting their expectations and seeing if they have any other areas where we can help.

PUF's Steve Mitnick: How did you get to this point in your career?

Justin Kanitz: I went to the University of Georgia, but I took a long and winding road to get here. I'm a civil engineer by training, but I started out with a small architecture-engineering firm doing site design work for Georgia Power.

Then I got hired here at Burns and McDonnell, and started out doing civil design work. Slowly but surely throughout my career here I've moved inside the fence.

Instead of doing site development I started doing physical design. Fom the very beginning I've loved being around people, meeting new folks. I've been involved in our marketing and client relationships, and that's morphed into leading our project team.

PUF's Steve Mitnick:You don't want to hide behind a computer like some other engineers?

Justin Kanitz: Not me. I think a lot of engineers are like that, but consulting is about client relationships and client service. We don't have the luxury of just being behind a desk with our heads down all the time. We have to make sure that we're engaged with the client, and that we're meeting their needs.

That's the area where I think I bring the most to the table for Burns and Mac: being out there and being involved with those folks.

Hill Baughman

PUF's Steve Mitnick: What do you do here at Burns and McDonnell?

Hill Baughman: I'm the global practice leader for water here in the Atlanta office. I've been with Burns and Mac about three years.

I started my career in the public sector with DeKalb County on the wastewater treatment side. I've been in consulting about thirty years.

I joined Burns and Mac to help head up an operations services group as well as to help grow the Atlanta water presence. This is a market that we had not been in until about four years ago.

For water, Burns and Mac's been here a long time. We design, build and make improvements to the water system. We do water and wastewater, engineering, construction management, and consulting.

Along with some of our other groups, we do everything from rate studies to utility management studies. But our bread and butter is designing and building water and wastewater treatment plants, pump stations, and pipeline design.

PUF's Steve Mitnick: Is it a big field?

Hill Baughman:Water is the lifeblood of our society. We created a very significant water infrastructure over the last century, and now it's time to replace it. Everything has a life cycle.

There's a very large need for infrastructure funding and rehabilitation in this country. In the southeast there's a lot of growth, so you've got to keep up with new facilities, new pipelines, and pump stations.

PUF's Steve Mitnick:How did you get into this field?

Hill Baughman: I put myself through college working at a wastewater treatment plant. I worked at night and went to school during the day.

When I graduated from college I got a chance to be involved working for DeKalb County on a big capital improvement program where we were upgrading the treatment plants there.

So, I got involved in the engineering construction side as an owner, and then later decided to go into the consulting side.

PUF's Steve Mitnick: Is your job fun?

Hill Baughman: I enjoy it because I'm not doing the same thing every day. We're working with different clients, and different problems, and trying to find solutions. The problem solving is the attraction for a lot of us. 

PUF's Pat McMurray, Editor-at-Large, and Steve Mitnick, Editor-in-Chief, attended the Exelon 2017 Innovation Expo on June 27, along with twenty-seven hundred Exelon employees. Yes, twenty-seven hundred! Across the Exelon companies, from Atlantic City, to Baltimore, to Chicago, to the District of Columbia, to Philadelphia, to Wilmington DE, and beyond.

We spent the day talking with many of the young and diverse men and women that are leading the way for our industry. We took a ton of pics too; more like two tons. See photos here.

We also interviewed senior vice presidents Chris Gould (also the company's chief innovation officer) and Maggie FitzPatrick. 

These brief interviews are a fascinating window into how today's innovation is bubbling up from the passion and "energy" of an evolving utility workforce. Times have surely changed. This is not your grandfather's or your father's utility. Well, this isn't even the utility we've spent our careers working with.

PUF attended the Exelon 2017 Innovation Expo along with twenty-seven hundred Exelon employees. We interviewed Chris Gould, Senior Vice President, Corporate Strategy, Chief Innovation Officer, and Chief Sustainability Officer.

This brief interview is a fascinating window into how today's innovation is bubbling up from the passion and "energy" of an evolving utility workforce. Times have surely changed. 

PUF's Steve Mitnick: What is your role?

Exelon's Chris Gould: I like to think of myself and our team as stewards of the innovation process here at Exelon. What you are seeing today is innovation by our employee base in partnership with our external ecosystem.

That could include technology companies, services companies, venture capital, and national labs. It's any entity we think good ideas can come from to help us think through what the future's going to look like. We create the platform to enable our entire employee base to be passionate and participate in innovation.

