Xcel Energy was formed in 2000 in a merger of Minneapolis-based Northern States Power and New Century Energies of Denver. Back then, like many others, Xcel was betting that deregulated energy would take off. That didn’t work out, and the failure of its high-risk subsidiary, NRG Energy, became a drag on the whole company.
Cleaning up that mess helped Dick Kelly win the top job at Xcel in 2005, and he’s steered the company back to steady profits with a back-to-basics strategy. He’s also helped the company develop unusually strong relationships with environmentalists, as Xcel has embraced wind energy and retrofitted or converted a number of aging coal-fired power plants to natural gas.
Now Kelly, who turns 65 on Monday, is wrapping up a 43-year career with the company and handing the baton to Ben Fowke, 53. A Baltimore native, Fowke came to Xcel in the 2000 merger and has recently served as chief financial officer, president and chief operating officer.
Pioneer Press reporter Leslie Brooks Suzukamo sat down recently for separate interviews with the two men. The interviews have been edited for space and clarity. – Ed.
Dick Kelly
Q What did you do on your first day of retirement?
A I cleaned the garage, vacuumed the house and fixed the sprinkler system. My wife started to get excited. On the second day, I played golf.
Q You started reading meters for the company in 1966 while in college, moved to accounting and never left. How unusual is that in your industry?
A I think it was extremely unique. It may never have happened anywhere else. Maybe I’m a dying breed.
Q You’ve been saying you don’t see a future for coal-fired plants, which produce carbon dioxide. Why is that and what will it mean for utilities?
A We keep waiting for a breakthrough with coal, whether it’s IGCC (a technology that lowers emissions by turning coal into gas before it is burned) or carbon capture (another developing technology that traps carbon dioxide before it can be released). With Congress not passing a comprehensive energy bill, I don’t see them happening. Policy drives research and development for new technologies. I think not using coal is foolish because we have an abundance of it, but as it is now, everybody is going to be closing coal plants and converting to natural gas to comply with EPA rules. I should add that I believe in the science behind global warming and CO2, and we should clean it up.
Q Do you feel the same about the future of nuclear power after the Fukushima disaster in Japan?
A No, I don’t. I think nuclear has to be part of our energy future. With every incident that has happened – Three Mile Island, for example – we have learned from that. And we will learn from Japan.
Q Others have credited you with getting Xcel’s finances in order and ramping up renewable energy. How do you think you did at running the company?
A I’m pretty proud of what we did as a company. Growing revenue was a big part of that but we spent a lot of money cleaning up our plants. We were one of the few utilities that got upgraded by S&P. (Xcel’s credit rating last year went from BBB+ to A-.) The stock reached a nine-year high in May. One of my proudest moments was when Xcel won the United Way’s Spirit of America award in 2007. It’s a testimony to the type of people we have at Xcel.
Q That’s great, but don’t the folks on Wall Street care more about the balance sheet?
A A lot of (winning over investors) was part of our environmental strategy. We explained what we wanted to do to the (state) Legislature, that we wanted to close coal plants, build wind resources and refurbish coal plants in Minnesota and Colorado, our two biggest states. All it required was we go up there and be very transparent about it. But these things are complicated – some of these things take three, four years to build.
Q Before you were appointed CEO, you oversaw NRG Energy, Xcel’s subsidiary that went into bankruptcy and became the utility’s albatross. Did you feel any pressure because of that?
A You mean responsibility? No. I didn’t take it over until it was put into bankruptcy. I got involved in the attempt to fix it. Like a lot of companies at the time, NRG was leveraged. As long as the price of energy stayed high, they were OK. But then energy prices dropped. The first thing we did was sell assets. I worked on it for more than a year, but I probably learned more in that time than any other.
Q How will Xcel grow in the future?
A Ben and I have talked about that for the past two, three years. Sales are not going to be what they used to be. They’re growing about 1 percent (per year). I used to think they’d recover in the last part of 2011, but my optimistic hope now is the first part of 2013. The environmental concerns are not going away. We’ve spent a lot of money on infrastructure, mostly in Minnesota and Colorado. You’ve got to remember, our plants were built in the 1950s and ’60s, so they’re all 50 to 60 years old.
Q So we’re talking rate increases to pay for the new infrastructure. Tough sell?
A Everything is a tough sell in this economy. We need to show that we can keep costs down and that we’ll manage that very, very well in this economy.
Q Was Ben Fowke your recommendation to the board of directors and why?
