Power player Featured

8:00pm EDT April 24, 2006

No one would have blinked if Morgan O’Brien’s first move after becoming president and CEO of Duquesne Light Holdings in 2001 had been to pull his senior managers into a tight circle to decide where he should lead the company.

But O’Brien did raise some eyebrows when he decided to figure it out by starting from the outer edges of the company and working his way in.

O’Brien went out into the field and talked to what he calls “subject experts,” among them linemen, supervisors and office personnel, to hear what was happening outside of the executive suite and to learn what people in the company were thinking. In his mind, that’s where he would find the information that he needed to figure out where the company should be headed.

“When I took over as CEO, one of the first things I did was tell the board that I don’t want to sit down with my executives,” O’Brien says. “I want to go around the company before I meet with any executive. I want to hear from the people in the company what is going on and what is it that I need to know in order to run the business properly.

“So I went out for about three weeks and everybody thought it was a little unusual. They said ‘When are you going to sit down with the executives?’ I said, ‘I need to do some homework.’ I understood the company, I’ve worked here, but I need to really get my arms around what the issues are.”

O’Brien says his prior experience — seeing executives who had walled themselves off from what was going on in the business and a fear that he wasn’t going to get the right answers if he did the same — motivated him to reach far out into the organization to discover what he needed to know.

“It was my biggest fear: I was going to be sitting in an office somewhere making decisions without any good information because I used to see it in other people, where some really smart people would make a decision and I’d sit there and say, ‘That’s such a bad decision,’” says O’Brien. “‘Does he know about this or that?’”

On the road
O’Brien’s tour revealed that employees around the company saw some fundamental problems at Duquesne Light.

The infrastructure, aging in some areas and inadequate in others, was starting to reveal cracks, they said. Some older residential areas hadn’t been updated in decades, and in other cases, upgrades hadn’t been made to accommodate concentrated growth in areas such as Oakland, for example, where economic development and growth at the hospitals and universities were putting increased pressure on the system.

And like plenty of companies in the region and throughout its industry, Duquesne Light was facing an impending human resources crisis, as half of its current employees, many of them skilled field personnel, turned eligible for retirement over the next five to seven years, taking their institutional knowledge and experience with them.

“Things I heard back in 2001 when I became CEO were, ‘Look around, you’re the youngest guy in the room, and when we retire, who’s going to run the system?’” O’Brien says. “All the information I know, how’s that going to move on to the next generation? Have you ever thought of that?’”

O’Brien found that employees had concerns about the sell-off of the company’s power plants and some of its subsequent investments in far-flung business ventures. Duquesne Light, not unlike many other utilities in the wake of utility deregulation, had invested in business ventures unrelated to its core business.

“They’re sitting there saying, ‘What do we know about this, and why are we taking money out of the core business and investing it in other places?’” says O’Brien. “It created a lot of confusion, and I’d say more than confusion — people saying, ‘Do these guys know what they’re doing?’”

O’Brien is convinced that he uncovered things in those meetings that never would have reached him otherwise.

“It was really good stuff, stuff that at an executive level you really might not think about,” says O’Brien. “You look at numbers, you look at reports, you ask questions, and for the most part, people tell you what you want to hear. That’s a little bit of the corporate world, but also for me, I was at a level where those types of issues wouldn’t find their way there unless someone was saying, ‘This is a crisis,’ or ‘This is a really big deal.’”

Those discussions influenced the decision to sell off unrelated and underperforming businesses and to return to the company’s core business, the transmission and delivery of electrical power. O’Brien moved to shed a water treatment business, energy management agreements and a propane gas venture.

And in a move symbolic as well as substantive, the company headquarters moved back downtown, a gesture that O’Brien says sends a clear message to local and state officials that Duquesne Light is committed to Pittsburgh.

