BGE Chief DeFontes Steps Down, Looks Back

April 2014, Vol. 241 No. 4

Michael Reed, Managing Editor

The year was 1972 and the offices of Baltimore Gas & Electric were quite different places than they are today. Computer technology was of the mainframe variety and cellphones were not around to makes the business of gas distribution easier. In fact, the newly introduced Hewlett Packard 35-key handheld calculator was about as high-tech as the workplace would get for a while. That was the year President and CEO Ken DeFontes began his career at BGE as an associate engineer.

A Baltimore native, DeFontes retired Feb. 28 after 42 years with the only company he has worked for after graduating from Swarthmore College in Pennsylvania with a degree in engineering. During his tenure at BGE, DeFontes earned his master’s degree from Loyola University Maryland campus and held a variety of positions, spending the past nine and a half years at the company’s helm.

“Ken led BGE through some times of great change for the energy industry and his contributions have been extremely important to the company’s success,” said Denis O’Brien, CEO of Exelon Utilities, which merged with BGE parent company Constellation Energy two years ago. “He has served as a mentor to many and is known for his passion, integrity and service.”

Of that role as mentor, DeFontes, 63, expressed a philosophy much like the one he brought to work daily, telling new employees, “What you do the first day on the job will be different than what you’ll do 42 years later. If you don’t adapt, if you don’t constantly learn new things, you’ll fall behind.”

In this interview the day before his retirement, DeFontes discussed changes to the industry over the last four decades, the challenges of infrastructure replacement, and having a decision-making and management style based on values.

P&GJ: What led you to choose the energy industry for your career? Did a particular event or person influence that decision?
DeFontes: Approaching my senior year in college I thought I would like a summer job working in engineering. I found an opportunity at BGE as well as a job working for the government. The company paid more so I chose it. Once I graduated, they asked me back. I had a very favorable impression so I decided to give it a try, and 42 years later, I’m retiring.

Over time I came to love it, recognizing the importance of the work we did. The company kept making it more interesting for me, too. Every time I started thinking that it might be time to look around, I’d get a promotion. It’s been symbiotic in the sense that it’s been good for them and it’s been good for me, but it was never part of a master plan that I had going in.

I think most utilities have always had long-tenured employees like me. By its very nature, a utility is linked to the geography it serves. People who come to work here, if they have a desire to stay in this industry, it’s pretty much the local utility.

P&GJ: You began in the industry in 1972 at BGE as an associate engineer and later held a series of executive positions. What have been the biggest changes to the industry and BGE between the early 1970s and now?
DeFontes: The biggest change has been the unbundling of the vertically integrated model where you now have different segments of the market and competitive suppliers to sell the commodity. When I first came to the company, there really was no alternative. It was a bundled product; we bought the gas and delivered it.

I also think there is an intense shift away from the classic model where you have a lot more distributed generation. For the gas business, this is breakthrough stuff. In the next generation, you are going to see a major rethinking of the central station model and the be challenged to adapt to this new model.

When I first came to the gas business in 1972, there was a fear that we were not going to have enough natural gas to support the growth. That’s different now as well. Here we are, in the wink of an eye, in a robust supply scenario because of shale gas. It is a game-changer for our industry and for the nation. This will change manufacturing, too. Think about all the petrochemical industries that will want to base their manufacturing in the U.S. because the price of gas is significantly less.

P&GJ: What do you see as the most significant short-term and long-term challenges facing gas utilities?
DeFontes:
We all agree that shale gas, which has fundamentally changed the trajectory for supply, could be impacted if there are significant changes to environmental regulations or other things that would restrict the ability to harvest and access the gas. As long as we use the utmost of care, we can do it safely and in an environmentally benign manner, but we must do it right. It only takes a few fringe players or bad actors to tarnish the image of the industry.

On the secondary level, in the short term natural gas looks like the solution to reducing carbon in the atmosphere. The problem is that in the longer term it’s still a carbon-based fuel – much less carbon-intensive, much cleaner than other fossil fuels but still carbon-based. Fifty years from now, we are going to have to figure out how to keep using this clean, low-cost fuel, still confronting carbon policy. To me, we still don’t have an answer to that.

P&GJ: What kind of an economic challenge has it become to replace aging infrastructure that does not necessarily bring in new customers, compared to years past?
DeFontes: It’s always been difficult but in some respects it is getting better. One reason is that while we are having to assess and thereby increase our delivery price, the commodity is lower. It’s better to invest in your distribution infrastructure when the commodity prices are lower so there is somewhat of a balance to the impact on the bill.

As an industry with some of the recent events that have occurred, there is intense awareness of the importance of improving the safety and performance of the system. So, now we have regulatory and legislative support for more aggressive replacement. [Last fall BGE filed for its first year under Maryland’s Strategic Infrastructure Development and Enhancement (Stride) bill which was approved by the state Public Service Commission.]

P&GJ: What was the toughest decision you had to make during your career at BGE?
DeFontes: I’m not sure I can nail it down to a single decision. I’ve always found it easier to make the tougher decisions when they are based on a couple of fundamental things. First, start with your value system – making decisions in alignment with what you care about will last for generations. Values are not things that come and go; they stick with you.

So, whether it’s safety of employees or of the public, or respect for your employees, or integrity or customer service – things that we hold dear – that’s the first place I look to and ask, ‘Am I making decisions in accordance with our core values?’ I’ve always found that to be a comfortable place be.

