William Cavanaugh III
1939–



Former chairman, chief executive officer, and president, Progress Energy

Nationality: American.

Born: 1939, in New Orleans, Louisiana.

Education: Tulane University, BS, 1961.

Career: U.S. Navy, 1961–1969, rose to the rank of lieutenant commander of the navy's nuclear program; Entergy Corporation, 1969–1986, several management capacities at subsidiaries, became chief operating officer (COO) and director, became group president of Energy Supply; 1986–1992, chairman, president and chief executive officer (CEO) of Entergy Operations; chairman, president, and CEO of System Energy Resources; Carolina Power & Light Company, 1992–1996, president and COO; 1996–2001, president and CEO; Progress Energy, 2000–2004, president, CEO, and chairman.

Awards: Member, National Academy of Engineering, 1993; Thad Eure Jr. Memorial Award, Greater Raleigh Convention & Visitors Bureau, 2002; Outstanding Alumnus Award, Tulane University, 2002.

■ As CEO of Carolina Power & Light Company, William Cavanaugh III forged a merger in 2000 between his company and Florida Progress Corporation to establish Progress Energy as a regional leader in the energy business. While many power and utility companies began to expand quickly after industry deregulation, Cavanaugh and Progress Energy took a more cautious approach, primarily focusing on its core businesses. Cavanaugh's conservative approach helped Progress Energy weather industry scandal, a recession, and the vagaries of deregulation that eventually plagued the more aggressive power companies. Industry analysts subsequently praised Cavanaugh's approach of keeping the company true to its utility roots while taking disciplined steps toward expansion and diversification.

FROM THE HIGH SEAS TO HIGH WIRES

A native of New Orleans, Cavanaugh received his bachelor's degree in mechanical engineering from Tulane University. He then spent the next eight years in the U.S. Navy, primarily serving in the navy's nuclear-powered submarine program. After leaving the navy in 1969 as a lieutenant commander, Cavanaugh joined the Mississippi-based Entergy Corporation, where he spent the next 23 years working in a variety of positions. At first he held management positions with the company's various subsidiaries, including Arkansas Power & Light, Louisiana Power & Light, and Mississippi Power & Light. He went on to serve as group president of Energy Supply; chairman, CEO, and president of Entergy Operations; and chairman, CEO, and president of System Energy Resources.

In 1992 Cavanaugh left Entergy and joined Carolina Power & Light (CP&L) in Raleigh, North Carolina, as president and COO. At the time, the company was a sleepy utility with one of the industry's worst run plants. Over the next eight years, Cavanaugh would guide the company toward establishing facilities that would rank among the best in the industry.

When Cavanaugh was appointed CEO of CP&L in 1996, few industry analysts paid much attention to the change in leadership. Within two and a half years, however, the company had undergone major adjustments; many insiders noted that Cavanaugh sparked more change in the company in that short amount of time than it had experienced in several decades. Cavanaugh oversaw several expansion efforts, including a $354 million acquisition of the North Carolina Gas Company, the building of a $250 million gas turbine plant in Rowan County, and the purchase of the Internet company Interpath Communications, which Cavanaugh integrated with CP&L's Caro-Net Telecommunications. Cavanaugh also made significant changes in senior management and accelerated the company's cost-cutting efforts.

WARY OF DEREGULATION

Early on in his stint at the helm of CP&L, Cavanaugh took a cautious approach to the increasing deregulation of the power industry. Between 1989 and 1994 Congress had passed laws that opened up wholesale power purchasing and energy trading, with utilities sharing their grids and buying and selling electricity from each other. As a result, many companies optimistically saw deregulation as the beginning of a new era of expansion and profits; many states geared up for a more competitive retail market. Cavanaugh and CP&L, on the other hand, remained skeptical. In an article in Business North Carolina , the State Utilities Commission Attorney Gisele Rankin told Edward Martin that when a legislative commission began to debate the best method of deregulating retail electricity in North Carolina, CP&L became "known as the just-say-no crowd" (November 2003).

