ELECTRICITY

NRG's David Crane wants to rule -- and overthrow

Two acquisitions offer a glimpse into the risky and paradoxical world of David Crane.

Crane, chief executive of the country's largest competitive power generator, NRG Energy Inc., in March bought one of the nation's largest rooftop solar installers -- the kind of plucky startup that's chipping away at a century-old network of fossil plants.

Days later, the company paid $2.6 billion for a fleet of those same aging fossil plants, including coal-burning dinosaurs like the 1920s-era Waukegan Generating Station just north of Chicago.

Who makes a huge bet on energy's fading past and, at the same time, on its uncertain future? A lot of people have been asking.

On one hand, Crane, 55, is like any CEO. He's a slave to quarterly earnings, investor meetings and PowerPoints that promise faster growth. His team scours the nation for assets -- even big, carbon-belching ones -- that he can run better than the last guy, trying to buy them at a bargain price while shedding ones that aren't profitable enough.

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But in other ways, Crane is like no other leader in the energy industry. Many others began their careers as bean counters or running power plants, jobs where they learned to shun risk. Crane cut his teeth as an investment banker while rearing a big family in Hong Kong.

While others attack carbon limits, Crane evangelizes about the perils of climate change. And where rival CEOs are careful to avoid going off script, Crane is opinionated and extemporaneous, jabbing at competitors even as he gives a wry smile.

A frequent target is monopoly electric utilities, which have mostly resisted the distributed energy future that Crane has embraced. He sees them as rigid and so incapable of change that they're doomed to fail.

"To the extent that they think they can circle the regulatory wagons around their franchise and protect it that way, it just keeps them focused on playing defense at a time when if you want to win in this space, you've got to be playing offense," Crane said in an interview with EnergyWire earlier this year.

Unlike other pundits who criticize the utility industry, Crane has put millions of dollars into action. And he's taken on speculative endeavors that more conservative rivals wouldn't dare touch, from a $1 billion carbon capture project in Texas (EnergyWire, Sept. 8) to Station A, a Skunk Works-inspired venture inside an old Pacific Gas & Electric Co. power plant in San Francisco where a group is tasked with what Crane calls "over-the-horizon thinking."

Of course, in the background of all the headlines is the constant hum of NRG's 53,000 megawatts of mostly fossil-fuel-burning electric generation -- the nation's biggest electric fleet and the heart of the centralized electric grid that Crane loves to rail against.

In today's binary world -- red states vs. blue, fossil fuels vs. renewable energy, quarterly profits vs. environmental stewardship -- Crane is unapologetic in his desire to have it both ways.

"I'm trying to win at the current model and in the future models," he said. "I need to become a leading player in the areas of our industry that are going to sort of inherit the Earth before Wall Street concludes that they inherit the Earth."

Forging a culture

The NRG that Crane leads today is an entirely different company than the one he joined a decade ago.

Upon his arrival, the new 44-year-old CEO, with a law degree from Harvard University and a formative stint as an investment banker for Lehman Brothers in Asia, quickly moved the company in new directions.

NRG's fleet of power plants competes in the wholesale markets. Without state utility commissions setting a rate of return, these so-called merchant generators take on risks that traditional utilities get to shift to their retail customers. NRG had gone bankrupt because it took on billions of dollars of debt as it added thousands of megawatts of capacity, a plan that unraveled as credit ratings fell.

At the end of 2003 when Crane came aboard, NRG was two months from crawling out of Chapter 11 bankruptcy and breaking free of its former parent, Xcel Energy Inc. NRG was a skeleton crew with a new board, management, logo and balance sheet.

First, Crane moved the company cross-country from Minneapolis, where NRG had operated as a subsidiary of Xcel and its predecessor since its founding in 1989, to Princeton, N.J., the town where Crane attended college years earlier. Employees still debate whether it was because NRG had lots of business in the Northeast or simply because Crane wanted to live there.

But more important than where NRG re-established itself was how.

Out was the downtown high-rise, replaced by a single-story building in a suburban office park. Gone were executive suites and cubicles for the rank-and-file that represented corporate hierarchy. The new layout was open and fostered interaction.