The second thing I base a tough decision on is whether this is the right decision for the long-term, best interest of the company and its customers. It’s easy to be pressured by the need to make quarterly earnings in the short run, but our industry is in it for the very long run. BGE will celebrate its 200th anniversary in 2016 and we make decisions for investments that have to survive for decades.

P&GJ: What prompted your decision to stay on while your former parent company, Constellation Energy Group, completed the merger with Exelon Corp?
DeFontes: I had always planned that when I hit 40 years of service that would be a good, round number [for retirement]. I would be 61. That was interrupted by the merger. My 40th anniversary fell in February, one month before we closed, and I didn’t feel right leaving without seeing the transition through. One of the most important things that leaders do is develop the process to change the company as it is needed. I felt like I really needed to play an important role in this change. It’s been two years and the transition has gone very well.

I feel much at peace leaving now. I can go out the door feeling that my work is finished. It goes back to the question about decisions: it’s important from a values standpoint, and it’s the right thing to do.

P&GJ: How would you characterize your management style? Did it evolve over the years as the workplace changed?
DeFontes: The workplace has changed a lot. The nature of young people coming into the workplace today is very different in terms of their expectations than it was 42 years ago. Then, the boss made all the decisions. Today, young people want to be in charge of things after two weeks. They have learned to use modern tools in order to do more in less time.

As for management style, I like to give clear guidance at the strategic level and be a visionary. I’m passionate about what I feel is important but then get out of the way and give people the resources, encouragement and support to be successful. I tell my employees, ‘If I ask you who you work for I don’t want you to tell me the name of your boss; I want you to say your customers.’ If they are in a leadership role, I want them to say they work for the employees they lead. Their job is to create an environment where their frontline workers can be successful in serving customers.

As a senior leader you must be clear about your expectations. You have to make it evident that the things you care about, you are going to live up to. When I became CEO in October 2004, we did an initial refresh of what our strategic thinking was, going forward. Of everything we talked about, I said there is only one thing I’m going to prescribe and that is we are going to be a safe company. I made that an important part of my administration because that was my passion. I had to make sure that when it came to my employees and the public that we were as good as we could possibly be. Anyone not willing to come along on that venture, I didn’t want them as part of the team. That’s not acceptable.

P&GJ: And safety is what you consider your biggest success?
DeFontes: When I first became CEO I’d already spent a lot of years dealing with safety, but I took stock and realized we thought we were better at safety than we were. Some unfortunate events took place earlier in my career where we had fatalities. We had some employees come in contact with high-voltage equipment, or who suffered some severe injury in the gas business. I just couldn’t go to work if I didn’t do everything in my power to improve this. The fact that we significantly improved our safety performance, both in terms of number of and severity of injuries, is probably my greatest success and what I’m most proud of.

P&GJ: What do you consider your next most important achievement?
DeFontes: The utility industry has a reputation of being somewhat slow to adapt and not being very innovative. I think BGE has built a reputation of being innovative in our world. BGE was one of five or six recipients of the large grants for smart grids from the federal Department of Energy. We’ve won numerous awards for our efficiency and demand-response programs and innovations for use of information technology. We are one of the few utilities recognized for our commitment to continuous environmental management improvements and named ISO [International Organization for Standardization]-14001 environmentally certified, wall-to-wall – it took a while to achieve that.

P&GJ: Do you have an opinion on why distribution utilities seem to show more gender and ethnic diversity than other sectors of the energy industry?
DeFontes: I don’t have any quantitative data to support that. I do think, though, it has to do with the connection to the geography, just like with longer tenures at utilities. Most distribution companies that have been around for a while serve urban and suburban centers that have as part of their customer and employee base a diverse group of people. It’s essentially a fact of life. If you want to be successful in attracting people who want to live and work in this community, they have to reflect the diversity of the community they serve.

There has been some good leadership in that respect, too. It makes sense to have the face of the company reflect the community we serve; it allows the company to be more relevant and broaden our strategic thinking. Most other types of companies that do business, you go to them. We’re the inverse of that. We’re in the community working in your back yard, reading your meter in your house, doing work that is very close. It’s necessary that we have a workforce reflective of the community that we serve.

P&GJ: What do you plan on doing to occupy your time during retirement?
DeFontes: I have a lot of outside interests. I still serve on not-for-profit boards and chair the Baltimore Symphony Board which I will probably continue on through current fiscal year. That’s been a demanding but important role to preserve that important institution. I also serve on the board of the shock trauma organization, which is a remarkable place. I’m on the advisory council for the Whiting School of Engineering at Johns Hopkins and am an outside board member for ClearEdge Power [of Northern California], which makes fuel cells.

Recreationally, I’ve been an avid pilot for more than 30 years and a flight instructor for 15 years. I love doing that and I’ll be able to teach a couple days a week, which keeps me current. I golf and hope to get my game in good shape.

My wife and I love to travel and have a place in Bermuda. I’m a wine collector and will travel to Sonoma [CA] in April in hopes of picking up some of our favorites. I’m a proud dad whose son is a graduate of Johns Hopkins Medical School, currently in residency at Union Memorial Hospital in Baltimore. I have a feeling I’m going to stay active.

BGE serves more than more than 655,000 natural gas customers and 1.2 million electric customers in central Maryland.