Dalton Utilities CEO and President Tom Bundros says he’ll “take any bet” that a new traditional coal-fired electricity plant will never be built in the United States.
Bundros, who started as CEO on Jan. 1, is spearheading the revision of the utility’s strategic plan, a document that will set the utility’s long-term goals and try to figure out how it will react to changing market conditions, including the increasing burden of federal clean air rules on coal-fired plants.
Following a nationwide search, members of the board of Dalton Utilities named Bundros the sole finalist for the position of CEO and president in November to replace long-time CEO Don Cope, who’d announced his retirement earlier in the year. Bundros will be paid $275,000 a year with the potential of a bonus of up to 10 percent if the utility meets certain goals being developed in the strategic plan.
The Daily Citizen sat down with Bundros recently to discuss the future of Dalton Utilities, which is owned by the city of Dalton. The City Council appoints the members of the utility’s board.
The Daily Citizen: How is the transition going so far? Have there been any unexpected obstacles?
Bundros: No, not at all. The transition has gone very well. That’s in part because I have worked with the utility for 15 years and the last three years I was chief operating officer, so I knew what had been going on and had good relationships with everyone here from the front-line employees to the board members.
TDC: After a period of relative stability in leadership, just this month Dalton Utilities gained a new CEO, a new board chairman and two new board members. In addition, you are dealing with a City Council that has acquired a new mayor and a new council member in the last year or so. Will that create any challenges?
Bundros: No, I don’t think it will. I’ve met with the mayor in my first week on the job. We had known each other socially, through different community and fundraising events. We had a great conversation. I found him to be very optimistic about the utility and its relationship with the city of Dalton.
TDC: What do you see as the biggest challenges for Dalton Utilities and for you personally over the next year? Over the next five years?
Bundros: The biggest challenges for the utility are the consequences of the economic downturn. This community reeled during the economic recession. The recession was basically caused by the collapse of the housing market, which then led to the collapse of the financial services and banking industry.
Dalton’s fortunes are tied to the carpet industry, which is tied to the housing industry. When the carpet industry tanked, it took 30 to 35 percent of our topline revenues. To keep us going, we had to defer a tremendous amount of capital expenditures. It’s getting difficult to keep doing that.
The challenge we face as a utility over the next five years is playing catch-up on $125 million to $150 million in deferred capital expenditures.
TDC: Speaking of the Great Recession, looking at what is happening to the stock markets here and in other countries and the economic news we’ve seen in the last couple of weeks both here and abroad, are you concerned?
Bundros: I am. I worked in New York for two and a half years, so I know how animal spirits can run amok in the financial markets, driving them both up and down. But I was listening to the morning “Squawk Box” (on CNBC) and (Mohamed El-Erian) was speaking. He used to be the No. 2 guy at (investment management firm) PIMCO. He’s a very respected financial guy, and he said he was getting spooked. He said that what we are seeing with falling commodity prices, particularly oil, is not an indicator of excess supply but decreased demand. And decreased demand for energy is a harbinger of slowing economic activity. I hope I am wrong. That’s for sure.
TDC: You are in the process of revising your strategic plan. What does that involve?
Bundros: We will be getting input from our board members, from the management team, to get deep down into all the issues that will be facing us.
TDC: How long will that process take?
Bundros: We hope to have it finished by the middle of this year.
TDC: When was the last time Dalton Utilities revised its strategic plan?
Bundros: I believe it was 2012.
TDC: What impact will new clean air regulations, especially those aimed at coal, have on Dalton Utilities?
Bundros: Not good. It will increase capital expenditures for us, which will lead to increased prices.
I had someone pull the numbers of what the Southern Co. has spent on the two coal-fired plants that we have partial ownership of with them. From 2007 to 2015, at Plant Wansley and Plant Scherer, Southern Co. spent $3 billion to bring those plants into compliance with the new regs. They were already in compliance with the existing regulations. Our portion of that $3 billion was $35 million.
You get the worst of all worlds. Not only are you out the money, but you get less electricity out of it because a lot of the electricity is now going back to run the pollution control devices.
You were at our board meeting when (senior vice president for energy management) John Thomas was talking about still newer regulations. I said, “In other words, John, there’s never going to be another coal plant built in this country.” He said, “Yeah.” I’ll take any bet that a traditional coal-fired plant will not be built. And newer technologies for clean coal have not been economically successful.
TDC: In that board meeting, there was a presentation on all of the records Dalton Utilities is required to keep, all of the reports you have to file with various government agencies. Your board members are all experienced business leaders. Were they surprised at the sheer amount of paperwork involved with running a utility?
Bundros: The new board member was surprised. The other board members had seen a similar presentation last year. I think they were in awe of the amount of compliance reporting that is required of us.
TDC: What do you expect to happen with natural gas prices over the next year?
Bundros: There are two issues to consider. If the industry is allowed to continue hydraulic fracturing or fracking (a process that cracks rocks and allows natural gas and petroleum to escape), then I see stable prices. Our country is blessed with huge natural gas supplies.
But the one thing that could mess that up is legislation that outlaws or reduces hydraulic fracturing. You can’t rule that out. The state of New York currently does not allow fracking.
TDC: And that’s considered one of the most promising natural gas fields in the nation.
Bundros: Exactly. You’ve got the Utica Shale that runs through the western part of New York, touches Pennsylvania and goes into Ohio. That’s a rich find, but the state of New York won’t allow it to be developed. And ironically, it’s the northeast that needs that natural gas the most.
TDC: How are the two new nuclear reactors at Plant Vogtle going?
Bundros: Very well. The actual shells of the buildings are substantially complete. Vogtle unit three is scheduled to be online in the summer of 2019 and unit four in the summer of 2020.
I’m excited that we were able to participate in the construction of these two nuclear units (Dalton Utilities owns 1.6 percent of Plant Vogtle) and that we’ve got a good business partner like the Southern Co. (which owns 45.7 percent) that is progressive enough and willing to take a calculated business risk to be part of the nuclear renaissance that this country needs.
TDC: Over the last decade or so, Dalton Utilities has grown several of its business sectors beyond the city of Dalton. What needs to happen for that to continue?
Bundros: We welcome the opportunity to chat with our neighbors. The question usually comes down to economics. Customers pay for line extensions or service hookups. The utility itself provides the core services. If you are building a house, you pay to go from your house to our distribution line. If you are, say, a water customer, and you are located a half mile from our nearest line, you have to pay for that infrastructure. As you get away from the city, the development is less dense, and that makes the economics difficult. There are people in Murray County who would love to have OptiLink (which provides television, telephone and Internet services). But to run fiber out Chatsworth Highway to get to some of those neighborhoods, the numbers just don’t work.
TDC: Is there anything you wanted to talk about that we didn’t get to discuss?
Bundros: Yes, there is, and I thank you for the opportunity. People pay their utility bills, and they think Dalton Utilities is flush with cash. At first blush, we are. But we have $1 billion of infrastructure we have to maintain. You figure a 30-year life cycle, that means every year two and a half, three and a half percent of that needs to be replaced. Every year, just to keep everything going, on average we have to spend $25 million to $35 million. That’s just to maintain existing infrastructure. If you want to do any sort of service extension, line extension, technology upgrades, it’s even more. The utility business consumes a lot of cash to maintain reliable service.