"It looks like a trading floor," said Shiran Kochavi, NRG's senior counsel from 2005 to 2011 who now holds the same job at rival Calpine Corp. "Everyone has the same computer, the same desk, the same chair. It's a highly egalitarian place."

Everyone, including top executives, occupied long desks, six per side, with an 18-inch divider separating one row of employees from the other, a former employee said. Crane sat next to Robert Flexon, NRG's chief financial officer.

Later, when Flexon left to take the top spot at Dynegy Inc., one of NRG's main rivals, he changed his new company's office layout to resemble NRG's. It is just one example of how others have followed Crane's lead.

A striver grows up

Current and past associates describe Crane as a man who is -- like the company he runs -- cutthroat, complex and always pushing the boundaries.

Crane grew up in Lake Forest, Ill., an affluent Chicago suburb on the Lake Michigan shore. The son of an aluminum sales executive, Crane appeared to have an eye on big things from the time he graduated as high school class president.

Growing up in the '70s, Crane was riveted by the Watergate scandal and decided at 14 that he wanted to be a lawyer, he told Barron's in 2013. He was recruited by Princeton University to play soccer and attended the Woodrow Wilson School of Public and International Affairs. Then it was off to law school at Harvard, where his career path veered away from criminal law and into corporate law.

AJ Tulp, a friend of Crane's from Princeton who roomed with him during a semester abroad in London, described Crane as one of the best critical thinkers he's ever met, with a competitive streak and a sense of humor that could disarm anyone.

"Did I think he'd be the chairman of a big [power producer]?" Tulp said. "No. But he's the kind of guy who intellectually could run a company, no matter what kind of company it is."

Crane's personal life, like his professional one, is unusual for the CEO of a big corporation. Early in his career, he owned a Hong Kong bar called Graffiti. In recent years, the tall and athletic executive has carved out time to trek across Costa Rica and rebuild homes in Haiti with his five children.

Crane isn't the only high achiever in the family. His wife, Isabella de la Houssaye, also has an Ivy League pedigree and was once a high-powered corporate lawyer. In recent years, she has become an endurance runner, once racing 120 miles across the Libyan desert.

The striving bug has been passed on to Crane's oldest son, Cason, who is attempting to become the first openly gay person to climb all the Seven Summits, the highest peaks on all the seven continents. In an article about the feat, David Crane's wife was asked what their son could be when he grows up.

"The first openly gay U.S. president," she answered.

All the right moves, except one

During a decade at the helm, Crane has almost doubled NRG's generating capacity and quadrupled sales. Its shares have outperformed the broader S&P 500 and Dow Jones indexes as well as its largest competitor, Exelon Corp., the Chicago-based company that tried a hostile takeover of NRG in 2009.

Maybe it's no surprise that some of Crane's boldest strategic maneuvers were subsequently copied by rivals.

There was the decision in 2009, under siege from Exelon and in the midst of the Great Recession, to jump into retail power marketing. NRG acquired Texas retailer Reliant Energy for $288 million -- a deal thought by some to be a maneuver to fend off Exelon, but one that ended up being hugely profitable.

"The Reliant acquisition was the deal of the decade," said Kevin Howell, who held several executive positions at NRG, including president of the company's Texas region from 2008 to 2010. Howell, who still owns NRG shares, later served as chief operating officer at Dynegy.

Last year, Crane achieved another first when NRG spun off a group of contracted power plants into a yield company, or "yieldco." Shares of NRG Yield have more than doubled since the initial offering and spawned copycats.

Crane is a person who has "vision ahead of the curve," said Susan Tierney, senior adviser at the Analysis Group, a strategic consulting firm. "If you want to just keep your eyes on what's around the corner, just listen to David Crane's transcripts on his shareholder meetings."

Being a first mover also comes with risk, a painful lesson Crane learned a few years ago in Texas.

NRG in 2007 was the first company in almost 30 years to file an application with the Nuclear Regulatory Commission to build a new nuclear plant in the U.S. But he pulled the plug on those plans four years later after the company's financial partner, Tokyo Electric Power Co., saw its own reactors at Japan's Fukushima Daiichi plant suffer a meltdown.

