A different kind of energy is being generated at American Electric Power Co. these days since Chairman, President and CEO Michael Morris assumed leadership in January 2004. But even before he arrived from Northeast Utilities System, AEP executives had already decided to refocus on the company’s core competencies, a plan highly endorsed by Morris.
“If anything, I brought a sense of urgency to this plan that was different from my predecessor’s,” he says.
Morris believes AEP lost its way during the energy trading boom, and it was time to get back to doing what he knew the company does best — managing its assets, getting close to the customer and re-engineering its generation and distribution facilities. And, he wanted to implement the plan as quickly as possible.
Morris restructured the organization, promoting and hiring seven district presidents to run each of the company’s districts at the local level.
“Now the governor of Oklahoma is not looking for someone in Columbus when there is a problem in Tulsa,” he says.
And going forward, AEP will build a 1,200 megawatts integrated gasification combined cycle (IGCC) plant to meet growing consumer demand. IGCCs, says Morris, are cheaper to operate and more efficient than conventional plants. He also plans to funnel a large amount of capital into improving environmental performances of existing plants..
Despite the big changes and the new layers of upper management, Morris remains approachable.
“I’m just a kid from Fremont, Ohio, that just happens to be running this company,” he says.
Smart Business spoke with Morris about his strategies for AEP and the changes he’s made since assuming the energy company’s top spot.
What were your primary goals when you took over leadership, and what progress have you made?
To wrap my arms around such a large footprint. The company had already decided which way it wanted to go in ’02 and spent much of ’03 divesting nonregulated activities. I was strongly behind this strategy.
I came in at the end of the planning cycle and was ready for the ‘doing’ cycle. We have since sold all our assets that were for sale except two interests, one in Australia, the other in Mexico, and they are not high on the list.
The other important decision was to grasp the value of our historic coal power plants, and with a large capital expenditure, extend their environmental lives. They are the cheapest power plants in the United States. I tackled that with a great deal of urgency because there are some very real benefits in doing so. Most recently, we looked at the eastern side (of our territory) and saw we needed to ensure adequate capacity for future electric needs. That led us to a decision to build a new 1,200 megawatts integrated gasification combined cycle (IGCC) plant.
There has been some fear of rate increases because of the current market prices of coal. There have been huge price spikes in indigenous fuels — prices have gone up dramatically in the last year or so. The PUCO collectively needed to find a plan to bridge us to 2008, so it approved the rate stabilization plan. It is an opportunity to do the rational thing for both customers and shareholders, with slow but predictable rate increases.
In 2009, it will be an open market. We’ll see what that’s like. We don’t want a price shock to hit the Ohio economy.
How is leading AEP different from leading Northeast Utilities?
Northeast Utilities is a big company, but because of its geography, I could get from New Hampshire to Connecticut by car in two hours. I can’t go from Columbus to Indiana in less than four or five hours. So the geographic sizes of the companies are very different.
The people are similar — hard-working and dedicated to serving the public and to keep the lights on. What is unique to AEP is that it is still digesting the merger with Central and South West Corp. that added Texas, Louisiana, Oklahoma and Arkansas to the company.
We have not yet totally embraced that. The states are very different. The regulatory view is different in the Western states. At Northeast, I dealt with three states’ regulatory authorities, each with a very different personality, plans and environments. AEP is in 11 states, and each commission is governed very differently.
Financially and operationally, we have pulled together. Culturally, we are still working. That is why we reorganized and named division presidents, so we have a higher degree of identity in each region. We are not running everything out of Columbus. We re-embraced this notion, which works for our customers, the economy of the states, as well as our shareholders.
What were AEP’s greatest strengths when you took over, and how have leveraged them?
One of our biggest strengths is the company’s incredible platform — we are the largest generator of electricity, we have the largest number of customers, the strongest transmission system, and the distribution network reaches every corner of the country.
We have a great deal of physical strength and, historically, our engineering has been a strength. When we build the IGCC plant, it will be the largest in the United States, building on the number of firsts that we’ve stood for over decades.
We have hired a number of people for the project, adding to our technical talent base. The results have been outstanding.
What about areas for improvement?
Like so many companies, AEP lost its way trying to be in energy trading. It was logical to be a big trading house. Our business lends itself to that because of our closeness to our customers, regulators and building assets. When you think about what electricity provides each household and school, and when you go to worship, without electricity, it would be a tough place to be.
AEP took the same path as many others, and none succeeded. So we looked at what we are really good at. We are very good at managing our assets. Overseas was a different environment. And energy trading was phony at the beginning and proved phony at the end. The demand for energy never changed, but as prices changed, traders were trading among themselves.
How have you prioritized the company’s goals for the next five years?
I don’t think there’s any question that we need to improve the environmental performance of our generating facilities, with an additional emphasis on reliability and safety. We need to be closer to customers and regulators, and we’ve restructured the company into that mode.
That means decisions about Oklahoma are not made in Columbus. The individual company president is responsible for managing the business, listening to the customers, reacting to politicians and regulators.
Since we started the new structure, I feel relationships have formed and we have better communication. I know it’s working better. We also need a new fleet of power plants built by the end of this decade.
Has following a leader such as AEP’s former chairman, president and CEO, E. Linn Draper, required changes in your management style, or have the board and your staff been accepting of your style?
My interaction with this board is frighteningly similar to the board at Northeast Utilities. I thought it would be different and would require change on my part, but I am just as comfortable as I was there. Linn led this company with a tremendous amount of dignity.
If there is any difference at all, I may be a little more approachable.
How to reach: American Electric Power, (614) 716-1000 or www.aep.com