While companies such as Duke Energy, Enron, and others pressed North Carolina for deregulation, Cavanaugh stood firm in his beliefs. Cavanaugh and CP&L were concerned that states with higher electricity rates, like New York, would end up draining power from low-cost states like North Carolina and force CP&L and other electric utilities to raise their prices. He also saw deregulation as removing companies' incentives to invest in power grids and new plants as they focused on becoming the lowest bidders for supplying power. In direct confrontation with Duke Energy, Cavanaugh and CP&L initiated concerted lobbying in an attempt to sway legislators and donated over $60,000 to a pair of groups aligned against deregulation, which assisted two people in attaining appointments to the 23-member commission assessing the issue. Cavanaugh told Martin, "We felt deregulation of electricity was such an important step—fiddling around with something that already worked well—that we should be careful not to put the system in jeopardy" (November 2003).

Cavanaugh rebuffed most offers at expansion and diversification. He was especially wary of Enron, which offered CP&L a 10-year contract for its industrial customers. Cavanaugh later recalled that he couldn't figure how other companies were accomplishing such a great deal of marketing and trading; that is, in spite of high volume, sources of actual profits were unclear. In opposition to these other companies' tactics, Cavanaugh focused his company on the core business of serving wholesale and retail customers. He believed that CP&L was growing and strong, and he was unwilling to go overseas or to any other place where the company would be unfamiliar with the business landscape. Many analysts saw Cavanaugh's philosophy as leaving CP&L out of the ultimately profitable bigger picture.

MAKES A MOVE

While Cavanaugh may have been cautious about deregulation, he was not going to let CP&L be left behind. In 2000 he negotiated the purchase of Florida Progress Corporation, the parent company of Florida Power. The merger of the two midsized companies would allow CP&L to compete in a rapidly consolidating electricity industry and also in a new geographic market. Cavanaugh was named chairman and CEO of the newly formed Progress Energy.

Cavanaugh credited the small financial windfall from the merger with partially offsetting a recent decrease in customer demand for electricity, which had come about as a result of moderate weather, reduced purchases by industrial consumers, and intentional temporary shutdowns at a number of nuclear plants. Taking into account the layoffs of 1,200 employees that had resulted from the merger, the company was on track to notch $100 million in savings through 2001 and an additional $75 million by 2003. Cavanaugh remained optimistic about the company's synthetic-fuel, merchant-generation, and marketing businesses, which sold electricity on the wholesale market. He told Kris Hundley of the St. Petersburg Times , "Our plans for solid earnings and dividend growth have not changed" (July 26, 2001).

GUIDES THROUGH TROUBLED TIMES

While Cavanaugh remained optimistic, he faced a struggling economy, which reduced the forecast demand for energy. After the terrorist attacks of September 11, 2001, Cavanaugh saw the future of energy further altered as the economic slowdown deepened. Cavanaugh told Martin in Business North Carolina , "We quickly saw that the business of double-digit growth was not going to be possible" (November 2003).

Although Cavanaugh stood on the sidelines during much of the initial activities of deregulation, he had made limited forays into other businesses, not all of which were successful. Expansions of gas-turbine plants in Georgia and North Carolina were halted when wholesale gas prices plummeted in 2002. The company's telecommunications subsidiaries also stumbled.

Cavanaugh proceeded to try to slim down the company by selling such noncore subsidiaries as Progress Rail Services, a rail freight-car lease and repair service. Cavanaugh then reemphasized the company's focus on earning profits through production of regulated electricity. In 2002 the company struggled with less-than-expected earnings of $529 million on gross revenue of $1.9 billion. The company's earnings per share dropped to $2.46 in 2002, compared to $2.64 in 2001. Most industry analysts noted that the company's performance may not have been stellar in 2002, but it consistently outperformed other utilities as it weathered energy-business scandals and the economic downturn.

