Transition time at Entergy Arkansas as plans for a new CEO take place

Rick Riley doesn’t have a picture of Hugh McDonald on his office wall, but one will be there soon. For now, if he needs to get advice from the long-serving Entergy Arkansas Inc. president and CEO, he can simply walk across the hall of the 40th floor of the tallest building in downtown Little Rock and chat with the veteran utility executive.

“Technically now I’m working for Hugh before I take over, so I don’t want to put a picture up of him in the office yet. But that day is coming,” Riley said jokingly during a wide-ranging interview in his office at Entergy Arkansas’ corporate headquarters at the Simmons Tower.

Riley was tabbed in early June to take over as CEO of Arkansas’ largest electric utility once McDonald steps down from the helm of the company sometime in the first half of 2016. For now, Riley says he is grateful to be under McDonald’s wing where he is getting mentored on the fine points of the company’s Arkansas operations by the affable Entergy veteran who has led the utility giant since 2000.

Before he transitions into McDonald’s more spacious and comfortable corner office, Riley is now serving as group vice president of customer service and operations. The former vice president of transmission for Entergy Services Inc. said he learned of McDonald’s retirement and his big promotion at the same time when he received a personal call from Theo Bunting, group president of Entergy Corp.’s utility operations.

That call, Riley said, was an offer to accept a new role as the president and CEO of Entergy Arkansas after McDonald finishes his last lap around the track.

“I love transmissions and it was a great job. I had 800 employees across four states …, but when Theo asked me about this [position], I think had it been another [Entergy] utility I might have faltered,” Riley recalled. “Knowing about and being an admirer of [former Arkansas Power & Light CEO] Harvey Couch, this is where it started so I was really excited to come up here.”

LEARNING ABOUT ARKANSAS

After accepting the chief executive position, Riley said he still had a bit of apprehension, never having lived in Arkansas and deciding to move to a new location in a company that values executives willing to take new roles in varied locations to enhance their careers. “It’s always a big deal to move your family, but I talked with my wife [Alicia], and she was excited about it too – because our kids are out of the house and we didn’t have to worry about moving them away from school.”

But, Riley added, “it was daunting too because Hugh has been here for so long. Everybody knows him. My first thoughts were: ‘Can I be like Hugh and help grow the state?’”

Now on the job for more than six months, Riley said his biggest challenge has been learning about the state, the company and the employees. “I’ve been in more of an operations environment, not [in a situation] where I worked with customers and communities,” Riley said. “One thing that I have been really focusing on is the employees. I have had time to go out a bit and meet with them, and I have a lot more meetings planned.

“I am trying to get to every local office and meet face-to-face with them. And being over customer service – that’s the bulk of our employees. I’m trying to figure out what makes them tick,” the high-energy 53-year-old utility executive said.

Offering insight into his management philosophy, Riley said he wants to make sure that every employee enjoys what they do. “I have always said that if you have a job that you believe is the best job in the world … or the company that you work for is doing something that serves the greater good – then you will like going to work every day. I am trying to figure out if our employees think that.”

LOOKING FOR IMPROVEMENT AREAS

Now on his fourth executive career stop in as many states, the well-traveled Texas native has also lived in New Orleans, the home of Entergy’s corporate headquarters, and comes to Arkansas from the company’s transmissions nerve center in Jackson, Miss.
Looking out over much of downtown Little Rock in his new office, Riley said he hopes to add to the legacy that McDonald has built in transitioning Entergy Arkansas from the system operating agreement into a free-standing subsidiary of the New Orleans-based utility operator.

“I want employees to come to work every day and know they are serving a noble purpose, but to also like what they do – so I’ve been listening,” Riley said. “Every company has areas where they can improve, and we certainly have our share. So, I have been trying to really probe into areas where we can improve.”

McDONALD’S PATH

Meanwhile, across the hall with a grand view of the downtown area and the state Capitol from his office suite, McDonald recalled receiving a similar call as Riley nearly 16 years ago from Entergy Corp.’s longtime chairman and CEO Wayne Leonard in New Orleans, where the utility holding company runs operations for the utility giant’s four operating subsidiaries in Arkansas, Louisiana, Texas, Mississippi and the Crescent City.

“I can remember that phone call from Wayne Leonard to go to Arkansas. I was certainly honored to ask to go, but also I was ‘oh my gosh, this is another major move.’ It was just a year prior to that I moved my family from Austin, Texas, back to New Orleans and my son [Bryan] was going to be a senior in high school.”

