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what i'd like to share with you to start this seminar off are seven lessons that have helped me to make a difference in my career in my in my world and as kumar had identified the first lesson starts right where you are today on the uc davis campus many years ago during my undergraduate education the professor that i want to speak about was a gentleman by the name of landon hefner and the courts that he was teaching was in applied behavioral science and that course was apropos for the fact that professor heffner was not only a capable and well-qualified educator but he did have what i'd consider a unique superpower he could teach cats to behave as if they were dogs or at least one cat one sunday he invited the class over to his house for an informal workshop and we got to meet his family both the human members of his family and the four-legged ones he had three dogs all hunting dogs as i recall and one cat the cat's name was fido the cat had grown up from being a small kitten with the with the three dogs and for all intents and purposes believed that it was a dog he responded to commands with the same level of enthusiastic desire to please his owner as any dog he would race to landon's feet at the beckoning of a whistle he would extend his paw when told to shake he would fetch sticks he would do everything that a dog would do he had the dog thing down cold now i've never experienced a cat before or after that time who is a either able of being trained to overcome millennia of instinct or that more importantly was willing to give up their well-deserved reputation for headstrong independence landon saw that i was beyond intrigued at this display of cross species intellectual fluidity and he shared something that has stuck with me over the years he said fido is the result of a life based on a story that he has in his mind implanted from a very early age he saw dogs slightly older than himself from an early age all around him and he took their actions their behaviors and their stories to be his simply said though it is clear that fido is different from most cats whose stories are driven by genetics and instinct rather than observation and self-direction fido created his own story for his future and has been living it that was that was an interesting observation that professor hefner made but i was curious and i said okay landon what what's the lesson in fido's story for all of us you're there's there's a story here for us humans what is what is your story on that and he said well we humans are also the product of the stories that we consciously tell ourselves about how our lives are destined to unfold i for example from a very young age he told me told myself stories about how i would become a professor what my teaching style would be like even how i would grow a beard to appear smarter and more worthy of being listened to than i was and here i am today at uc davis as a professor and he continued most people tell stories of what they've done look back and say here's a story of what i've done of what i've accomplished of what i've learned and where they've been and experiences that they've had and he said that's all well and good but the people who tend to make more of a difference in this world tell stories of things that haven't happened yet they tell stories of what they would do under given future circumstances and what they intend to do and what they intend to be in the future those stories don't need to be shared with anyone else or they could be shouted from the rooftop it doesn't matter what matters is as long as you tell the story to yourself and align the direction of your life with the direction of a consciously crafted storyline this was obviously quite interesting to me and i said so if a cat can take on the persona of a dog by having a dog based story of its future what does that mean about our individual potential to direct our future success and accomplishments at least as each of us may define success and he said what i found is this if we consciously create believable stories about how our lives how our careers and achievements will play out and what we will do and how we will act in future scenarios it's a powerful way to shape maybe not the specifics but the general direction and the trajectory of our lives we may not be cats aspiring to be dogs but if we have the objective of making a difference in this world a good set of stories aligned with your aspirational goals is a great place to start and yeah i for one took that lesson to heart and began concocting detailed realistic stories of the person and hopefully the leader that i aspired to be the accomplishments i hoped to achieve and the positive impacts i wanted to leave as a legacy i quietly unobtrusively told myself these stories pretty much every day of my life since i was at landon hefner's house for the past four decades of my life and while i'm not a cat i've not morphed into a dog those stories in their small but meaningful way i believe have helped me become someone who has at minimum strived to make a difference so as a tribute to landon hefner who is now gone from the scene my first lesson to share with you is that if a cat can become a dog by telling itself a consistent story about what its future will look like each of us can take a meaningful tangible step toward making our positive mark on society by building a repertoire of stories not about what we've done but about what we will do in using our education our experiences and our careers to try to effectuate transformational change around us so moving on to my second lesson it starts a few years later when i was a gung-ho enthusiastic financial analyst at southern california edison i loved working at that company did everything possible to go above and beyond every assignment that i was given not for self-promotion purposes necessarily but because i had found my calling in the power and utilities sector what others saw as a dull and regulated industry i looked at as one of the most impactful and important and certainly the most capital intensive industry in the world and i saw the future or at least my own personal future i joined southern california edison in late 1978 the same year that a piece of landmark federal legislation that kumar referenced was enacted purpa or the public utilities regulatory practices act of 1978 established the requirement that regulated electric utilities were required to purchase power from independently owned electric generators that met certain characteristics for environmental performance and efficiency such as renewable power producers and co-generation plants up until that time in the 90 years of relevant history of the electric utility industry in north america to that point the integrated electric utilities had built owned and operated fundamentally every