Apr 08, 2016

CEO Bill Spence Talks with Public Utilities Fortnightly

Bill SpenceRecently, Bill Spence, chairman, president and Chief Executive Officer, sat down with Steve Mitnick, editor-in-chief of Public Utilities Fortnightly for a candid discussion about PPL’s track record of success, strategy for growth, cybersecurity and the rewarding part of being CEO of PPL Corporation.

Read the unedited interview below:

Spence joined PPL in 2006 as executive vice president and chief operating officer. He was named president and CEO in 2011, and chairman in 2012. Previously, he served nineteen years with Pepco Holdings in senior management positions.

PUF’s Steve Mitnick: What are the most exciting things happening at PPL?

PPL’s Bill Spence: PPL has been on a remarkable journey, having just completed a five-year transition from a hybrid company to a fully regulated utility. Since 2010, we have been building up our regulated business to balance some of the pressure in the competitive markets. We acquired two fully­regulated utilities in Kentucky, Louisville Gas & Electric and Kentucky Utilities, and added two more utilities to our business in the U.K., more than doubling our footprint. And then, most recently, we completed the spinoff of our competitive generation assets in Pennsylvania.

If you look at PPL today, I think it’s one of the best stories out there. We have three high quality utilities operating in regionally diverse jurisdictions around the globe. Each one of them delivers ­ in their own rights ­ superior customer service, superior reliability, and affordable energy.

We’re proud of our long tradition of excellence in customer service and it shows in our ratings. Our utilities have thirty­eight J.D. Power awards between them, the most of any U.S. utility. We will continue to build on that, offering customer programs and services to enhance value and satisfaction.

The goal for each one of our utilities is to be in the top quartile in all of our metrics, because I firmly believe that better results for customers lead to better results for our shareowners.

Steve Mitnick: Aren’t you exhausted? What were the biggest challenges in that journey? Were there some tough challenges you had to get through?

Bill Spence: Yes, of course there were some challenges. We executed two large all­cash acquisitions within about a year that, in itself, was a challenge.

For example, buying the utilities in Kentucky required us to issue over three billion dollars of equity at one time ­ something that no utility had ever done. Then, just months later, we replicated the deal to expand our business in the U.K. by acquiring Central Networks.

On the heels of the acquisitions, we set out to improve performance. In the U.K., we use a metric called “Target Sixty,” which aims to get every customer back online, no matter what the situation, in sixty minutes. Within nine months, we had ninety percent of Central Networks customers restored in sixty minutes or less during an outage.

In the U.K., utilities have an opportunity to earn incentives based on performance against reliability and customer service benchmarks. Over the past ten regulatory years, we have realized over five hundred million dollars of incremental revenues based on these incentives. It is just a phenomenal transformation.

Steve Mitnick: How did you and your team do this? What gave you the gumption and skills to pull that off? Did you study that in school?

Bill Spence: We have a great team at PPL. We have smart, bright people that are thinking beyond traditional boundaries.

Also, we have a talented and extremely diverse board of directors, with a mix of current and former CEOs and executives from large, multinational corporations. They look at our business in a very different way and challenge us to think about what more we can do and achieve. Before the transition, they asked us, “Do we have greater bandwidth to do something more than what we are doing today?”

The answer to that was obviously yes ­ we just had to get there.

We already had the balance sheet bandwidth, the people bandwidth, we had the expertise and were already best in class in a number of areas.

Steve Mitnick: You always hear about different models for managing multiple operating companies within an overall utility. Some models say you run everything centrally, to take advantage of the economies of scale, for buying things, training, information technology. And some are at other extreme, in which the operating companies are fairly autonomous. Do you have a principle you follow?

Bill Spence: We operate, for the most part, on a decentralized business model. Where it makes the most business sense, like in the information technology, finance or investor relations departments, we are more centralized.

Accountability is driven down to the utilities’ presidents in Kentucky, Pennsylvania and the U.K. They have complete profit­and­loss responsibility and drive results in their business.

We have realized efficiencies with this hybrid­style of decentralization, in areas like information technology and supply chain. While there are still individual corporate service departments in each utility, there is coordination and planning for enterprise­wide solutions to create consistent operating systems and platforms.

Plus, it enables efficiencies in providing mutual aid assistance for one another, during storms or other events. It’s much easier to coordinate if you’re working from the same business operating systems.

Steve Mitnick: You describe this as a journey, and it sounds like it has kept you pretty busy. I suppose you’ve had a chance for a vacation, but it must not have been that restful or long. Is the journey over? Have you arrived, or is there a second journey still to come?

Bill Spence: Our journey continues. Now our path for growth is much clearer. We have outperformed peers in the UTY and S&P utilities index, experienced 6.3 percent growth in earnings per share over last year and announced our fourteenth dividend increase in fifteen years. We have truly unlocked value for our shareowners.

