NU Succession - Shivery passes final torch in NStar merger

Photo | Pablo Robles Charles Shivery's legacy as long-time leader of Northeast Utilities will be its investment in transmission projects and its merger with NStar.

Photo | Contributed Tom May was the NStar president, CEO, and chairman before the April 2012 merger with Northeast Utilities. On Thursday, he will add the NU chairman position to his current titles of NU president and CEO.

Photo | Pablo Robles

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On Thursday, the final piece of the Northeast Utilities-NStar merger will be put in place.

Charles Shivery will retire his final leadership position, ending a near 10-year reign as the president, chief executive, and chairman of one of only 17 Connecticut Fortune 500 companies and what is now New England's largest utility firm.

Shivery's rule as NU leader started in December 2003 and lasted until he orchestrated the $5 billion merger with Boston-based NStar. When the deal closed on April 10, 2012, Shivery relinquished his president and CEO titles to Tom May, NStar's long-time chief executive.

Now, 18 months later and per the merger agreement, Shivery will hand over the chairman title to May, although he'll remain a board member.

“He ran a successful shop,” May said. “He firmly believed his corporation was only as good as its reputation.”

As the long-time head of an investor-owned, regulated company, Shivery's legacy will vary by those who remember it.

• For shareholders, he grew the company's stock price from $19 per share when he took over to $36 at the time of the merger, to $41 today.

• For Fairfield County, he kept electricity prices from skyrocketing while finding a solution to the region's aversion to power plants. He then implemented this solution throughout New England.

• For those who lost power for long stretches following two severe 2011 storms, his companies failed to plan and communicate effectively during crisis, and have strived to redeem themselves since.

• For Connecticut legislators, he was the effective but somewhat aloof CEO who seemed more interested in growing shareholder value in ways that happened to benefit state ratepayers.

“Charles Shivery was not someone that would engage local legislators really at all,” said State Sen. John Fonfara, who co-chaired the legislature's Energy & Technology Committee during Shivery's entire run as NU leader. “Granted he was running a huge company, but Connecticut was the largest part of the Northeast Utilities.”

Building Transmission

Shivery's first major act as CEO was to eliminate the job he was originally hired to do.

Coming out of retirement from Constellation Energy Group in Maryland, Shivery came to Hartford to be president and CEO of NU Enterprises Inc., an unregulated subsidiary responsible for NU's competitive energy business.

“I fully expected that to be about a five-year assignment,” Shivery said. “Turns out, it became much more than a five-year assignment.”

When then NU CEO Mike Morris left for American Electric Power in Ohio, Shivery stepped into an interim CEO role in late 2003 before getting the job permanently the following March.

After more than a year in the top seat, Shivery decided to shutter NU Enterprises, believing NU was too small to be a major player in the competitive energy business.

He shifted NU's focus on transmission lines.

“It seems so logical now, but the decision (to focus on transmission projects) was not as obvious back then,” said David McHale, NU executive vice president and chief administrative officer, who has been in the executive suite since before Shivery took over. “It created a lot of legitimacy for us, particularly with our investors on Wall Street.”

Today, NU's electric subsidiaries like Connecticut Light & Power generate most of their revenue from transmission and distribution systems. Transmission delivers electricity from power plants to substations, and has a return on equity of 10-12 percent. Distribution delivers electricity from substations to customers and has a return on equity of 7-10 percent.

After NU sold its power plants as a result of Connecticut's decision to deregulate the energy industry in 1998, Shivery used that capital to build transmission lines, projects that cost in excess of $1 billion.

“Mr. Shivery was very interested in growing that asset base, which would benefit shareholders,” Fonfara said. “Those investments will pay off handsomely for the company, but that is not to say they weren't needed.”

NU's first transmission projects benefitted Fairfield County.

Because of that region's distaste for electric plants, and a patchwork distribution systems, the regional electric grid had difficulty getting power there. That created higher delivery costs and potential reliability problems for Fairfield County businesses and residents.

NU built four transmission lines in southwest Connecticut in 2008, spending $1.6 billion on a project that saved customers $600 million to date in delivery costs, Shivery said.