megawatt of generation that they sold to customers now they were being told by this new federal legislation that they would not only be simply motivated to but required to buy power from third parties at a price equal to what it would have cost the utilities themselves to produce this was called at the time the avoided cost standard meanwhile down on walnut grove avenue in rosemead california this was creating quite a stir at edison headquarters at the time edison's ceo was a dynamic engineer and a true leader in every sense of the term by the name of bill gould he lived by a code that became the utility's mantra during his time in office and that code was directly handed down to his young acolytes who were rising through the company's ranks i recall with great clarity sitting down in his corner office on the fourth floor with a small group of other fresh recruits and being impressed with the following dictum that he shared with us and it was solidified into my mind at that point in time he said our jobs mine and yours depends on serving our customers the ratepayers of southern california edison first and foremost in every action that we take in every decision that we make the ratepayers interests are the first and foremost consideration if we act and decide with the customers interest placed first at the top of our priorities we hope and expect that our regulators will over time take note and reward us accordingly but regardless of how our shareholders fare regardless of how our regulators choose to reward us or not we will consistently act in accord with our customers best interests in all matters great or small end quote it was in this context of the macro events occurring in the industry and the company's own progressive policies and practices that certainly were well ahead of its time from the perspective of what one would now call esg principles that edison picked me up by the scruff of my young neck and assigned me to be the principal financial negotiator for all new third-party purpose contracts these guys who are now pounding on our doors for a chance to participate in serving long-term power to edison at avoided cost prices now we would get all these folks coming in they would get some sophisticated wall streeters coming to little old rose mead california to pitch large-scale capital projects for their clients and then we'd get some pendleton shirt wearing savants working out of their garages hoping that their technology ideas combined with a contract from the utility would lead to the next big thing and for many in retrospect it actually did lead to that next big thing however within months of signing most of these projects up with long-term avoided cost purpose contracts a problem became evident many of the developers were floundering and most of them were not making the needed progress in initiating the construction of their projects those around me in the company generally chalked this up for a good reason to the contention that purpa may have been you know a little bit aspirational of a piece of legislation may have been destined to fail a lot of these developers really didn't have all of the tools necessary to make things happen but the one thing that i noticed from the onset was that the vast majority of these supplicants for a contract lacked power industry experience and expertise how could they have those skill sets at the at that moment in the industry's history if the only way to gain that experience and expertise was to be inside the utility because those are the only folks who had experience building and operating large-scale power plants were utilities how could you get that experience if you weren't in the utility and the purple law was designed only to apply to those outside of the utility industry who wanted to participate in the generation business this was a true dilemma because edison wanted to encourage this new type of generation and would sign contracts at very high full avoided cost which it felt should economically motivate these new projects to be constructed but the outside parties at the time failed not because of lack of economic motivation but because they lacked many of the skill sets necessary to fully execute on the contracts they had signed so i came up with an idea we were all operating in uncharted territory and we inside southern california edison i recognized had the missing tools that these nascent project developers needed and lacked we had the in house permitting teams that could help with site permitting issues we had the transmission organization which could help with interconnection into the company's grid we had the regulatory interfaces that could support filing of the necessary documentation to gain public utility commission approval of the individual projects we had the procurement department with the economy of scale contracts with key component vendors that could facilitate the developers acquisition of key equipment and assets and that list of capabilities that we had as a utility that the developers in large part needed went on and on the idea that i hatched in full concert with bill gould's mantra of putting the ratepayers needs first and acting in their best interest was as follows if the developer wanted a full avoided cost contract come on in we'll sign you up you were welcome to it that was the law of the land however if you wanted any or all of the utilities support what we as southern california edison could do to help these developers with the holes in their skill set that were lacking on the developer side and if they affirmatively acquire requested that help we as the utility would provide that support if we had the available resources we would charge them nothing up front for those services but we would take the fully loaded internal cost of everything we did to support those developers at the developers request and bhest and we'd multiply that cost by four and reduce the long-term levelized price that we paid to them under the purple contract by an amount equal to our cost times four the immediate response from the company's decision makers was we've never done anything like that before the verdict handed down on the idea was bill gould was of course we haven't done it before these are new times new purple rules and we owe it to our customers and to the legislation to see if it works and for an extended time it did work as intended it jump started a number of projects providing developers with voluntary customer support that only the utility could effectively provide at the same time as we facilitated these new projects in support of the then aspirational purpo law we were able to generate significant 4x long-term savings for the company's ratepayers by deploying the company's resources in a manner that provided a quadrupling of that cost of the cost of those resources deployed back to the ratepayers