The rise and fall of an American utility
The following is an excerpt, edited for length, from "Goodbye to Deerland: Leading Your Utility Through the American Energy Transition," by Matti Rautkivi (2017, Wärtsilä Corporation/Smart Power Generation).
I had just returned to the office from the long New Year’s weekend when the phone rang. Feeling sluggish after several days of watching football and eating holiday leftovers with my boys, I was in no mood to speak. I had a ton of paperwork to catch up on. But the ring persisted. "Bob here," I said.
"Bob, Happy New Year. It’s Karen O’Hara, from the utility board. I’m sorry to bother you so early. Do you have a moment?"
Karen O’Hara. Popular high school biology teacher. Outspoken city council member. And recent surprise appointee to the Ironstone utility board. Not the person I expected or hoped to speak to in my first official conversation of 2017. "Good morning, Karen, Happy New Year to you too. What can I do for you?"
"Bob, I think you know from the positions I’ve taken in the past where I stand on renewable energy — that is, I’d like to see a lot more of it. I think our city could be a real leader when it comes to using renewable power instead of all that coal. But that’s not what I’m calling about today."
One thing I admired about Karen O’Hara was the fact that she didn’t hide her intentions. She was an unapologetic environmentalist living in a pretty traditional, conservative place. That’s why when she got elected in November to the utility board it didn’t seem like a great fit. You had to give her this much, though: Karen was a straight shooter and you always knew where she stood. Problem was, most of the time I didn’t much like where she was standing.
"What’s on your mind?" I said.
"Well, I was taking time over the holidays to familiarize myself with some of the issues at the board, and I’m still trying to understand the situation, Bob, don’t get me wrong. But I was looking at Ironstone Municipal Electric’s latest financial report and I have to say, from purely a numbers perspective it doesn’t look good. Electricity costs are rising, customers are complaining — and now you want to increase your rates further?"
"I appreciate your concern, Karen, but it’s a little more complicated than that."
"I’m sure it is. You said in the IrME report that you’d be raising rates 10 to 15 percent this year. But when I googled around I saw electricity prices in Texas are actually going down, not up. This doesn’t make any sense, Bob. I was hoping you could help clarify things."
Happy New Year’s indeed. This woman was really laying into me. I wanted a cigarette. I wanted my morning grogginess to go away and for Karen O’Hara to go away as well.
"I know people have been unhappy about the price hikes," I said, "but it’s all part of the business, Karen. We need to cover our expenses. Market prices are low, the cost of gas is extremely low, and it’s pushing our generation margins down. I’m sure you’ve studied energy financing and you understand all that. We need to pay our costs, the costs of the coal plant, the costs of our employees. The money IrME is charging consumers right now just isn’t enough, simple as that."
Karen paused. After a long silence, she said, "Why do we need this utility in the first place if market prices are so low? Why not just buy the electricity from the market or from some other utility if they can provide it cheaper?"
Now she was really getting under my skin. Did this woman understand a thing about the utility business? Oh, that’s right, she’s an environmentalist: her job is to needle me. Well, she was needling me all right and it was clear I wouldn’t succeed in ending the conversation simply by hanging up. She wanted more.
"Bob, there’s something weird about this. You know I’m not an energy expert, but I am a biology teacher and a city council member, so I know when the facts are put together and when they aren’t. I just don’t see the logic here. In the past, your utility gave money in the form of profits to our city — and now you’re asking for money from those same citizens by increasing their rates?"
She just wasn’t getting it. I didn’t have time to explain the history or complexity of electricity markets and utility operations to a novice. "How about this, Karen, we’ll set up a meeting where we can discuss all this in greater depth, how does that sound?"
"That sounds good, Bob, I’m looking forward to it."
I slammed down the phone and stood up, reaching for my Camels on the file cabinet beside my desk. So this is how the new year starts, I thought, walking a green pol through the baby steps of how I do my business. What happened to the utility board we had a few years ago? Those guys knew what was what: they did their work, they let me do mine and no one had any problems. I’ve worked in this business all my life — for 33 years I’ve worked in it, I know it better than anyone or anything, and now Karen O’Hara, high school biology teacher and wacky treehugger Karen is telling me it’s time to run things differently? There is no differently.
A rising chance for a falling star
Later that morning I rang up Gary, head of development and strategy, to help me deal with the situation. Gary Walitzki is my right hand man. What IrME’s former CEO Bill Sherman once was to me, I am to Gary: a mentor helping pave the way for the company’s next rising star.
He isn’t yet 40 but the thing about Gary is he knows how to get the job done — any job done — which is why I didn’t consider approaching anyone else with the task. Gary understands perfectly how this utility is built and he understands how I am built, and therefore I felt completely justified in calling him down to my office to unburden myself of the unpleasant demand put on me by Ms. O’Hara. More importantly, I needed to ask Gary’s advice.
"Listen, Gary," I said. "We’ve got a special little situation and I’m going to need your help. More than your help, I actually need you just to listen at first and tell me what you think. It’s that councilwoman, the new utility board member, Karen O’Hara. I got a call from her this morning and man, she is out of her element. She had the gall to chew me out about the rate increases. Not even two months with the board and she’s already jumping on us."
"That’s what I thought. But the thing is, I get a sense she’s playing hardball. She wants me to sit down and explain to her the basics and background of the utility industry, you know, how we got to where we are, how we do utility planning, why we need municipal power — basically, IrME from the ground up. According to her, the board doesn’t feel we can raise rates any further.
"But I don’t think they fully understand the bind we’re in with the market way down and all our costs rising. We need to show them why rate hikes are the only solution right now, Gary. We need to show them that through all the ups and downs of the market, we’ve done the right thing and we will continue to do the right thing."
Among Gary’s other ace qualities — highly rational, remarkably disciplined, unfailingly congenial — was his ability to wait and absorb all the evidence before offering an honest, out-of-the-box insight. Gary knew my blood pressure was up. He could see the red was rising to my forehead.
Using extra tact, he said in a quiet voice, "You’re right about everything, Bob. We’ve provided money and generated wealth for this community. None of that is in dispute. But these are challenging times. Things aren’t like they used to be. And tomorrow? I just wish we had a better view over that horizon."
I didn’t say anything. My eyes drifted toward the window as I gazed out at the pale January day and lit a cigarette, waiting for the red to drain out of my face.