Imagine your company split in two. One side can’t talk to the other, even though doing so would greatly improve service to your customers.
Then picture 15 competitors from all over the country trying to swoop in and snatch those customers. How do you innovate in that climate?
Ask Anthony Alexander, president and COO of Akron-based FirstEnergy Corp.
In 1999, the state of Ohio deregulated the generation of electric power — which let consumers for the first time shop for their electricity — while the distribution and transmission side of the business remained regulated. Effectively, FirstEnergy, created from the merger of Ohio Edison Corp. and Centerior Energy Corp. less than two years before deregulation, was forced to chop itself in half between the regulated and nonregulated sides.
“We just put up Chinese walls inside the company,” says Alexander, a 25-year industry veteran. “You have to start to live under a set of rules that frankly don’t make sense to our customers, and make it somewhat more difficult to provide them with the kind of service they’ve been used to over the years. That’s probably the biggest challenge we’ve had at this point in the process.”
Alexander, however, was still able to grow the company thanks to strategic acquisitions and moves.
“It’s no different than many other companies,” he says. “You just have to learn to react faster and to anticipate faster than you would have otherwise done when the business was more defined on a year-to-year basis.”
One key component was FirstEnergy’s $4.5 billion acquisition of New Jersey-based GPU Inc. in 2000. The merger doubled FirstEnergy’s size in terms of number of customers, giving it a greater presence in Pennsylvania and New Jersey.
It was the second time the company had doubled in size. Since 1998, revenue has increased from $2.5 billion to $12 billion. FirstEnergy went from distributing 34 billion kilowatt hours a year to 123 billion. Those are kilowatt hours going to customers, not traded with other utilities.
FirstEnergy was forced to trade, or “source,” more kilowatt hours after the GPU acquisition because GPU sold most of its generating equipment before the transaction. FirstEnergy’s generating ability peaks at 12,000 to 13,000 megawatts, but peak demand can soar as high as 22,000 megawatts.
“There isn’t a company that buys and sells power that’s not trading,” Alexander says. “To the extent we’re buying power, we’re selling it at the same time. We’re not doing speculative trading, what you heard Enron doing or Dynegy, or all the others.”
The deregulation that created a company like Enron created many companies trying to buy and sell power to make a profit, not to serve customers. FirstEnergy avoided that kind of trading, which, during Enron’s heyday, made the company look stodgy and old-fashioned.
How times have changed.
“If you look at the industry over the last few years, if you weren’t a big trading house, your stock was discounted,” Alexander says. “That’s no longer the case.”
FirstEnergy sold all of its international assets, many of which it acquired during the GPU deal. At first, the move seemed misguided. Now, utility companies are taking huge losses on international facilities.
“We’ve decided to focus on fairly straightforward strategy,” Alexander says. “Retail, focus on customers. It’s integrated, so it has all parts of the business associated with it, and it’s regional. We’re not trying to look at international operations or areas of the country that are outside our areas of expertise. You can define that narrowly, you can define that broadly, but we like this narrower approach that allows us to really focus on what we think is important to our customers long-term, as well as our shareholders.”
With Enron’s collapse and investigations into utility companies like Duke Energy Corp. and Mirant Corp., the industry is more uncertain than ever. But FirstEnergy is emerging relatively unscathed and as a leader due to its conservative approach.
Alexander says the secret is communication.
“You’ve got to stress an internal bubbling up of ideas from the bottom of the organization,” he says. “They are the ones that are closest to what’s happening; they can see things and can see the changes occurring.
“From the top, you have to have a broad sense of where the market’s going, where your industry is heading, and you get that from a lot of different sources. Hopefully, you’re getting from the rest of the organization some alternatives of what you’re going to be faced with in the future.” How to reach: FirstEnergy Corp., (800) 646-0400.