themselves in the form of long-term savings so my second lesson for your consideration here with appropriate tribute going to bill gould in his aspirational leadership at the southern california edison of the past is to not only embrace the changes that you see around you but to consciously work in order to positively shape that change your impact on the world will be far greater by doing one thing differently and better than anyone else has ever done in the past then if you do a hundred things well that others have previously mastered moving forward in time and in lessons my third lesson from my next career move comes from the planning and power supply organization at portland general electric in oregon while the move was tour utilities in many regards structurally similar to where i came from at southern california edison portland general at the time was a much less customer focused not as highly forward-looking company back in the day than what could be otherwise characterized as a company and a utility in survival mode load growth at portland general at the time was flat to declining and the company had at that time in the decade of the 1980s committed to the construction of several nuclear plants including one of the ill-fated washington public power supply system units otherwise called one of the whoops units that were terminated the utility had the highest rates in the northwest region at the time an inability to raise rates beyond where they were while having hundreds of millions many hundreds of millions of dollars of capital deployment on the terminated nuclear plants that the oregon puc would not allow to be charged back to customers and if that wasn't enough the company had an excess supply of operational generation capacity because of its flattened load growth whose ongoing fixed cost added to the already excessive rate burden in other words the utility was at the time a little bit of a broken toy my first job at portland general was to plan so to plan my ass my boss asked me to build a model it was an integrated model covering all aspects of the company's operations and finances and we called it the agile model from the vantage point of uh the view of the company provided by this model which was integrated and holistic it became clear that perpetuating the status quo without material changes in how the company did business would lead to many years of highly sub-optimal performance along many mission-critical financial rate and operational metrics in other words the house of pain was not going to be exited for a period of time if the company continu d to do what it had been doing having control of the agile model i tested literally well over a thousand different future scenarios to try to analyze a solution set and trying to find approaches to get the company in a better position than it was there were several dozen options that were modeled that would help improve the situation at least incrementally and then there was one blockbuster option that emerged and that option was to aggressively market the existing 400 to 450 megawatts of surplus generation that was in excess of the company's retail customer needs over over an extended period of time and to market that surplus over the company's 800 megawatt owned share of the pacific intertie high voltage transmission systems to california who at the time were facing shortfalls and a need for cost-effective resources to supplement what was then their oil and gas-fired dominated generation portfolios utilities from arizona and new mexico were already gaining windfall values for their customers and shareholders by selling their surplus to california utilities in need of new power supplies so why couldn't portland general do the same thing particularly since it owned a direct interconnection the intertie into the california market i believe i mentioned earlier that portland general was at that moment in its organizational history not quite as culturally shall we say open and progressive as the environment that i had previously found at southern cal edison when i first proposed the idea to the firm's executives i got a barely dismissive pat on the head with the response don't you think we would have done that already if it were possible not that the firm knew whether it was possible or not the senior most executives had been told by their staff that the california utilities weren't interested in buying their power and that was that there never was an attempt to even try to engage the market and dispose of the surplus power in the form of either asset sales or long-term power sales to any utility in california the deeper i dug the clearer it became that no was the only answer i was going to receive partly because that was the ingrained mindset of those in charge of that part of the company at the time and partly because if i were to be proven right it would potentially make some people appear that they weren't doing their jobs well that was that was a tricky and um difficult issue to navigate so my choice was either to back down or to do so much research and so much analysis to prove the high potential for lucrative sales to california that i wouldn't be able to be ignored by the powers that were at the time in the era before mighty powerpoint i pulled together research paper after research paper on the state of the california power market the directives of california regulators and most importantly what i did is i built personal relationships with utility executives regulators and market participants throughout the state of california and had actionable data on the interest of each investor-owned utility and each public power utility in the entire state in potential transactions that could be needle moving for portland general interestingly one of those contracts contacts who became a close friend of mine was an individual well known to ben and uh perhaps a number of others of you gary simon who lives in davis today and is chairman of sacramento clean start back in the 80s however he was an electric system analyst at the california energy commission where he provided me with great insights as to california's policy imperatives and how to navigate the organizations at some of the key utilities inside of the state convinced by this deeper dive research that an aggressive focus program of selling generation assets and lucrative long-term power contracts could not could not only be meaningful in altering the course of portland general in a positive way but was actually achievable and this initiative not only became my self-assigned priority it had truly become my calling i was focused and relentless in my mission spewing forth the detailed research reports to the executives of the company on an almost weekly basis my activities to convince the company to take these actions had as of this point been ongoing for exactly 14 