“One of the things that we did when we sold the power plants was move the company headquarters out to Cherrington, out by the airport, and the reason for that is we had investments all over and people needed to be close to the airport,” says O’Brien. “When I took over, I said I want to sell off these businesses that aren’t performing and I want to move the headquarters back downtown where we’re all in the same building, people are all together, people see me every day and I can interact with them.”

Back to the board
O’Brien came back to his senior managers and board and offered up what he had learned. The company needed to put together an infrastructure improvement plan to accommodate a higher bar for reliable energy delivery that a changing economy demands to support its information systems and to bolster the system in areas where it was outdated or inadequate.

“We came back with an analysis of each of the different areas and said, ‘These are things we need to do, not only maintain the good reliability where we have it but also deal with where we’ve had issues,’” says O’Brien.

O’Brien proposed an infrastructure improvement plan, launched last year, to invest between $500 million and $600 million systemwide over three years to replace aging circuits and equipment and to improve power capacity.

He dovetailed the infrastructure plan with an initiative to head off the company’s impending human resources drain. With plenty of work to be done on infrastructure over a three-year period, O’Brien decided that the timing was right to ramp up the company’s training program.

It started a lineman program with the help of Community College of Allegheny County, a two-year associate’s degree program that combines instruction at Duquesne Light’s training center and two days of classroom instruction learning communications and computer skills. The program aims to add 150 employees to the company’s existing ranks of 1,400.

“As part of this, not only were we going to be doing this capital investment but that we were going to start replenishing the work force, because we really haven’t had on the transmission, the wires part of the business, any significant hiring over the years,” says O’Brien. “Historically, what we used to do is bring people in and they’d work their way up through on-the-job training and they’d learn the skills that our previous employees had, but we said with the junior college program, they can also become better communicators.

“One of the most important communications we make with our customers is when a truck is out in a neighborhood and somebody comes out and asks, ‘What are you doing?’ or ‘What’s taking so long?’ They’re representing the company out there ... so having someone with good communications skills is important.”

From a financial perspective, the company’s income statement reveals improvements in some key measures. While total operating revenue declined from $1.1 billion in 2001 to $922 million in 2005, primarily as a result of the sale of noncore and under-performing assets, Duquesne Light’s operating income has increased over that same period, to $178 million in 2005, compared to the $3.8 million it posted in 2001.

The infrastructure program is only a year into a three-year stretch, so it is too soon to make any judgments about its success, but O’Brien says that the improvements will allow Duquesne Light to comfortably accommodate the annual increase in demand it experiences, as well as reliably support additional loads imposed by new commercial development within its service area.

“This area of the population, the population growth is pretty flat, but every year we see 1 percent to 2 percent usage growth because people buy more computers, more appliances,” says O’Brien. “Electricity has a bigger role in what they do, and when they have all that, they want it to be more reliable because they’re depending on it more,”

The lineman training program to date has added approximately 100 new skilled employees to the ranks, and a third class of about 50 is scheduled to graduate next month.

While O’Brien is confident that the plan to focus on Duquesne Light’s core business is a sound one, he acknowledges that uncertainties and unexpected events can make earlier decisions look like the wrong ones. As utility deregulation took hold in the late 1990s, a lot of smart and seasoned minds in the utility industry made choices that proved to be mistaken.

“I think one of the things we do is look at what happened in our industry with deregulation,” says O’Brien. “People had certain expectations. What’s happened is completely different, and looking at the last couple of years with natural gas prices fluctuating so dramatically, a lot of it is hard to predict for the next five years, but that’s why we come to work, that’s one of our challenges.”

There is little doubt that O’Brien will stay close to the action and be ready to respond to change when required. Not only does he get the information he needs to make decisions with that approach, he says, but the process engages the employees and gives them a sense of ownership in it.

Says O’Brien: “It starts out by saying, ‘I want to find the right answer, but what it also does is includes people in the thought process, and it helps people feel like they’re part of the team.”

How to reach: Duquesne Light Co., www.duquesnelight.com