The end result: a $352 million loss.

"It was a near-death experience for me because it was my decision and I lost that amount of money," Crane recalled.

Too many 'different pies'?

Crane's many endeavors and a recent corporate restructuring have prompted questions about whether NRG is becoming too byzantine for its investors to understand.

By spending billions of dollars and aligning with a motley cast of partners, from Google Inc. to Unilever NV to Sir Richard Branson, Crane has created what is by far the most diverse energy company in North America.

Beside its substantial coal and gas-fired generation and a 1,176 MW nuclear plant outside Houston, NRG is among the largest renewable energy developers in the nation with more than 3,000 MW of wind and solar scattered across at least 14 states.

Some of the renewable projects are, in typical Crane fashion, epic.

NRG is a key investor in the 392 MW Ivanpah solar generating station in California's Mojave Desert, the world's largest solar thermal project. It also backed the 290 MW Agua Caliente, the world's largest solar PV project, set on 2,400 acres in southwest Arizona that NRG built with Warren Buffett's MidAmerican Energy Holdings Co.

The list goes on: NRG is establishing a $100 million electric car charging network, called eVgo, over the next four years in California. Crane wants his new rooftop-installation company, Roof Diagnostics Solar, to one day rival market leader SolarCity. NRG is developing a 1 MW renewable-energy-driven microgrid on Necker Island in the Caribbean, owned by Branson. And the company just purchased Goal Zero, a startup that makes solar-powered charging systems for campers and hunters.

Then there is something called the Beacon 10. Developed in concert with Dean Kamen, inventor of the Segway, it is perhaps NRG's biggest agent of disruption.

The device, about the size of a refrigerator, is a machine that taps into a home's natural gas pipes and turns the gas into electricity. It is intended to work in tandem with solar panels (installed by NRG, of course), and together they would provide virtually all the power a home needs. Crane has one in his house, along with three electric cars -- a Tesla, a Fisker and a Nissan Leaf.

"What we see as the big disrupter of the grid from a reliability perspective is actually the natural gas system," Crane said. "That's what you want. You want your first source of electricity to be solar, and when solar's not working, you want to crank the natural gas in your basement and turn it into electricity and have a few batteries that work with both to integrate the system."

NRG owns nearly every form of power generation, at every possible scale -- from the largest carbon-dioxide-spewing coal plant to the tiniest solar panel.

In early August, NRG announced a plan to tame its unruly offerings. NRG is separating into three divisions: Business, which manages its traditional power-plant holdings; Renew, to handle the utility-scale wind and solar farms; and Home, to control the retail side that touches end customers, like EV charging, the Beacon 10 and rooftop solar.

All of it prompted ISI analyst Jon Cohen to observe during NRG's second-quarter earnings call this year that the company has "its fingers in a lot of different pies."

"Do you worry that at some point, the company becomes too difficult to analyze or the story becomes too difficult to tell and that you start to turn off certain investors?" Cohen asked Crane.

It was one of the few times that Crane, ever ready with an articulate answer, seemed to stumble. He wandered into a discussion of the company's yieldco before hitting his stride again at the end by asserting that NRG has a "multiplicity of assets" it wants to simplify. "So we're trying, Jon," Crane concluded.

The Crane manifesto

Where is the NRG juggernaut going? In March, perhaps to calm uncertain investors, Crane did yet another thing energy executives don't generally do. He issued a manifesto.

In it, he said the behemoth power generator would strive to be like the most admired brands of the technology world: Apple Inc., Google Inc., Facebook Inc. and Amazon.com Inc.

"The 'Big Four,'" he wrote, "offer their own product or service in a manner that is more comprehensive, seamless, intuitive and, in the case of Apple, visually elegant, than their respective competitors. They enable, they connect, they relate, they empower.

"There is no Amazon, Apple, Facebook or Google in the American energy industry today," he added.

In other words, NRG is attempting to take the electric industry, which has always operated at an awkward remove from the end user, and make it as friendly and responsive as an Amazon. Crane wants customers to have their energy data readily available on the Web. He expects that, as rooftop solar spreads and as electricity demand continues to fall, customers will expect choices like they do with cellphone plans or package delivery.