months and i recognized that i was either beginning to qualify for the classic definition of insanity doing the same thing over and over again and expecting a different result or i was you know going to be successful or i would be politely asked to leave the company i prepared myself psychically for either one of those outcomes fortunately the outcome that i received finally was the former and not the latter that prevailed as a result of what i would like to believe in retrospect was my compelling and persuasive logic but uh acknowledge was likely an attempt to minimize the annoyance factor that i presented the ceo anointed me to lead the effort to market our surplus power and address the company's financial concerns through asset and long-term power sales to the southern facing markets at that point in time i felt okay it was put up or shut up time within six months of getting the tap on the shoulder to pursue this dream i had closed a highly profitable 75 megawatt asset sale transaction with san diego gas and electric the reduction in surplus generation led to a long-term rate reduction for customers while this shareholder gain on this transaction resulted in the company's singularly most profitable year in the attend in the utilities then century long history with that year's realized after-tax profits on this single transaction amounting to well over 100 million dollars this single transaction was proof of concept enough that i was promoted to a role overseeing the power supply organization i uh expanded our power marketing initiatives and in the ensuing two and a half years following the san diego gas and electric deal closed an additional close to 300 megawatts of long-term asset and system power sales to the likes of southern california edison western area power administration city of glendale and the california department of water resources mission accomplished at that point we had constructively and profitably chewed through the company's entire long-term surplus position excess capital that was in the company's rate base was eliminated reducing rates to a more competitive level relative to the region the company's finances were in much better condition and the legacy and overhang of terminated nuclear plants had now been largely addressed so my third lesson is that while there are many battles and challenges that as a prudent and thoughtful member of an organization you should avoid whenever possible there are certain seminal transformational fights that are not only much very much worth fighting but which when one can positively create life-altering changes both for yourself and for your entire organization do your homework do your research well before you engage in any of those battles but don't shrink back from fighting those battles that are worth giving your all to in order to win so moving on the fourth lesson to share with you came during my time leading citizens power citizens power was established by joe kennedy's citizens energy corporation as the first independent power marketing company in north america after i was hired to start the firm up from scratch as its founding president we filed for and received from federal energy regulatory commission the first ever authorization as an independent power marketing entity not affiliated with a regulated jurisdictional electric utility as a for-profit enterprise owned by the non-profit citizens energy in our formative years we applied all of our after-tax profits to low-income energy assistance programs across the country and internationally while citizens power was subsequently sold at the end of my tenure there for 120 million dollars citizens energy persists under joe kennedy's leadership as a firm dedicated to allocating its energy industry profits to serve the energy needs of the less fortunate now we built a strong business at citizens power focusing on the then nascent inter-regional wholesale power market buying and selling and brokering power from utilities and industrials with a surplus and selling the power to typically distant counterparties before ferc opened wholesale markets in a transparent manner and before regional independent system operators created vibrant trading marketplaces we were buying and selling between utilities and wearing out our shoe leather and forming utilities to make the market more efficient and eking out our small margins on large volumes of power that we were able to transact and after a while of making a name for ourselves in the inter-utility power marketing and exchange business we grew a series of complementary lines of business over that time because because the inter utility power marketing business was both hard challenging and low margin and we found ourselves more in demand as markets became more transparent and transactable with with independent power producers and third-party power producers to help them market their power accord business for us therefore became working with the independent power producer sector who came to us to address to help them address their commercial operational and financial financial performance issues that they were experiencing with their power plants and power contracts we became a michael clayton-like all-purpose fixer for power supply power contracting and the financial problems associated with these non-utility-owned power stations in 1994 in walks into our boston office a group called chrysler capital that's when chrysler corporation was a thing and when that thing owned its own financing arm and that financing arm invested in the ownership of a power plant called the hartford cogeneration corporation hartford cogen was a 50 megawatt gas-fired plant just outside downtown hartford connecticut with a long-term power contract entitling it to sell power to connecticut light and power the pricing of that power contract was attractive enough well above wholesale market prices and the plant was relatively well run like all other industry power contracts of this sort the power supply to qualify for these above market contract rates had to be supplied from hartford cogen unit alone it couldn't apply power delivered from any other sources and the problem as identified by the chrysler capital folks is that between the debt service that was associated with the plant the high cost of natural gas at the time and the above expected maintenance and operating costs associated with keeping the plant healthy chrysler capital rightly projected that it would never see a dime of return on or of the equity capital that it invested into this asset so what they asked us to do is to come up with a plan to improve the plant's economic performance enough such that chrysler could realistically see a recovery of at least a modest part of the 25 million dollars that they invested in the project good enough assignment for us took it to heart and after two