Mergers have been very good for upper-tier executives
Neal St. Anthony, Columnist
Minneapolis Star Tribune
Thursday, June 30, 2005

Wayne Brunetti, who announced Wednesday that he's retiring Friday, was a by-the-numbers CEO who arrived in town via a 2000 merger between his Colorado utility and the former Northern States Power Co.

He posted some interesting numbers in proving that the sure-bet beneficiaries of most big mergers are the top executives who put them together.

The week Brunetti took over as CEO in August 2000, the stock in the merged Xcel Energy was trading around $28 per share.

On Wednesday, the day Brunetti, 62, announced his departure as CEO, Xcel closed at $19.41 per share.

Brunetti bagged millions in compensation during the past five years, including $5.1 million alone in cash and stock in 2004.

That's capitalism. At least at the top of the heap.

By its own report, Xcel's total return to shareholders, including reinvested dividends, underperformed its electrical industry peers by 29 percent. (For the numbers folks out there, that's the composite total return posted by the EEI Electrics Index of 64 utility firms during the five-year period that ended in 2004.)

And Xcel remains on some Wall Street lists as takeover bait. In interviews, Brunetti has argued that he navigated Xcel through the perilous waters of industry deregulation and returned it to the safe harbor of regulated, plain-vanilla seller of electricity and gas. Critics would say he zigzagged onto shoals that badly damaged the ship.

At one point in 2002, the then-embattled Brunetti was under fire from the Minnesota attorney general for his handling of an unregulated subsidiary and mounting service snafus -- and was being criticized by Jim Howard, the millionaire CEO of Xcel whom Brunetti succeeded.

Brunetti designed three deals that led him from a merged, Colorado-based utility to the top job at Xcel in 2000. He arrived in Minneapolis to run one of the 10 biggest retail power companies in the land. It also boasted unregulated operations that ranged from cable TV to a big wholesale power producer called NRG.

Founded in 1989, NRG went public in 2000 and its stock went to the moon amid burgeoning power demand and spot shortages. NRG borrowed heavily, at the urging of Wall Street bankers, who saw no end to power prices and the value of generating capacity.

Then came the 2001-02 recession, plummeting power prices, a plunge in NRG's stock price, a credibility crisis amid the Enron Corp. scandal and the clamor of angry regulators and creditors. NRG found it couldn't pay its bills and interest expense as electricity-generation revenue declined.

Ironically, Xcel had remained the majority owner of NRG; it couldn't sell more than a minority stake under the accounting rules that governed its 2000 merger.

In early 2002, Brunetti and his board made a play to avoid an NRG bankruptcy by buying back the minority stake for several hundred million, infusing equity into NRG and canning its longtime management team. Brunetti said he had no choice.

Howard, the godfather of NRG, which was created under his watch at NSP, said NRG should be let go.

Brunetti's bet was that Xcel's deep pockets could help NRG weather the crisis until the power market rebounded. NRG eventually went bankrupt and its parents had to pony up $750 million to satisfy creditor claims. A consortium of bondholders ended up with NRG, now based in New Jersey. Xcel had to eat a 13-year investment that totaled north of $2.5 billion.

So much for experiments in deregulation.

Brunetti declared in 2002 that the regulated past would be Xcel's future.

"A lot of stuff happened on his watch, and he presided over one of the biggest writeoffs in the history of the electric utility industry," said Mark Sadeghian, a utility analyst at Morningstar in Chicago. "A lot of executives in the electric industry were burned. To be fair to the guy, I think they're committed to the back-to-basics movements, they are restoring goodwill again with regulators in Minnesota and Colorado -- the big states where they had problems -- and things are beginning to turn around.

"His personal legacy? It's hard to say," Sadeghian said. "He's a detailed, numbers kind of guy. And he presided over a bad period. He and his board made the decisions they did."

And the numbers are what they are.

Neal St. Anthony can be reached at 612-673-7144 or nstanthony@startribune.com.

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