This is innovation for the people, by the people, here at Exelon. We have a philosophy that you put our people who are passionate about executing, and the historical operational excellence of our company that we're known for, and you then pair them with our ecosystem.

There, ideas are generated around what's happening outside of the walls of the utility sector. So, you put those two together, and you get a very powerful combination, where you co-develop ideas.

Ideas can come from our employees. They can also come from the external ecosystem. You put them together, and you get a real momentum and leveraging effect.

PUF's Steve Mitnick: How did you pull off the excitement and enthusiasm that I've seen at this conference?

Exelon's Chris Gould: There's a strategic direction around what we're trying to accomplish. A purpose around where we're trying to go as a company, what we're trying to do, and how we see trends evolving in the industry.

What are we trying to accomplish? How can innovation play a role in that, with this ecosystem, and with our employees?

There's got to be a purpose, a why, and a what are we after. You inspire people to innovate by linking those together. You see this on the downstream, if the strategy's upstream of innovation, and the downstream is sustainable value.

Employees get excited not just about financial returns, which of course have always got to be part of the equation. There are very often other important relevant benefits to these innovations. These include environmental benefits, greenhouse gas savings, a safer workplace for employees, our reputation as a company, customer engagement and satisfaction.

It's not just the financial results. It's the whole package of sustainable value that we think is important.

PUF's Steve Mitnick:Do you have a lot of young people wanting to come on board and stay as employees of the company?

Exelon's Chris Gould: If you look at what attracts people to a company and makes them want to stay, it's that sense of purpose around strategy. It's that sense of how am I adding to societal value with what I'm doing.

I know financial results are important, which we are here to provide for our shareholders. There are so many stakeholders who are trying to set expectations to exceed. The ability for us to translate our innovations into those outputs is really motivating and inspiring.

I can give you an example. Predix is something that we're working on with General Electric. So, a business case had to be made for Predix, saying, "If we're going into co-development with General Electric around this platform, the financials have to be in place for us to invest."

But let's look at the other outcomes, the sustainable value, from that co-development. We think Predix, through more efficiently operating our low carbon assets, will eliminate over two hundred thousand tons of greenhouse gas emissions from the environment. That's the equivalent of taking fifty thousand cars off the road, or installing fifty wind turbines.

We're providing lower cost energy because we're optimizing the assets. But think of all the other benefits that come along with that innovation. That's really inspiring to people.

PUF's Steve Mitnick: What about partnering?

Exelon's Chris Gould:We need to deal with the pace of change, and the proliferation of ideas, and new entrants into the energy space. The pace, the ideas, the third parties, and the new partnerships demand an all-of-the-above approach to developing an ecosystem.

Each of those, such as a national lab, is going to have a different set of ideas, for example, than a university lab. That's going to have a different set of ideas than a venture capital firm. That's going to have a different set of ideas than a company like GE.

They all have a different lens with which they view the world. They all have different agendas. This is not a closed environment, or an environment where it's only a concern at the top levels of the company.

This is an open innovation platform. It's open to the external ecosystem, wherever that comes from. It's open to our employees. When I say I'm a steward of this innovation process, that's what I mean.

PUF's Steve Mitnick: Are you focusing more on diversity too?

Exelon's Chris Gould:We could have the best external ecosystem in the world. But if we have an employee base that is not diverse, we're not going to be able to interpret those ideas and figure out how to apply them.

We won't be able to co-develop our own ideas nearly as effectively if we don't have the diversity of thought that would really accelerate that. It becomes a foundation that we really want to develop in a powerful way.

PUF's Steve Mitnick: How did you get to this role?

Exelon's Chris Gould:I think the role suits a specific skillset. There's this notion that you're a steward of innovation. That you're here to help this organization, that all ideas do not emanate from one person.

You combine that with creativity, and an openness to the idea that all ideas deserve a shot. You need that glass half-full mentality, with a healthy eye for challenge. You must have that in order to be able to successful here.

PUF's Steve Mitnick:What brought you to this point in your career?

Exelon's Maggie FitzPatrick: I joined the company ten months ago. Before that, I ran global communications and public affairs for Johnson & Johnson.

PUF's Steve Mitnick: Why did you move to Exelon?

Exelon's Maggie FitzPatrick:They were looking for someone from outside the energy sector. They also wanted someone who understood brands, and how to build the reputation of the company.