weeks of exhaustive analysis of every single aspects of the plants input costs their conversion efficiencies the commercial arrangements the power and fuel contracts the plant's operational costs and issues i came back to our friends at chrysler with a proposition that pretty well for them i said folks the best way to fix your problems with hartford cogen is to kill the project what i outlined to them had never been done in the power and utilities industry before so of course they were incredulous it had never been done before i was a little incredulous myself but i told them that we should rethink the value association the value associated with hartford cogen and the existing power plant tied to the existing power contracts and all the costs and legacy issues with it in our judgment could never ever generate enough cash flow no matter what was done to incrementally reduce costs and improve performance to pay off the debt and to allow for distribution of free cash flow to the equity so effectively i was telling them the status quo was not viable even with incremental operating and financial changes and chrysler's appropriate response was so you're saying we should just turn over the keys to the lender and let it be their problem we should just write off our entire invest investment i said no i said by killing the project we could deliver them all of their 25 million dollar investment back and maybe more than that if we could somehow work with the utility counterparty connecticut light and power to motivate them to allow us to deliver lower cost power from alternative market resources in other words shut down hartford cogen go to connecticut light and power before we did that and say i'll give you a discount dear connecticut light and power relative to the price you're paying for the power out of hartford cogen today if you will allow me to shut the plant down and deliver power from an alternative resource and chrysler folks looked at me and said how do you propose that we motivate connecticut light and power to allow us to do that i said simple enough money is a great motivational tool they don't really need the power delivered to them at the plant's bus and would for the right amount of discount very likely take a deal to allow us to replace the power from other wholesale market sources delivered to their transmission system if we could save them enough money in doing that relative to what they are paying you today and through this simple highly logical but at the time very powerful innovation the first comprehensive power contract restructuring in the power industry was executed by us in the mid 1990s as in any industrial transformation driven by market-based in efficiencies and the elimination of inefficiencies the status quo was no longer tenable in this case out of the ashes of the legacy relationships we accomplished a restructuring that over the course of the remaining power contract term saved connecticut light and power ratepayers 65 million dollars all of the debt underlying the hartford cogen plant was paid off in full as a result of the refinancing of this new transaction that we accomplished at citizens power and we paid chrysler capital an equity buyout check at the conclusion of the restructured contracts financing not for the 25 million they had invested and hoped to get a part of back but for 35 million dollars 10 million dollars more than they had even originally invested and well beyond any hopes they previously had for value realization and for citizens power this was the most profitable single transaction ever accomplished in the company's history netting the firm over 20 million dollars in margin since that pioneering hartford cogen transaction i had my team at citizens and the companies with whom i've worked since then have closed comprehensive ppa restructurings like hartford on 27 other inefficiently operated power projects generating a total of 3.5 billion dollars in savings for utility customers and helping to facilitate the energy transition out of high cost high polluting legacy power plants operating under historically executed contracts to newer lower cost more environmentally benign sources my fourth lesson for you thus is that when you see something that isn't working maybe you should strongly consider breaking it when we encounter a sub-optimality our personal and organizational knee-jerk reaction is to fix it that's what we're trained to do in an increasing array of cases a far better result can be achieved not by fixing the status quo but by breaking the remnants of the status quo apart into its granular building block components particularly in today's world of rapidly evolving technology options and landmark policy changes and certainly after doing a proper root cause analysis an even more attractive outcome can often be achieved by completely busting the status quo ecosystem of assets and the underlying commercial relationships and starting afresh from the raw building blocks that you have disassembled and now on to lesson number five after citizens power i joined el paso energy in houston and led their north american power generation b siness building it up from scratch it was a frothy time in the industry at an immediately after the turn of the century and houston was ground zero for the booming investment thesis surrounding construction of merchant power plants around the country plants that were being indiscriminately developed in finance to take advantage of what many perceived as a booming speculative power market environment where power hungry utilities and industries would deliver huge profits to plants that were being built without contracts without customers and with a build it and they will come business model as firms like calpine nrg reliant mirant dynagi and even pg d's unregulated national energy group deployed tens and tens of billions of dollars into investments that led each of these companies and many others down the path that culminated for each of them in bankruptcy i chose against some heavy pressure from the c-suite above me at el paso to take the road less traveled and to focus el paso's domestic power business entirely on good old-fashioned secure and credit-worthy contracted generation and this was contracted generation where we had utilities signed up under long-term contracts to buy the power that we produced and where i could deploy our new tried and trued ppa restructuring template on many of those assets in order to enhance their profitability as well as to help save utilities and their customers a lot of money and when the floor fell out of the high-flying energy marketplace a few years into the new century that more conservative well-grounded business model survived and thrived well pretty much every other unregulated part of el paso energy fell apart and incurred heavy losses by that time in mid 2002 in