That venture established NU as a company that could successfully execute complex, lucrative projects, helping the region decrease electricity costs and avoid unnecessary power plant construction.

NU embarked on several other transmission lines, partnering with utilities to span service areas — notably the $2 billion New England East West Solutions project spanning three states and four utility companies.

“We really have a first-class transmission business here,” Shivery said.

The NStar Partnership

In 2008, when NU eyed the $1.1 billion Northern Pass transmission project in New Hampshire, which will bring hydropower from Quebec to New England, Shivery saw NStar as a partner, as the line primarily will benefit Boston, Hartford, and southwest Connecticut.

May and Shivery knew each other from serving on various boards like the Edison Electric Institute and being executives in the regional industry. The partnership flourished.

Both recognized the industry was headed toward consolidation, where larger companies will have the competitive edge. Shivery suggested the $5 billion merger of equals.

“He did a pretty special thing by initiating the discussions of this merger,” May said.

The merger benefitted NU's bottom line and created a larger entity with more resources to respond to emergencies. By consolidating operations, NU has the opportunity to reduce expenses to ratepayers as well, Shivery said.

“Instead of having two relatively small utilities, you have a utility that is one of the 15 largest in the country,” Shivery said.

The merger, however, has come at a cost. State officials have raised concerns that 70 percent of the post-merger layoffs came in Connecticut; NU's Hartford economic development staff has been minimized; and 200 information-technology jobs will be outsourced to companies in India.

“While the full impact of (the IT outsourcing) will likely not be known for several months, these changes make it even more critical that (regulators) take a close look at NU's manner of operations in Connecticut,” said state Attorney General George Jepsen and Consumer Counsel Elin Swanson Katz, in calling for a review into NU's employment practices.

Stormy Times

While the NStar merger was one of Shivery's two major legacy decisions, the execution of the deal led to his most taxing experience, landing him in the hospital.

The merger moved relatively smoothly until late 2011, when Tropical Storm Irene and a surprising October snowstorm caused more than 670,000 customers to lose power twice, some for up to 11 days. NU took severe criticism for not being properly prepared, slow to restore power, and not effectively communicating with local officials or ratepayers.

Suddenly, politicians who had been quiet or even supportive of the merger were lashing out at NU. Connecticut regulators reopened the merger case, calling into doubt their previous consent on the deal. Gov. Dannel P. Malloy started making electricity reliability a central pillar of his energy strategy.

“That was Chuck's most challenging career time,” said McHale, NU's chief administrative officer.

Shivery had to shoulder political fallout from the storms, develop a refund plan for customers, and deal with more problems thrust upon an already complex merger process, all while trying to reengineer NU's emergency response strategy. In January 2012, Shivery went to the hospital with heart problems, leaving the company in the hands of his three top lieutenants until his health improved.

“When he reflects on most of that, the end result was very rewarding and a big part of his legacy, but when you are in the midst of something like that, it is very trying,” McHale said.

Some of the blame heaped upon NU and Shivery for the 2011 outages was misplaced, Fonfara said. Before those storms, Connecticut's policies focused on cutting costs, so regulators had utilities skimp on infrastructure hardening, tree trimming, and emergency preparation.

“It was very difficult to expect a Connecticut utility to have the support necessary from regulators … to prepare for those storms,” Fonfara said.

Still, NU's outage communication problems were of its own making, and the company devised a plan to keep local officials and ratepayers better informed in future emergencies.

“Clearly, being able to communicate with customers during an outage is a top priority,” Shivery said.

Retirement

With the merger in place and May a very capable CEO, Shivery said he is comfortable making his second — and probably last — retirement.

Shivery spent the last 18 months helping bridge the understanding between two companies, advising May on the politics of the NU service areas, and running the board of trustees.

In retirement, he still will serve on the NU board. He also holds positions on other boards like Webster Bank, the UConn Health Center, the Connecticut Science Center, and Connecticut Children's Medical Center.

“Retirement to me doesn't mean playing golf all the time,” Shivery said.

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