My task at the company is to help people understand the Exelon brand and what we do. It's a very diverse portfolio. Then we want to try to engage with customers in a different way.

We're modernizing marketing and communications. We're engaging with people across new platforms, and bringing the dynamic marketing focus of a consumer products company to an energy company. It's exciting!

PUF's Steve Mitnick:Is there a brand for Exelon, or is it emerging?

Exelon's Maggie FitzPatrick:It's emerging. We're working on it. We're doing some internal crowdsourcing. The employees of the company are creating the brand positioning with us.

It's not outside-in. It's inside-out. We're really excited to have the employees participate in the strengthening of the brand.

We want our employees to be brand ambassadors. We want everyone to have an impact with the brand. For those of us on the front lines engaging with communities, we want them to be great brand ambassadors. Everyone I interact with as part of the Exelon family of companies needs to understand what we stand for and what we're committed to.

I think Chris Crane as a leader is just incredible, because he grew up in the business. He has an outside-in perspective. He's transforming a business he's been in for a very long time, which is a rare gift. To be able to see the next horizon, and to provoke that kind of transformation from within the company, when you've been here for a long time, is quite a phenomenon.

PUF's Steve Mitnick: Can Exelon be exciting?

Exelon's Maggie FitzPatrick: We need to be. We must be. We've said, we must transform the way that we engage with customers, because if we don't, we'll lose our relevance to these customers.

There are lots of industries that have been completely disintermediated. For example, taxicabs and Uber. Amazon, and booksellers. We want to make sure that we understand what customers want, and that we're delivering for those customers.

PUF's Steve Mitnick:What's going to happen in the next two years?

Exelon's Maggie FitzPatrick: I think you will see deep investment in innovation by our company. You'll also understand that the brand is much more recognizable. That we're engaging in a direct way with those we serve.

PUF's Steve Mitnick attended the 2017 National Conference of the American Public Power Association, APPA, held in Orlando, Florida, on June 19 and 20. Along with over fifteen hundred other attendees. APPA is the voice for not-for-profit, community-owned utilities that power two thousand towns and cities nationwide. 

Among the many sessions and activities, the annual passing of the torch of chairing APPA took place, from Andrew Boatright of Independence Power & Light (Missouri) to Wally Haase of the Navajo Tribal Utility Authority (Arizona). And the annual awards were given including the Alex Radin Distinguished Service Award to Paula DiFonzo of New Braunfels Utilities (Texas) and Gil Quiniones of the New York Power Authority.

A highlight of the National Conferences is the State of Public Power Leadership speech by APPA CEO Sue Kelly. Here's one gem from this year's speech: "As Senator Everett Dirksen, a true lion of the Senate, once said, 'When I feel the heat, I see the light.' Good leaders turn up the heat so our lawmakers will see the light. We may not have legions of lobbyists and funds that big corporations and industries do to throw at key policy issues. However, we in public power have something that others do not. At a forum this spring, I heard four Congressional staffers talk about tax reform. They said everything, including tax-exempt bonds, might be at risk in a tax reform package. One of them added, 'But I don't want a hundred mayors in my office.'"

Another gem from Kelly's speech: "A distribution grid is truly a 'commons'— a shared public good which must be maintained for the benefit of all in the community. Without the grid, everyone will suffer. Everyone who depends on it must contribute to its upkeep. Retail customers using the distribution grid to sell excess power generated at their homes or businesses back to their utility or a third party are going to have to pay for that grid. These customers have not cut the cord — rather, they have made their connections to the grid two-way."

See the photo album on Facebook.

The Mid-America Regulatory Conference, MARC, is one of the top conferences in our industry each year. Held in Chicago this year, on June 18 - 20, it was attended by seven hundred of the leading thinkers and doers in utility regulation and policy.

We couldn't decide which of these two should be Pic of the Month. So we went with both. Yes, we know, a cop-out. 

Lead image: Commissioner Bill Kenney of the Missouri Public Service Commission is awarding a Chicago Cubs world series champion jersey to former Commissioner Ann McCabe of the Illinois Commerce Commission. Commissioner Kenney knows a thing or two about sports. He was an NFL quarterback in the eighties. While with the Kansas City Chiefs in 1983, he went to the Pro Bowl, after completing over three hundred yards passing in four consecutive games.