Before taking the job, McDonald’s path to the top position at Arkansas’ largest electric utility had been much like Riley’s – with career stops at each of Entergy’s operating subsidiaries in Arkansas, Texas, Louisiana and Mississippi before making the decision to move to Little Rock.

After graduating in 1980 from North Dakota State University as a construction management major in 1980, McDonald took a job two years later as an engineer at the Waterford 3 Nuclear Station in St. Charles Parish (La.) with Middle South Services Inc., the forerunner to Entergy Corp.

On his way from South Dakota to New Orleans to take the new job, McDonald’s drive with his wife Michelle took the young couple through Arkansas for the first time where they encountered one of the state’s most infamous ice storms in December 1980. “That was somewhat fortuitous,” McDonald said of the storm that knocked out power to a quarter million homes in Arkansas. “I stayed in an old motel in Morrilton and got up the next day and traveled to New Orleans.”

Once landing in Louisiana, within seven years McDonald had been promoted to executive assistant to the chairman and CEO of Louisiana Power & Light Company, where he led Entergy Louisiana’s total quality initiative until 1993.

CAREER JOURNEY

In 1994, McDonald was serving as division manager of customer service for Entergy Mississippi. But a year later, he was promoted to director of Entergy’s regulatory affairs in Texas, where he was responsible for Entergy Gulf States Inc.’s rate proceedings, rulemakings and transition to competition activities before the Public Utility Commission of Texas. He stayed in that position for four years until April 1999 before he led Entergy Services Inc.’s retail operations at the utility giant’s corporate headquarters.

By the time McDonald got the fateful call from Leonard, he had worked in nearly every area of Entergy operating subsidiaries in four states, from nuclear and transmission operations to regulatory affairs and customer service. At times, he said the career journey with Entergy has been challenging, but he is grateful for the opportunities he has been given over a career spanning more than 33 years.

“I’ve had the opportunity to work around great people,” he said quietly. “It has certainly allowed me to see all the parts of the business, but also know a lot of people around the company, and build relations around the company that I still cherish today.”

He continued: “Some of the moves were difficult from a family perspective, especially when the kids got older. Certainly they’ve sacrificed and Michelle certainly has sacrificed and stuck with me for 35 years, but you always learn something new by moving to a different place. Even though it is one company, there are little differences in cultures.’’

Throughout his career at Entergy Arkansas as second-longest serving CEO behind the legendary Harvey Couch, who founded AP&L in 1913, McDonald has guided the Arkansas utility through what several company observers view as its toughest period.

ACCOMPLISHMENTS

Under McDonald’s helm, Entergy Arkansas’ customer base has grown to more than 700,000 residential, commercial, industrial and governmental customers located in 63 of Arkansas’ 75 counties, covering over 40,880 square miles.

“Hugh’s 34 years of contributions to Entergy and its key stakeholders are immeasurable,” Bunting said in June when the CEO transition was announced. “At every step of his career, Hugh’s leadership and vision have been instrumental in making the right decisions on so many critical issues. He has been a passionate voice for our Arkansas customers and our employees, and he always acted with integrity, respect and compassion.”

Although McDonald’s accomplishments over the past 15 years at Entergy Arkansas are many, he will likely be remembered for his leadership in guiding Entergy Arkansas through the company’s decision to exit the long-standing System Agreement, which allocated generation costs among Entergy’s operating subsidiaries in Arkansas, Mississippi, Louisiana, Texas and the city of New Orleans.

The historic pact had embroiled the state Public Service Commission and Entergy in protracted litigation for over 30 years, resulting in significant “Grand Gulf payments” by Arkansas ratepayers in 1985 for a nuclear unit that PSC officials said Arkansas did not need.

Although the PSC’s litigation efforts successfully shielded Arkansas ratepayers from a substantial amount of payments in subsidies to the other states, Arkansas ratepayers still ended up subsidizing the ratepayers of Entergy Arkansas’ sister companies at a cost of more than $4.5 billion from 1985 to 2011, officials said.

In late 2013, Entergy Arkansas became independent as part of its agreement with the PSC, allowing the Arkansas utility to complete the integration of its transmission system into Midcontinent Independent System Operator (MISO) following more than two years of planning and preparation with the New Orleans-based parent of Entergy Arkansas and numerous other stakeholders.