the post-enron meltdown era my little silo of el paso that at that point in time included about 5000 megawatts of contracted power plants was doing so well that it was the first part of the company that was sold off so that the profits from the sale could subsidize the weak blinks in the chain so my reward for having the strongest part of el paso was to lose my job um the first of uh of any of my peers but that was uh that was all well and good so the the story i want to share with you is before the downturn hit the industry in the late 90s early 2000s while i was building up our option-rich contracted generation fleet at el paso energy a competing and is a competing company down the street had an asset that i very much wanted to buy the asset that i longed to acquire and i saw a great upside value in was was a 940 megawatt gas-fired cogeneration plant in linden new jersey and that plant was uh was the beneficiary of a a wholly owned dual circuit 345 kilovolt line from that project directly into sunk into the bedrock under the arthur kill waterway and connecting the plant directly into the new york city market it was a it was a terrific asset that um that i knew that we could do a lot in terms of value accretion around that position for and the name of the company that owned the asset at the time and that i wanted to buy it from was none other than enron for almost 18 months starting in early 1999 i regularly approached enron to buy their position and finally in late 1999 um seeking to print an accounting gain they relented and said they would sell me a 50 interest and that too was for accounting purposes if they sold more than that they wouldn't be able to take the accounting gain as ordinary income but would have to categorize it as a one-time gain that wall street wouldn't take into consideration as part of their normal operating income and and they said that in concert with that accounting rule after they sold me the first 50 percent they wouldn't even be able to talk with me about selling the other half for a year post the first transaction being closed so i said fine let's let's step into and leg into this position as as appropriate and those were the rules that guided enron's behavior i was happy to be negotiating to buy half of the entity at the time we haggled over price for a couple of weeks finally agreed upon a fair evaluation for the first 50 percent and closed the deal we were pleased to have that ownership position and quickly took a very active leadership role in initiating several key value-adding activities at the plant designed to liberate some of the underlying embedded optionality that we saw in the asset we love the investment enron seemed to appreciate that they had a partner who knew how to add value and to jointly and to jointly make decisions to create a higher value enterprise so life goes on a year passes and now it's late 2000. at that point in time i approached enron enron immediately after the one year mark that they identified as being a no talk about the next 50 acquisition and we tell them we'd like to buy their remaining 50 interest and they say they're open to it and i offer them exactly what i paid the year earlier for the initial 50 interest which i felt was strong value since the high value contract with con ed in new york had one less year of contract life remaining so i figured okay i'll give them the exact same price for their 50 interest this year and they've been able to clip an additional year of value off of it it should be a win-win for everyone well it wasn't that was a no-go and this time enron had seen some of the value upsides that we had helped to materialize over the past year and they wanted a much higher price for the second 50 increment than we paid for piece number one a year earlier and negotiations were hard and protracted and occurred between myself and enron because we're only walking distance away in downtown houston on a regular basis two or three times a week for about 10 weeks we had an apparently insurmountable bid ask spread the highest i could justify paying was 20 million dollars shy of what the enron team consistently told me was the lowest value that they would accept and i believed it wasn't a bluff they acted like they were serious about holding their 50 position if i couldn't meet their price and after a few weeks of detachment from the back and forth with enron it finally hit me larry you dummy you are trying to pay enron with money enron doesn't value money they value what they can put into their accounting statements as earnings and that doesn't have to be in the form of money enron is an accounting organization i didn't know at the time that they were a complete house of cards but i knew they didn't work the same way everyone else worked they only cared about accounting income and cash be damned so my task task based on that aha moment was to create an economic instrument that enron would value at a much higher level than it would cost me at el paso energy to deliver and with that realization crafting the right instrument was actually pretty easy without getting too much into the gory details we were able to buy the second piece of of linden for zero dollars up front yes enron essentially gave me 100 financing for all of the acquisition at a painfully low effective interest rate for them and an exceptionally attractive interest rate for me i knew that enron's trade floor had the practice of using a present value methodology which increased their earnings of course in retrospect we knew exactly what enron was doing they used a discount rate and a present value methodology for discounting future receivables and that discount rate that they applied was libor plus 50 basis points or at that point in the market to translate it into real numbers they had a an effective interest rate that they applied themselves to discount future cash flows they would receive of roughly two percent in other words by paying enron's trade for a customized derivative instrument that paid out enron's asking price over ten years at a two percent effective interest rate i fully satisfied enron's need to achieve their intended accounting target i created a derivative that was an energy derivative paid out to enron over 10 years where when you discounted it at two percent interest rate it met and slightly exceeded their target value for the second fifty percent of linden and how did we at el paso fare in this transaction like bandits the 2 percent really wasn't enron's true cost of capital at the time and the effective blended cost of capital for us at el paso energy effectively was nine percent so for el paso we we financed at two percent what would have cost us nine percent in present value terms we wound up paying 10 million dollars less than the amount that i otherwise was willing to pay to enron which was 20 million less