In a presentation before the company's Annual Meeting of Shareholders in May 2003, Cavanaugh told shareholders, as reported on PR Newswire, "Progress Energy's strategy is to remain true to its utility roots while making strategic investments in related business that can generate higher growth" (May 14, 2003). By the end of the year, Cavanaugh's strategy appeared to be working. The company reported consolidated net income of $782 million, or $3.30 per share, in 2003. In addition, the company made successful efforts to sell further noncore assets—including the North Carolina Natural Gas subsidiary purchased through CP&L in 1999—which helped the company pay down its more than $11 billion of debt. These sales helped reduce the company's capital expenditures and push its leverage (the use of debt to increase returns) to below 59 percent. At the same time, the company raised its dividends for the 16th consecutive year, including the years when it was still CP&L.

MANAGEMENT STYLE: BE COMPETITIVE

Cavanaugh noted that success goes beyond capturing and holding a market share. He stressed that management must comprise good competitors if the company is to be able to pursue and capitalize on opportunities. As reported in Executive Speeches , Cavanaugh told attendees of the 23rd National Conference of the American Association of Blacks in Energy that achieving success "also means working with the best suppliers and—at the heart of the matter—attracting and retaining the best employees" (December 2000).

Industry analysts and coworkers noted that Cavanaugh was a high-caliber leader who stressed excellence and ethics. In 2002 Progress Energy was one of only three S&P 500 companies to be recognized by Standard and Poor's for providing the most complete and detailed information possible to investors. As reported by PR Newswire, Cavanaugh observed, "In this post-Enron era, it's more important than ever for corporations to be clear and up-front about their financial condition and business practices. Acting with integrity is very much the Progress Energy way" (May 14, 2003).

DECIDES TO RETIRE

Although Cavanaugh had originally planned to retire on February 1, 2004, the Enron scandal of 2002 and general turmoil in the industry led the company's board to ask him to delay his date of departure. Cavanaugh agreed but said that he would still want to retire close to the initially scheduled date if the financial situation improved. By January of 2004 Cavanaugh and the board believed that the state of the industry had calmed down considerably and that Progress Energy was on firm footing. Cavanaugh retired from his position as CEO in March 2004 and from his position as chairman the following May.

Industry analysts agreed that Cavanaugh turned over the reins of a company with a solid financial foundation. He accomplished this feat by making wise decisions that successfully led Progress Energy through a recession and through the uncertainty of deregulation. In a Progress Energy press release, J. Tylee Wilson, the presiding director, noted, "Bill made Progress Energy a great place to work for employees and an exceptional value for investors" (January 23, 2004).

Upon retirement, in addition to spending more time with his family, Cavanaugh intended to remain involved in nuclear issues for the power industry. He served on the governing board of the World Association of Nuclear Operators as well as the board of directors of Edison Electric Institute, the Nuclear Energy Institute, and the Research Triangle Foundation.

See also entry on Carolina Power & Light Company in International Directory of Company Histories .

sources for further information

Cavanaugh, William, "Competition as a Springboard for Increased Opportunity," Executive Speeches , December 2000, p. 12.

Hundley, Kris, "Progress Enjoys Healthy Growth," St. Petersburg Times , July 26, 2001, http://www.sptimes.com/News/072601/Business/Progress_enjoys_healt.shtml .

Martin, Edward, "Watts Up, Doc?" Business North Carolina , November 2003, http://www.businessnc.com/archives/2003/11/progress_energy.html .

Price, Dudley, "Progress Energy CEO to Quit in May," Knight Ridder/Tribune Business News , January 24, 2004.

"Progress Energy CEO Tells Shareholders the Company Has Demonstrated Its Fundamental Strength and Is Focused on Integrity," PR Newswire, May 14, 2003.

Progress Energy, "Progress Energy Chairman and CEO William Cavanaugh to Retire," press release, January 23, 2004, http://www.progress-energy.com/aboutus/news/article.asp?id=8182 .

—David Petechuk



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