McDonald said the integration process went smoothly, and the initial projections of more than $1 billion in savings to Entergy utility customers over the next decade are ahead of schedule. In late March of 2015, Carmel, Ind.-based MISO christened its 50,000-square-foot operations center in West Little Rock that will oversee the South region of the grid operator’s footprint that includes Entergy’s operating subsidiaries in Arkansas, Louisiana, Mississippi, Texas and the city of New Orleans.

“It has been a great decision,” McDonald said in early April.

DEALING WITH REGULATIONS

McDonald said he is also proud of the fact that Arkansas has met the challenge of upgrading the state’s power infrastructure, saying technology and the advent of natural gas-fired power generation have been “game-changers” in the delivery of electricity to Arkansas consumers.

The one part of the job that McDonald said he won’t miss is the increasing encroachment of government regulations in the past decade on the way utilities operate.

“That is a huge part of our business now,” McDonald said. “It seems like the last 10 years of my time in this job, 80% of it has probably been about state and federal regulations. It has been pretty relentless on this industry.”

McDonald also admitted the EPA’s rules on carbon emissions and regional haze have changed the future landscape of the power industry in terms of electricity generation and fuel mix. “Nobody’s going to use coal anymore, at least not for the foreseeable future, which is unfortunate because we have a huge supply of that fuel in this country which would help us from an energy security standpoint,” he said. “But people in my position or generation developers are pretty much only looking at two types of energy [sources] – natural gas and renewables.”

Surprisingly, the other part of the business that he says keeps him up at night is storms – like the one he and Michelle drove through on his first trip through Arkansas in the dead of winter 33 years ago or the kind of quick-moving, mid-day tempests that alight on Arkansas during the muggiest days of summer.

STORM MODE

Still, McDonald said those times also bring out the best in Entergy Arkansas’ 2,700-person workforce, from top to
bottom. “During storm restoration, those are some of the most challenging times for the company, but also the most gratifying to see how the organization comes together – from communications to the lineman to what I do and what our management team does,” he said. “We shift our normal day activity to ‘storm mode’ and everybody has a role – and that role is to get the lights on as quickly as you can, and as safely as
you can.”

The soft-spoken utility executive is confident he is leaving the company in a good position for the future. He said Entergy Arkansas’ future is bright because “electrification of the economy” is going to continue in the future, including more
automobiles being powered by electricity.

McDonald joked that his “light-bulb” moment concerning possible retirement occurred after Entergy exited the system agreement and integrated into MISO. He also said he began thinking more about stepping down because of the company’s strong financial foundation after several lean years.

Also, Entergy Arkansas’ decision to buy the 2,000-megawatt, natural gas-fired Union Power Station in El Dorado for $948 million, and the utility’s diversified portfolio mix of fossil fuels, natural gas, nuclear and renewable energy sources leave the company in a good position going forward, he said.

“Those are all important things and there are other things that I would like to be a part of, but somewhere along the way in the last year or so, I realized I can’t hang around for everything,” McDonald explained. “As much as I’d like to be involved – the next wave of technology is going to be exciting for the company and customers – but I have to let go – it’s time to move on. It has been 16 years in this role, and that’s a pretty long time.”

Before he hands off the baton to Riley in mid-2016, McDonald said he hopes to complete the acquisition of the Union Station power plant. He also hopes to steer the company through its upcoming general rate case before the PSC, where the Arkansas utility hopes to recoup $167 million in new revenue for upgrades to the state’s power grid and the purchase of the South Arkansas power plant.

“I didn’t think it was fair to say to Rick, ‘hey this is your responsibility, I’m out of here,’” McDonald said. “Those are critical things that I need to focus on.”

McDonald added that the “planned” year-long transition will allow Riley to meet all of the company’s employees while he has the time before taking over the role as CEO. “He’s getting to know the employees, and the employees are getting to know him,” McDonald said. “Rick is an excellent leader who has a great team behind him, and he’s going to be great, and he is going to bring a new perspective to the company, and that’s a plus.”

Looking ahead, McDonald said he is looking forward to his retirement so he
can spend more time with Michelle and “unplug.” What does he plan to do the first day he is no longer Entergy CEO? “I’m going to get a good night’s sleep,” he said jokingly. The next thing he plans to do: “The next ice storm I am going to call Entergy.”

McDonald said he and Michelle plan to stay in Arkansas, where both are involved in community and nonprofit activities. He said they also plan to travel and spend time with their adult children, two who live in California and one in Austin, Texas.

“I’ve lived in Little Rock longer than any place I lived in my life. We like it here and there’s no reason to pick up stakes and move at this stage of our lives. And there are plenty of ‘honey do’ lists that I have neglected over the years.”