Our fully­regulated portfolio provides scale and diversity. We maintain constructive regulatory relationships in all operating jurisdictions, which has been a hallmark of our Pennsylvania operations for nearly a century. Going forward, the key drivers of our success are safety, reliability and customer service.

We have sixteen billion dollars planned in infrastructure investment over the next five years to improve and modernize the grid. In Pennsylvania, new smart grid technology and additional efforts we’re making, are reducing both the number and duration of outages. Overall, customers are experiencing about thirty percent fewer outages today than they were in 2007.

We are exploring new ways to make our systems more flexible and support the continued expansion of distributed generation. We are also making investments to address environmental regulations. Over the last decade, we have invested three billion dollars to reduce greenhouse gas emissions and comply with federal environmental regulations at our Kentucky generation facilities.

We will continue to focus on growing earnings per share and growing our dividends. We will continue to maintain a strong balance sheet, investment­grade credit ratings and cash flow, while managing risks responsibly.

Steve Mitnick: PPL is one of the top ten largest utilities. A number of your peers are in the news more often. You may be happy to be out of the news, but there are national issues. Whether it’s fixing the markets for capacity. Whether it’s the cyber security challenge. Whether it’s the push in some states for there to be a radically different model for utilities. What of those concern you, as far as personal interest and importance to your corporation and customers?

Bill Spence: One topic of particular interest for us is cyber security. PPL coordinates closely with industry partners and federal government agencies to share best practices and prepare for and respond to potential threats.

On the cyber and physical security side, we have been an active partner with the Edison Electric Institute, who has been extremely active for many years now. And we’ve ratcheted it up to a whole new level, in light of the growing threats to the grid.

I think that we are aggressively taking the right steps as an industry to prepare ourselves. We have a defense­in­depth approach and we want to make sure that we can defend ourselves against any and all attacks, whether physical or cyber.

On the physical side, as we modernize the grid, we’re able to incorporate new technology that creates redundancies for a more advanced grid network. The idea is to create a dynamic, resilient grid of the future ­ one that eliminates critical assets and the potential vulnerability from a physical or cyber standpoint.

The key though to cyber security is partnering with our federal and state agencies. In the case of federal agencies, we’re routinely talking with the Department of Energy, Department of Homeland Security, Department of Defense, and FBI Counterterrorism Division. We meet with them, jointly, several times a year.

As an industry, we’re leading many efforts on the cyber security front to make sure that we’ve identified the majority of the threats. We working to make sure we have the best technology possible, in conjunction with our government partners. It’s a really well­coordinated effort. I’m helping lead an effort specific to cyber security, working closely with the Electricity Information Sharing and Analysis Center (E­ISAC), in Washington D.C. We put together a strategic plan last year. We’re beginning to implement that plan. We will continue to add other initiatives to the plan, to address more emerging threats that we didn’t foresee previously.

Steve Mitnick: Is it enough? You hear critics, such as the book that is out by a journalist. Some argue that distributed generation and microgrids are critically needed since the grid is vulnerable. So my question is, are we doing enough? If regulators granted utilities X dollars more, could we significantly enhance our cyber security with the incremental funds?

Bill Spence: I think we’re doing well. We’re looking at things from a different perspective, more like the defense industry looks at things. They obviously need to make sure that all the proprietary and intellectual capital they are custodians of, is maintained properly from a cybersecurity perspective. There are a lot of techniques they’re using that we would like to adopt, and are beginning to adopt.

Could we use more capital? Probably. I think we’re doing well, though, already. And all the energy companies are continuing to invest more and more in cyber technology and capability.

We also recognize that government agencies and state agencies are concerned about potential threats. And we understand why they would be concerned. We want to make sure we’re addressing the threat in the most aggressive ways, so that when a book like the one written by Ted Koppel is published, we can say, “No, that’s not the situation we’re in today.” It might have been the situation we were in five years ago. But we’re in a much better stance.

Steve Mitnick: What’s fun about your job?

Bill Spence: Well, I think there are a couple of things that I really enjoy. One is working with my peer CEO’s in the industry. When we get together, we have common issues and common interests in many cases. I find that in our industry, people are really genuine. They really like what they’re doing, they like each other, and try to help each other out. I would not hesitate to pick up the phone and call any CEO in our industry and say, “I’m dealing with this situation,” and they would be there for me to share lessons learned.

I think that’s what’s really great about the industry.

The same holds true about our employees at PPL. They want to do the right thing and they do. They’re very customer focused. They thrive on restoration. When we have an outage ­ it’s all hands on deck. They really get motivated to perform well. So working with people like that is a very good feeling for me.

Then I think about our community efforts at PPL. I get to meet a lot of great people in the community and, generally speaking, people truly appreciate what we do for our communities.

At the end of the day, it winds up being all about people. Whether it’s the CEO’s, the employees, or my community member’s ­ that’s what really motivates me to continue to bring PPL up to the best it can be.

Reprinted with permission from Public Utilities Fortnightly magazine.
Source URL: http://www.fortnightly.com/fortnightly/2016/04/ppl-ceo-interviewed