"One of my theories is that the power industry has been very much a one-size-fits-all," he said in his April interview with EnergyWire. "It's almost a communistic system. Everyone gets the same electricity at the same price from the same person. But I think over the next five to 10 years there's going to be a big regional differentiation and differentiation between categories of energy consumers."

Last Tuesday, the outlines of the retail strategy began to come into focus.

NRG announced that it would for the first time sell its full line through Green Mountain Power in Rutland, Vt. (EnergyWire, Sept. 4). At the regional level, it encompasses microgrids, small community solar farms and NRG's eVgo electric-car charging infrastructure. For businesses and homeowners, it is a "comprehensive personal energy management solution" that includes Web-based remote control of home energy use, the Beacon 10 and a small, solar-powered "NRG Power Pack" for charging cellphones.

Like telecom, but way bigger

Crane believes today's electricity business is similar to the telephone industry in the 1980s, when it experienced an earthquake.

In 1982, a court order ended AT&T's overwhelming dominance of the Ma Bell system, which had a monopoly to deliver telephone service over a vast, fixed network of wires -- a system that is often compared to the monopoly electric utility system today. Its fledgling cellular holdings were broken up and handed out to regional companies. Craig McCaw, an entrepreneur, bought up many of those rights. A decade later, when it was becoming apparent that mobile was in ascendancy and landlines in decline, he sold them back to a rebooted AT&T for $11.5 billion.

"I keep seeing these reports in the press, you know, 'What the hell is Crane doing, he's buying old power plants and he's also doing all this new stuff?'" Crane said. "I'm not doing anything the telecom guys didn't do."

The difference is that Crane is trying to do what AT&T didn't in the mid-1980s: buy up the competition, not for billions a decade from now, but for millions today.

"So to me, the important point -- as someone to whom Wall Street is important -- is winning in a space that Wall Street thinks is going to win the future before the win is declared," Crane said.

Unlike the telephone wars of past decades, Crane's push into the newer precincts of the energy world is guided not just by spreadsheets, but by a keen sense of social mission.

"Make no mistake about our children," Crane wrote in his manifesto. "They will hold all of us accountable -- true believers and climate deniers alike. The day is coming when our children sit us down in our dotage, look us straight in the eye, with an acute sense of betrayal and disappointment in theirs, and whisper to us, 'You knew ... and you didn't do anything about it. Why?'"

When it comes to political money, the contributions made by NRG and the personal ones of David Crane again reveal a paradox.

NRG's giving to individual candidates is spread among both parties, with an emphasis on Republicans in Texas and Democrats in California. That reflects the demands of a Fortune 250 company that must appease investors and spread the political wealth. Meanwhile, Crane's personal contributions signal that he's a progressive Democrat, with one recipient standing out.

Crane served as a "bundler" for Hillary Clinton in her 2008 presidential run, the title given to influential, well-connected people whom candidates recruit to gather $100,000 or more from others.

Crane once compared distributed solar, a market his company hopes to capture, to the gay marriage movement.

A small, passionate group was for it, he said, but what it took was swinging the opinion of the "silent majority" -- 70 to 80 percent of the population -- to make the issue tip, "just enough to sort of beat down the forces of darkness," Crane said.

"I'd love to see Tom Steyer fight the evil people to a standstill while we as a company focus on how we swing the silent majority as a matter of consumer behavior," said Crane at a clean-energy event in Chicago after having breakfast with Steyer, a leading climate change activist.

Crane has one of the longest tenures of any CEO in the energy industry but shows no signs of wanting to move on. He still relentlessly wants it all -- to win the quarter and the decade, to keep his grip on the old market while dominating the new one, to overthrow a century-old system of delivering power, and more besides.

"I believe in capitalism and I believe in making money, but to have an opportunity to sort of be in an area that's intellectually interesting, possibly -- if you're successful on the scale of the industry -- you can make yourself a billionaire," Crane said. "And save the world."

Twitter: @DavidFerris | Email: dferris@eenews.net

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