Carnegie Mellon University
January 11, 2016

Power struggle: Ted Craver discusses the new battlegrounds of electric generation

CEO of Edison International describes shifting balance between lowering carbon footprint while nurturing delicate economy

As the CEO of a company that predates the invention of almost everything it now powers, Ted Craver knows a thing or two about the value of adapting to a shifting business landscape.

Craver, the chairman, president, and chief executive officer of Edison International, said that managing a capital-intensive business in a rapidly changing environment — often while using less-than-perfect information — is the kind of dilemma that keeps him awake at night.

Speaking to a standing-room-only crowd at the Tepper School of Business on Nov. 12 as part of the W.L. Mellon Speaker Series, Craver said the indispensability of electricity to modern society is “a rare responsibility, and, for us, a rare thrill.”

His efforts to ensure that Edison manages its responsibility appropriately creates a sense of purpose in his work, one influenced by the 23 years he spent in the banking industry — or, as he noted, “We are all products of our history.” While he believes that capitalism is a problem solver, he also thinks the key to keeping Edison nimble is to encourage disruption within its considerable ranks. The corporation employs more than 13,500 employees across businesses that include California power distribution as well as a diverse series of smaller enterprises largely focused on the development of new technologies.

In Southern California, where Edison is headquartered, that disruption is driven by both public policy and the development of new technology. California has been particularly active in promoting policies that attempt to balance economic growth with a low-carbon footprint. During the depths of the recession, a state ballot initiative — attempting to sideline environmental policies until unemployment fell to 5.5 percent for four consecutive quarters — was defeated by a whopping 62-percent margin. That at a time when the state’s unemployment rate was 12.6 percent.

“If ever there was a time for the voting public to have a choice between environmental stewardship and economics, this was the time,” Craver said. “For me, that was a real watershed event.”

And it convinced him that sustainability is a durable trend in the power industry.

Moreover, the rapid evolution of technology to support sustainability has driven down the bids for wind and solar-power generation to a lower price point than that of natural gas-fired plants, he said. While Edison currently enjoys a natural monopoly over the electricity distribution system, Craver allowed that the monopoly could change. Home additions such as rooftop solar panels could also drive down sales for kilowatt hours, an electricity company’s stock in trade.

Craver’s talk, the third of the W.L. Mellon Speaker Series in the 2015-16 academic year, was presented by the Tepper Energy Club and the Carnegie Mellon Electricity Industry Center. He noted the front-row presence of Jay Apt, professor of technology and the center’s director, with whom he served on the board of the Electric Power Research Institute, an independent nonprofit organization dedicated to researching the industry’s issues.

“I’ve always been impressed with Jay’s ability to take complex things and make them understandable,” said Craver.

Like Apt, Craver shares a keen interest in the need for greater security and reliability in the U.S. power grid. While Edison currently invests roughly $4 billion each year in distribution, Craver sees a need for digital upgrades — a move complicated by cybersecurity concerns.

The lens of customer preferences also is changing the business, Craver added. Consumer customization and patience are key, particularly with momentary power outages. Even the slightest blip for digitized equipment is costly and labor-intensive, he said — driving an even greater demand for power quality.

He cited the example of rocket manufacturer SpaceX, whose Hawthorne, California-based plant includes a completely automated assembly line. A momentary outage results in an extremely expensive delay that can last three to five hours as the equipment reboots.

“Power quality alone in our digitized world has become a much bigger deal,” he said.

That’s why Edison is channeling so much of its capital into its distribution system, Craver said — because he’s convinced that the investment will pay off if consumer trends continue to move in the direction he expects.

“If we’re wrong, it will not be a good day,” he said. “We’re a capital intensive business. We’re used to investing billions of dollars. We do that every year. And when we invest those dollars, we invest it in hard assets — equipment that sits on a system. And we get recovery (in) 30, 40, 50 years — some of the recovery periods for some of our transmission components is actually 70 years. I don’t know what in this world is going to be around for 50 years, much less 70 years, with the degree of change that we have.”

In fact, within the industry, one of the biggest debates is whether future growth will be driven by bulk power generated by a central plant or through a better distribution system. Another is whether free enterprise will be enough to lower carbon emissions while maintaining growth. Though he opened his talk by reinforcing his belief in the healing powers of capitalism, Craver said government incentives and mandates also will help.

“Most of the most complex things in life are about tradeoffs and trying to get the balance right. There’s not much black, there’s not much white; there’s a whole lot of gray. I think the issues that are at play here are huge,” Craver said. “It’s a big job, and it’s one of the things that gets me up every morning, is the excitement to tackle that.”

See more photos from Craver’s presentation

View the video of Craver's presentation