Bill Miller

Innogy PLC, a UK National Power successor company, set up US operations in mid 2000 to redefine the energy-scape of the deregulating North American wholesale power markets through the application of proven skills and intellectual property developed in the UK throughout the 90's. World-Generation interviewed Bill Miller, president and CEO of Innogy America from his Chicago headquarters office to learn his plans for the US

World-Gen: What is the derivation of the name Innogy and what branding campaigns were undertaken in the UK?

The name "Innogy" is derived from three very pertinent words in our industry - innovation, technology and energy. We are continually developing progressive technologies and methodologies through our ongoing commitment to innovation. These approaches were tried and tested on Innogy's own plant portfolio, making the plant truly flexible and capable of adapting to changing market conditions. These technologies and skills are now being applied to clients' plants within the global energy industry.

We executed several branding initiatives, the most novel was projecting the Innogy logo onto the Houses of Parliament in London at our launch in October 2000.

World-Gen: Can you define "Optionality" and how do you achieve balance and manage it?

Optionality is the transformation of generating assets from a regulated utility perspective to a market-optimizing stance. By positioning and repositioning power plants within emerging markets to maximize value, while fully understanding the consequences in detail of these moves, one attains an option - and ceases to be a price taker. In competitive markets, it's possible to use retuned intermediate plants to extract maximum value from market volatility. Plants have to be truly flexible, so you are able to generate when the market dictates, be up and running when in the money and shut down when out of the money. Some of our UK plants do 300 starts/stops a year. Optionality is the application of Real Options to the generating business.

World-Gen: In 1990 Innogy inherited 40 percent of the UK generation plants from CEGB and then over the next decade sold two thirds of this generation capacity while doubling profits. How did Innogy do this?

In the early 90s, as UK deregulation evolved, National Power was mandated by the government to reduce our market power from about 25,000MW of generation by offering assets to new market entrants. We sold a number of plants in the mid 90s with some trepidation. As more entrants clamored for plants, the value of our plants rose and our asset management and trading skills improved markedly. We implemented a transformation that changed the very foundation of our business. We changed our focus from keeping the lights on at all costs, to recognizing energy as a commodity, to be generated for the least cost and traded like any other product. This involved a completely new way of thinking at all levels of the company, from plant operators to senior executives. We recognized that it's our people who drive Innogy forward, and so we invested heavily to foster the knowledge and skills that will continue to add value to the company and allow us to grow.

In the late 90s we decided that our shareholders would benefit if we sold our most valuable asset, our 3600 MW flagship plant, Drax. We did this with full knowledge of this plant's real value and our ability to reposition our intermediate plants to compete with this asset.

The interest in Drax was so great that we sold two more plants to bidders, which left us with our current fleet of 8000 MW and which we determined was the right amount of generation to back up our growing retail business.

With a combination of cultural changes, process improvements and the development of IT technologies, we were able to close the often troublesome knowledge gap between traders, asset managers and operators. Real time information is the key to thriving in competitive markets. When a visitor walks into an Innogy plant control room, it feels like a commercial trading floor. Supported by the innovative pieces of Innogy software, our operators have all the market information and the plant economic and technical information they need to make the decisions whether to respond to market opportunities on a real time basis. They fully understand the commercial and technical implications of fast starts and stops of their generating plant. Based on their knowledge, our operators generate when it's commercially viable to do so, and don't generate when technical risk outweighs the potential revenue.

World-Gen: Does Innogy America offer new risk management strategies? Can this be measured?

Every company approaches risk management differently. However, Innogy has developed new strategies that mitigate conversion risk and reduce performance risk. Our Business Risk Assessment Processes (BRAP) enable us to identify and manage conversion risk, based on an in depth analysis of the generation plant and its market. The risk is measured in commercial terms, which commoditizes the entire production process.

World-Gen: You have been quoted as saying that "we take a personal stake -- if you don't make money, neither do we." Do you take equity positions in projects?

Innogy America is willing to guarantee the market facing plant conversion performance that it predicts is attainable by our BRAP process. We are willing to perform the recommended plant improvement work at our own expense in return for a share of the increased plant profits. If the plant doesn't make more money we get nothing. Innogy America is not offering equity investments in power plants.

Miller has experience in domestic and international deregulation and privatizations. Prior to joining Innogy, he served as a consultant to Sargent & Lundy, Indeck Energy and a number of other clients through his consulting firm, Ferson Creek Consulting. In the 90's, after dozens of S&L management positions in 25 years, he was elected to the Sargent & Lundy ownership with overall responsibility for Midwestern US fossil clients, all U.S. R&D clients and a worldwide management consulting practice. He directed the start-up of the EPRI-S&L joint venture SEPRIL and co-developed the award-winning SOAPP software suite of products and has facilitated numerous strategic planning engagements with clients such as Illinois Power, Montana Power-Colstrip and Kennecott Minerals.