than their asking price that we split apart on because we couldn't come to terms in the end analysis both parties got what they really wanted the trade was able to take place we realized that the yardstick we were using to measure which was cash and real dollars once we realized that our yardstick was very different than the one that the other side was using we were able to bridge that gap my fifth lesson is that different people different organizations different enterprises can have very very significantly different metrics by which they measure and judge what success means and how to weigh the value that you are offering them understanding with clarity not only your own team's metrics but as or more importantly how your transactional counterparty weighs value can mean the difference between winning a competi a competitive exercise doing a deal or being and also ran so moving on to lesson six please travel with me as i jump from the sinking ship that was el paso energy to the rock of gibraltar that was and is goldman sachs i was brought on board to lead the development of an on-balance sheet part of the commodities division that would build a business up from the ground floor up that would that you wouldn't think of as being part of an investment bank the business of ownership operations and commercial management of physical power generation plants across north america one of the most significant acquisitions we made under our platform at goldman was of a large privately owned power generation company headquartered in north carolina by the name of cogentrix cogentrics was both a platform that internally performed all of the mission critical operational financial and commercial activities associated with an at-scale power generation business as well as consisting of a portfolio at the time of acquisition of 28 dominantly contracted generation plants in north america it was a terrific business with highly capable people that still exist today under different ownership of the 28 power plants within the cogentrix portfolio we had a range of constructive upside creating plans identified for the majority of them and during the term of our ownership at goldman we were actually able to execute on a very significant majority of those value-adding initiatives but one of those plans and its upside creation initiatives proved to be especially challenging but in the end particularly rewarding more so than any of the other 27 and the and that one most challenging project in the litter that we inherited was southhaven when we acquired cogentrics initially we placed an internal value marker on south haven's equity at zero it was marked at zero for a good reason the plant was in bankruptcy proceedings by way of background south haven is an 810 megawatt combined cycle gas-fired generation plant in mississippi located just south of memphis the plant was and is efficient and well operated it had at that time close to 200 million dollars of project debt associated with it and that debt was fully supported by a long-term fixed monthly fee tolling contract with the national energy group subsidiary of none other than pg de corporation in 2003 the year in which we at goldman acquired cogentrix pg d's national energy group filed for bankruptcy and in bankruptcy the pg d national energy group rejected its contract with south haven that in domino-like fashion cut off from south southhaven its contractual revenues without which south haven as a project defaulted on its debt and was therefore itself forced into bankruptcy protection so when we at goldman acquired cogentrix in december of that year we had a mess on our hands it wasn't our doing it wasn't our uh our fault we had a mess on our hands with respect to this one project out of uh the 27 although a mess that we in effect took on at zero cost we we assigned no value we put no equity valuation on southaven at the time so that mess that we inherited drew the attention of the goldman sachs legal and financial teams and not in a particularly good way everyone appropriately recognized that we by virtue of our acquisition of congentrix inherited this bankruptcy position that was in no way our fault at goldman or anything that we could quickly rectify given the tangled nature of the contractual obligations and the frustratingly slow procedural morass associated with the bankruptcy process itself the strong direction and i use that term advisedly that i was being given by the goldman legal and finance team was to turn over the keys to the lenders in other words the easiest path out was to accept the lender's demands for us to relinquish the equity turn our equity over to the project lenders for this single project so what i had on my hands was a was a unidirectional push-pull the lenders were pulling me to turn over the equity to them in return for release of all claims and obligations and people i worked with and respected within goldman were pushing me to do the exact same thing to accept the lender's proposition and walk away from the project so the easy thing to do was okay everyone wants this outcome i value this at zero i'm getting zero life is fine however i saw value i saw real value in persisting in holding on to the asset in winding our way through the bankruptcy process to gain a settlement from pg e's national energy group as it liquidated its other assets and then monetizing the south haven plant itself in other words i threw i saw a way through this mess i saw a way that with diligence work and the luxury of time which i realized i didn't necessarily have at that point in time a lot of that the lenders could be paid in full at the end of the process and that we at goldman could clear potentially as much as 100 million dollars of equity value out of this single asset position that we paid nothing for i recall during those days some friendly but edgy internal debates um that uh at the time one of our corporate attorneys at goldman a gentleman who i did and continue to have deep respect and trust for he pounded his right fist on the table in the meeting that we were having and he said the following words and quote larry believe me nothing good can come out of our continued ownership of southaven i also recall some less friendly and even edgier external debates with one of the lenders demanding rather assertively to know why i was chafing at handing the equity over to him so i replied with one word i said economics and he rudely shot back at me said spell it out for me so i did and i spelled out e c o n o m i c s i got a good chuckle out of my team over that not so much from the lender now i didn't have the ability or desire for that matter to make the decision unilaterally for goldman through persistence through a bit of stubbornness and through laying out for my bosses and the lawyers in the finance group exactly what i saw as the positive path