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May 27, 2013

Iberdrola to invest $3B in Maine over 7 years

PHOTo / Tim greenway Iberdrola Chairman Ignacio Galan talks about long-term investments in Maine during an interview.

A brand-new 345,000-volt autotransformer hummed in the background at Central Maine Power Co.'s unveiling of its new Lewiston substation. The 764,000-pound transformer is the centerpiece of a 57-acre facility that supplies power to CMP customers in central and western Maine, and one of four new bulk power facilities being built as part of the $1.4 billion Maine Power Reliability Program to upgrade the state's power transmission system.

It also marks the halfway point in the project's timeline. To acknowledge the milestone, a group of CMP officials, political dignitaries and construction executives was joined by Iberdrola Chairman Ignacio Galan, who flew in from the parent company's headquarters in Spain to attend the unveiling. Two hours later, at Iberdrola USA's headquarters in New Gloucester, Mainebiz interviewed Galan about the five-year project and how it fits into the company's international strategy. The following is a video and edited transcript of that conversation:

Mainebiz: What's the significance of the $1.4 billion investment you're making here in Maine?

Ignacio Galan: The first thing that it's done is to improve the service in the state — it's improving the capacity of this state to interconnect with other states and it's facilitating the reliability of the electrical system in this state.

The result is not only long-term for the benefit of Maine citizens, but also in the short-term for those people who were employed in its construction. Altogether it created wealth in the state equal to 5% of the growth in the state's GDP.

I was saying to [Maine's] governor, "If I'm able to make in my country employment that generates more than 5% of GDP, probably I will have more than a [town] square in my name, or more honors than being nominated 'business leader of the year.' I'll be nominated to be the duke, or count, or lord, or whatever." [Laughing]

MB: What do you see as the return on that investment for Iberdrola?

IG: The benefit for our customers in terms of service is immediate; in terms of wealth created, it's long term.

It's a large investment, which doesn't require any public funds — it's absolutely profit-funded. The benefits in the short term are for the state and for the citizens, for the contractors and for all those people who are already employed. And our return is across the next 30 years. It's a real return, with a regulated rate that the citizens will pay in a small amount, because that's going to be paid over 30 years or 40 years, over the long term.

MB: I'm aware that Iberdrola is focusing on its strategic areas. Can you explain what that means?

IG: We still have a presence in 40 countries. But we would like to focus all our efforts in mainly five countries: Britain, the United States, Mexico, Brazil and Spain.

Mostly our efforts will be concentrated in these five countries because these are ones in which we already have much bigger critical mass for business. These are places where we have more expectations of growth, which is the case here in the United States. We are already present in 21 states — in wind, in gas, in transmission and distribution, which is the case in Maine and in New York.

Our main business is transmission, distribution and power generation. We've been trying to focus on our core business. So that's why in places where we have no transmission, distribution and power generation, we are leaving.

MB: Could you comment on the initiatives that CMP and Iberdrola might be making to help address the high cost of heating with oil, beyond its investment in thermal storage heating units and in Maine Natural Gas, your affiliate?

IG: Service includes the best price for value. So to give the best things for Maine consumers, we are continually trying to do that. For instance, in our expansion of renewable power generation, we made the choice to move into wind. Why wind instead of solar? It's because wind is much more efficient in terms of cost.

MB: If I understand your point, a long-term understanding of return on investment is a core value of Iberdrola?

IG: Right. We never invest for the short term. We are not financial investors who are only here for a year or two looking to make a short-term return. That is not our way of doing business.

MB: Is the investment in CMP delivering on the goals that Iberdrola had when you purchased the company?

IG: Well, I think if this company was not doing well, our level of investment would be decreasing. But our level of investment in CMP is increasing and expanding. It is because we are really satisfied with how things are going on. This substation [in Lewiston] and this big project we are involved in is today's example.

The [total] investment made here in Maine in the last few years is $1.5 billion. So if we divide that by the number of customers, that size is huge! 600,000 customers. So $1.5 billion for 600,000 customers: That's a huge investment per capita. Huge!

MB: Are there continued investments that will need to be made to preserve your investment and to ensure that CMP continues to be ahead of the curve, rather than behind?

IG: Well, I think that Sara [Burns, CMP's CEO and president] and Bob [Kump, president of Iberdrola USA] are now presenting their case for investments over the next few years. As far as I know, together with the plans we have for New York, I think from now until 2020 we are in the size of $9 billion more to invest. That's for the whole business in the Northeast. So for Maine, that would be about one third of that number.

MB: Are there worries that keep you awake as you manage a worldwide company?

IG: In our business, what our shareholders are expecting is stability and predictability and a reasonable return. So, what we are expecting: No surprises. No surprises in terms of the predictable returns, in terms of predictable process, in terms of predictable frameworks. No changing the rules in the middle of the game.

We are a regulated business. We know the returns are not extremely exciting, but it's secure. And the other side of the equation, it's important for us to do our work in such a way that our customers are satisfied that we can properly manage the networks to provide predictable service and to have no accidents.

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