A I told the board three years ago about my plans to retire when I turned 65. We started grooming people like Ben then. He’s incredibly smart. He understands how the business works. He understands rates, understands financing, understands marketing. I think he’s the ideal guy to lead in a field where technology and financing are so important.
Q What’s next for you?
A I’m on the board of the Canadian Pacific Railroad and chair of the board of Regis University where I graduated from in Colorado. So those two things, along with my vacuuming, will keep me busy.
I’m not one to sit around. I’ll do something. I just need to figure out what it is I’ll do.
Ben Fowke
Q Let me start with something I’ve always wanted to ask. Your full name is Benjamin G.S. Fowke III. What does the G.S. stand for?
A Gwynn Stonestreet. It’s a family name. By the way, there is no Benjamin Fowke IV.
Q When you were announced as the next CEO, you said there would be no major changes for Xcel. Outline what that means to you.
A When I said that, it’s recognizing that Dick and I built a great foundation that stressed community involvement, customer orientation and environmental accomplishment. We’re going to ask our employees to be more involved with our stakeholders. Customer orientation means we can’t be happy until our customers are satisfied. We want to make investments that save our customers money over time. We have to be very diligent about listening to our customers, because they want choices.
Q But consumers have no choice in their utility. How does choice play a part?
A We can give them choice on how they manage their bills. They can save money by participating in our demand-side program. They can support more clean energy in our portfolio. There are lots of things we can do to still offer choice to our customers.
Q What’s the challenge on the environment going forward?
A You’ve got to understand what we did to get here. We had the repowering and retrofitting projects for our coal plants – retiring old coal plants in St. Paul and Minneapolis and replacing them with natural gas – and building our own wind farms. Those were astute decisions when you see the EPA rules that we’ve got. I think we are in much better shape than our peers. We got ahead of the standards.
Going forward, we will work very hard in Washington and make sure our good deeds aren’t lost. We want to make sure when there is (an energy) policy that the baseline (for new regulations) isn’t moved out to the point where the wind power and environmental retrofitting we’ve done is the new baseline, because our customers have already paid for it.
Q Xcel still gets the bulk of its electricity from coal and likely will continue to do so for years to come. How do you view coal in Xcel’s future?
A I think it will be difficult to build a coal plant in this country. But as you said, it will be in our portfolio for years to come. Fast-forward a decade, we will still have natural gas, coal, nuclear power and renewables, but coal will be a lesser part of our portfolio. (Xcel later provided estimates that coal will drop from providing 50 percent of Xcel’s energy today to 40 percent by 2020 for its eight-state territory, while natural gas will grow from 21 percent today to 27 percent by 2020 and renewables will become 20 percent. In Minnesota alone, renewables are expected to supply 30 percent of the utility’s power.)
Q Xcel seems to groom its CEOs for succession. When did you decide you wanted to be chief executive?
A When I was CFO, I started considering it. CFO is obviously a senior leadership position, and at some point, you start to realize you can make a contribution to the company. I knew I was (the board’s top pick) about a year ago, but, you know, anything can happen, and until you’re there, you’re not there.
Q Just the other day, we saw a high-profile succession at Apple when Steve Jobs resigned as CEO. Everyone started talking about what his successor needs to do. What things do you need to pay attention to in this succession at Xcel?
A My challenge is with our workforce, because half of them will retire in the next decade. The opportunity is to change the way we do our work. The next generation of workers is looking for different things and is not going to be as long-term, so we’ve got to work hard to simplify our processes and transfer knowledge. Our other challenge and opportunity are rate increases. Our plants are getting older and need to be replaced. Our opportunity is to do more communication with our customers and get their buy-in. Maybe the best way is with longer-range planning, such as multiple-year compacts (rate increases across several years instead of year by year) versus the more litigious way we file rate cases today.
Q How will Xcel Energy grow in the future?
A We’ve got to make sure our infrastructure is refreshed over time. We also have to make investments that save customers money over time. One example – we will suggest wind deals that are on economic parity with natural gas.
Q If you could advise any of the presidential candidates on energy policy, what’s the main thing you wish you could teach them?
A I think the need is so pressing for a comprehensive and balanced approach to the environment and energy. We need to have a balanced portfolio of energy that takes advantage of natural gas, which we think is a clean fuel. We can put more into renewables. We need to have clarity on the rules so we can make the right investment decisions for tomorrow. I think we need to do it with economics and facts in mind, which is why we need to get rid of the rhetoric.
Leslie Brooks Suzukamo can be reached at 651-228-5475.
