It's All About Capital

The Threat of Distributed Generation - Basics Unchanged

BY MARTIN ROSENBERG
Editor-in-chief, EnergyBiz

NextEra Energy is a colossus, the largest generator of wind and solar power in North America, and its utility has 4.7 million customers in Florida. Moray Dewhurst, its chief financial officer, recently surveyed the financial landscape for NextEra Energy.

ENERGYBIZ: Revenues across the utility sector are flat to declining. How serious is the problem?


Moray Dewhurst

DEWHURST: You've always had to solve the problem of how an individual company grows in a very low growth environment. The fundamental challenge has always been how do you turn very little volume growth into revenue growth and, ultimately, earnings growth.

ENERGYBIZ: To what extent do you see this as a game changing moment with a major paradigm shift in the industry?

DEWHURST: One of the obvious challenges that the whole industry has to wrestle with, and it's both an opportunity and a threat, is distributed generation. It does fundamentally challenge the old model. If you have a rate structure that's not fundamentally aligned with your cost structure, that creates a mismatch. What we are going to see over the next few years is the working out of that mismatch. The sooner that we have the conversation with our respective regulators and policymakers about the consequences of that mismatch, the better.

ENERGYBIZ: How do extreme weather events factor into the changes you wrestle with?

DEWHURST: Customer expectations have changed since the last major hurricanes hit Florida in 2004-2005. We are fully capable of meeting much more aggressive customer expectations. But to do so over a huge system like ours takes time. It ultimately comes down to the question of what reliability do customers really want? How much are they prepared to pay for reliability?

ENERGYBIZ: As a CFO, have you been able to quantify the price of bringing in greater reliability?

DEWHURST: We really focus hard on outliers. We have a series of metrics relating to the small proportion of customers who have multiple outages. We try to focus on the pieces of the system that are the weakest. If you do the same thing everywhere across the entire system, you will succeed only in driving up rates and leaving your customer satisfaction unchanged.

ENERGYBIZ: What do people least understand about your responsibilities today as a utility CFO?

DEWHURST: I don't think the fundamental role of capital has changed in this industry. I don't think that it's likely to change, at least for a while. Capital, to a large extent, is how we get things done. The real challenge is how do we deploy capital smartly? Physical capital can't be the only thing. The more we can introduce human capital and intelligence into the way we approach this business, then the better off we are all going to be and the quicker we can do the kinds of things we all want to do for our customers without having a significant rate impact. There are now many dimensions of change and things to wrestle with. It’s a wonderful time to be an executive in this industry. This industry today requires more different capabilities than most industries require of the CFOs. We have political and regulatory pieces to deal with.