In the other pic, six regulators from the Illinois Commerce Commission, FERC and the Oklahoma Corporation Commission got together at one of the lunches. From left to right, ICC Acting Commissioner Sadzi Martha Oliva, ICC Commissioners Sherina Maye Edwards and John Rosales, now former FERC Commissioner Colette Honorable, OCC Chairman Dana Murphy, and FERC Chairman Cheryl LaFleur. That’s a whole lot of regulatory experience at one table.

One of the most important gatherings of the year on utility regulation and policy, NARUC's summer meeting, took place in San Diego on July 16 - 19. NARUC president Rob Powelson, confirmed by the U.S. Senate less than three weeks later to join FERC, led a conference jam-packed with speakers, panels, committee meetings and hallway debates on the industry's biggest challenges. Check out these compelling clips of the CEOs of Dominion, Com Edison, American Water, PG&E, Sunrun and GE Power, and of two speakers at the Critical Consumer Issues Forum session on smart cities.

Tom Farrell, CEO, Dominion Resources

Anne Pramaggiore, CEO, Commonwealth Edison

Susan Story, CEO, American Water

Geisha Williams, CEO, PG&E

Lynn Jurich, CEO, Sunrun

Russell Stokes, CEO, GE Power

David Graham, City of San Diego

Commissioner Mary-Anna Holden, New Jersey Board of Public Utility Commissioners

And they say Congress never accomplishes anything. Not so! On July 25, the U.S. House of Representatives hosted an exposition of leading-edge breakthroughs in grid technologies. Specifically the House Grid Innovation Caucus co-chaired by Congressmen Bob Latta, an Ohio Republican, and Jerry McNerney, a California Democrat. Wow, Republicans and Democrats working together! Catch here the clips of innovative happenings at Siemens, Xcel Energy, PG&E, Southern Cal Edison, Centerpoint and AEP. 

Farel Becker, Product Manager - Smart Substation Automation, Siemens

Dan Lysaker, Senior Grid Modernization Engineer - Advanced Grid Intelligence and Security, Xcel Energy

Tom Martin, Manager - Grid of Things, Grid Integration and Innovation, Pacific Gas and Electric

Eric Nunnally, Engineering Manager - Grid Modernization, Southern California Edison

Timothy Raines, Senior Transmission Accounts Consultant, CenterPoint Energy

Ram Sastry, Vice President - Infrastructure & Business Continuity, American Electric Power

It was a busy week in sultry mid-summer Washington. The next day found us at SEPA's massive conference on grid evolution. Or revolution? SEPA's CEO opened with her "state of the state" address as if she was governor of a 51st state that had re-imagined the grid. And then there was a steady stream of thought-proving panels. Couldn't help ourselves. Took a ton of video clips, as you can see for yourself. Including of leading regulators, consumer advocates, Capitol Hill movers and shakers, and technology exhibitors.

Julia Hamm, CEO, SEPA

Congressman Paul Tonko (D-NY)

President Michael Picker, California PUC

Commissioner Travis Kavulla, Vice Chairman, Montana Public Service Commission

Commissioner Doug Little, Arizona Corporation Commission

Tom Hassenboehler, Chief Counsel, US House Committee on Energy and Commerce

Rick Kessler, Senior Advisor, US House Committee on Energy and Commerce

John Kliem, Executive Director - Resilient Energy Program, Department of the Navy

Elin Swanson Katz, Connecticut Consumer Counsel

Michelle Patron, Director of Sustainability Policy, Microsoft

Mark Goody, Manager - Electric Vehicle Programs, fleetcarma

Vicki Trees, Director - Marketing Communication, Landis + Gyr

If it's Tuesday, this must be Belgium. The next day (Thursday actually) featured a doubleheader in DC, starting with a conference of the United States Energy Association. What a lineup! We took video of two heavy hitters. Congressman Joe Barton, the Texas Republican and Vice-Chairman of the Energy and Commerce Committee. And Vince DeVito, Counselor to the Secretary of the Interior, for Energy Policy. Notably, DeVito authored an article in an issue of Public Utilities Fortnightly last year. Clearly, publishing in PUF is a smart career move.

Congressman Joe Barton (R-TX), Vice Chairman, US House of Representatives Energy and Commerce Committee:

Vincent DeVito, Counselor for Energy Policy, US Department of the Interior:

Barry Worthington, Executive Director, USEA: