CFOs predict future impacts on energy companies, industry at EEI Financial Conference

Published on November 11, 2019 by Kim Riley

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ORLANDO — Several significant impacts to individual energy companies, as well as to the industry during the next decade, will include resiliency, affordability, cybersecurity, regulations, and renewables, to name a few, according to a panel of chief financial officers (CFOs) from four large power players who spoke during the Edison Electric Institute (EEI) Financial Conference being held here, Nov. 10-12.

“This whole conference is about change and it’s important for CFOs to be leading the charge because as we’re going through this change, we need to make sure that we have a fiscal mindset and risk-adjusted cultural mindset,” said Peggy Smyth, CFO for National Grid, a British multinational electricity and gas utility company headquartered in the United Kingdom.

“We have to take a different mindset than in the past and be more agile, do more experimentation, but we also have to achieve good financial returns for our investors,” Smyth said, adding that National Grid counts 20 million customers in Massachusetts, Rhode Island, and New York State, as well as 16,000 employees.

Toward that goal, more than $3.5 billion a year is being invested by National Grid in U.S. infrastructure, she added, pointing out that in the last few years, the company also has been making more investments in cleaner, greener technologies.
For example, Smyth said National Grid is the first company to connect an offshore wind farm in Rhode Island and within the last couple of weeks the company also commissioned the first battery-storage project in Nantucket, Mass., where instead of building another transmission cable to use as backup power for the island, the company is using battery storage, she explained.

And soon, Smyth said National Grid will unveil a renewable gas plant project in New York City that “we’re very, very proud of,” and which she said exemplifies the innovation, the change and the role that utilities play in the change that’s all happening now.

The renewable gas plant, which is located outside one of the largest of New York CIty’s wastewater treatment plants in Greenpoint Brooklyn, will convert the wastewater gases that are created during the cleaning process to renewable gas.
“It’s going to come online in the next few weeks,” Smyth said. “It’s a start.”

Another impact over the next five to 10 years will come from legislation and regulations, which are “very relevant to our strategy,” said Maria Rigatti, executive vice president and CFO for Edison International, a public utility holding company based in Rosemead, Calif., with subsidiaries that include Southern California Edison and unregulated non-utility business assets Edison Energy.

California, she said, essentially provides a legislative and regulatory preview of what could be expected to happen elsewhere in many areas of the country, especially considering a pro-green law that calls for massive reductions in greenhouse gasses (GHGs) before mid-century.

“We’re starting to think about what do we do to get beyond” the state’s GHG reduction deadlines, as well as how Edison International will move toward a cleaner environment, Rigatti said.

Resiliency and affordability are also essential themes and will continue to be a major consideration moving forward, Rigatti said, “and we still do think there’s a role for natural gas; 60 percent of generation is still natural gas because we need to do that from the perspective of affordability.”

Rigatti said that Edison International is considering all of these themes. “And we don’t think about it in terms of the next five to 10 years. We think about it in terms of over the next 20 years because we’re going to have to take policy perspectives and positions today — not just us, but regulators and legislators are going to have to think about what policies will help reinforce and support what decisions our customers really want to make,” Rigatti said.

Gretchen Holloway, senior vice president and CFO at ITC Holdings Corp., the nation’s largest independent electricity transmission company based in Novi, Mich., thinks that reliability, resiliency, security and interconnecting new generation will have impacts on companies and the industry over the next decade.

“As we all know, there’s a significant shift to renewables and transmission is a key enabler on that front so we play a very important role as many of our customers and the utilities transition to a cleaner generation fleet,” said Holloway.

She also highlighted the current and future impacts related to cybersecurity. “I think that’s on the forefront for everybody today,” she said.

For its part, ITC Holdings is currently moving to its own private fiber network that the company is stringing on its transmission lines “because there’s a lot of vulnerability going through the telecom providers and through the cloud,” said Holloway.

ITC Holdings also has just under $4 billion in its capital plan for the next five years slated for reliability improvements, averaging about $700 million to $800 million a year, Holloway said.

“There’s still a lot of work that has to be done,” as most of the grid was built out in the 60s and 70s and has gone untouched for a very long time, she said.

And as the industry transitions to more renewable energy and shuts down more coal plants early, for example, Holloway thinks that considerations will have to be given to how to recover from such actions; the efficiencies that will need to be realized; as well as the affordability impact on customers.

Speaking of customers, Xia Liu, executive vice president and CFO for Houston-headquartered CenterPoint Energy, a Fortune 500 electric and natural gas utility serving markets in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma, and Texas, said customer expectations are changing and will continue to affect how the companies and industry respond.

For example, Liu said that customer expectations have become “very high,” and they immediately want to get on their phones or go online to find out when a power outage will end.

Customers also are using social media to describe to their neighbors and friends whether a company is doing a good job, she added, “and that information gets shared with our regulators.”

At the same time, the customer demographic has changed, said Liu, with people being more diverse and more focused on the climate and the environment.

“As an industry, we really need to stay on top and ahead of the customer’s expectations to make sure we are viewed as a service provider, that we’re on top of our game, and that we are addressing the customer’s expectations,” Liu said.
Meanwhile, CenterPoint Energy sees itself as a regulated energy delivery company that intends to grow its utility businesses, said Liu, adding that the company will spend $13 billion of capital in the next five years in the utility space.

Likewise, she thinks that in the near future, the industry also will remain an infrastructure-focused, central-grid planning space, so capital spending will continue to be very important, as will assets-to-capital, credit rating, communication with investors, etc.

“On top of that, I do believe that as an industry we really need to stay ahead of the game from a combination” of standpoints — such as renewables and battery storage, for instance — to proactively ensure that companies and the industry can successfully face any new challenge “to the central-grid planning, infrastructure-based business proposition,” said Liu.