forward exactly the steps that we could take in order to realize value and work our way through this mess without entangling ourselves deeper in a messy legal process i did receive the firm's acquiescence i wouldn't say it was uh a wild flag waving um backing but it was the acquiescence to retain the equity in south haven and work the plan that i articulated in return i agree that if i or our team saw reasons that the plan we envisioned going forward would be more challenging or more costly or more frictional to execute than we anticipated we would at that point in time throw in the towel but we never had to throw in the towel the path to success was long to start from start to finish it was a three and a half year journey the road was winding and challenging but we persisted and we continued to work our plan w ile avoiding the downsides that the firm goldman was concerned about as the bankruptcy process trudged on we marketed commercial deals to sell the tolling capacity and the energy out of the plant itself while not being as lucrative as the pg e national energy group original toll was it helped us to cover operating costs it helped us to pay off some of the debt service associated with the original project loan we persisted through the conclusion of the national energy group bankruptcy and the settlement from that bankruptcy for our plan not only met our modeled expectation but exceeded them after the culmination of the bankruptcy process we concluded by selling the plant itself to the tennessee valley authority for whom the plant to this date remains a cost-effective dependable dispatchable source of low-cost energy and when the plan was finally completed and fully executed the conclusion that all parties within goldman sachs agreed could be summed up in two words worth it the lenders were paid off 100 cents on the dollar and all accrued interest the employees not only retained their position but received at the end of the process an attractive bonus we avoided creating any legal financial or reputational downsides for the firm and finally instead of resulting in total economic proceeds to goldman as i had initially targeted aspirationally of 100 million dollars the end result of this journey brought us over three times that value that we initially targeted and please recall for that hundreds of millions of dollars of upside that we received this is for an asset that was at the time of acquisition marked at zero value lesson number six for you to be as successful in your mission as possible the organization in which you operate has to be intellectually top-notch and institutionally supportive of well-thought-through risk-taking in other words words the culture of the team that you work with and for is a key determinant in how successful you personally will be in making a difference for me my close to decade at goldman sachs allowed me the opportunity to work around some of the smartest people i have ever run across moreover they were also some of the most open-minded transparently communicative and supportive folks i've ever had the pleasure of working around i'd still be there today if it weren't for the financial crisis requiring goldman to become a bank holding company which required the divestiture of non-balanced non-financial on-balance sheet businesses like mine the lesson for you is to choose who you work for and with very carefully with culture being right at the top of the list of the boxes that you should check and that brings us to today in lesson number seven but before talking about today i'm going to reach back in time before i even started in the industry to explain what propels me forward with a smile on my face in the here and now and what is perhaps the most important lesson that i've ever learned days after i graduated from uc davis i began working as a civilian for the department of the navy in southern california the base commander an effective and inspirational leader by the name of captain paul anderson took me aside one day and shared the following insight that i hold dear to this day he said larry the secret to my personal and professional success and accomplishment is simple and consists of two rules and make no mistake there are rules and if the rules are violated you don't get the best possible outcome number one rule number one i am deeply committed to the mission we have here in the navy and that commitment to mission is my north star guiding my actions and decisions rule number two love now love isn't a word you hear around the navy an awful lot and i have genuine and heartfelt love for the people with whom i work in this command and consider them not as subordinates or peers or superiors but as family i'd literally give the shirt off my back for any team member in this command if they were in need and then this is very important larry because of rules number one and number two because i care deeply about the mission and because i love the people working side by side with me in pursuit of that mission i work harder and apply myself with more diligence than anyone else here in this man's navy well that was that was quite a lesson so go figure the most important lesson i ever learned about how to be effective and drive positive change in the industry in the energy industry i learned from a military man when i was a wet behind the years youngster looking to make his way in this world and therefore every day i look within enthusiasm that when i show up at work at i squared capital in the here and now i am fully dedicated to my mission and love the team members that are working with me and around me i am beyond thrilled to work with the atlantic power platform that we are in the process of acquiring and the team with atlantic power once we clear the hurdles and get to that final closing i am more dedicated than ever to the mission of advancing the commercial success of my organization and using it as a platform to positively transform the energy industry through smart investments that drive positive change and lead the industry toward a cleaner more progressive and socially beneficial future and i work harder than my very hard working very dedicated team members and peers and co-workers at the firm which is a hard bar to clear since i'm surrounded by brilliant highly dedicated people not because i have to work harder but because i want to so my final lesson lesson number seven is to apply the wisdom of captain anderson by being deeply committed to a transformational mission and then pairing that commitment with a love for your teammates that drives you to give without hesitation to help them succeed if you are willing to do those two things as a derivative of that as a function of those two things you'll push yourself to work harder than you ever thought possible thank you for this opportunity to share these thoughts with you and go aggies