Road to success paved with sound business principles


"The more things change, the more they are the same."
Alphonse Karr 1808-1890

Distinguished Alumni
a continuing series

by Ann Haver-Allen

Peter Cartwright '52, chairman, chief executive officer, and president of Calpine Corp., has seen many changes since his graduation from Princeton 50 years ago. Changes like the reduced time it takes to travel from one point to another, the changes in seismic exploration of the Earth's ocean floors, and the changes in how the energy industry operates.

Peter Cartwright '52, is chairman, chief executive officer, and president of Calpine Corp., which he founded in 1984.

But amid all the changes, many things have remained the same: The world still has an insatiable appetite for oil and gas, sound business practices still make for a sound business, and the value of an engineering education from Princeton is still priceless.

Mr. Cartwright visited Princeton recently to share his entrepreneurial story with today's engineering students (see related story, page 6). He took time from his busy schedule to talk with EQuad News about some of the changes he has witnessed.

At Princeton, Mr. Cartwright studied in the civil engineering department and majored in geological engineering. The Beartooth Research Camp in Red Lodge, Mont., was a cornerstone experience for the young engineer interested in oil and gas exploration.

"It was a great adventure," he recalled of his two summers spent at Red Lodge. "People weren't easily traveling across the United States. I took a train overnight to Chicago, and it was two and a half days that that train traveled to get out to Red Lodge."

He said the experience was invaluable because it was his first exposure to the geology of the western United States.

"It was an opportunity to do geological work in a very, very remote area," he said, adding that although today Red Lodge is not as remote or as difficult to reach, the geological experience is surely still a tremendous benefit to students. "You know the world has not changed that much as far as the oil and gas industry," he said. "It's becoming crucially important to the United States to develop indigenous sources of gas. We are counting on this. Business is counting on a plentiful supply of natural gas from North America for a long time."

The methods used in exploring for that gas supply have changed over the course of 50 years.

Mr. Cartwright said explorers used to get a two-dimensional view of the ocean floors, but now seismic technology is capable of producing realistic three-dimensional images.

"You can pick up structures that you never would have found before, and this has opened tremendous new opportunities in old fields," Mr. Cartwright said.

Directional drilling is another technology that has aided exploration efforts. Advances in directional drilling means that a well cap can be sited miles away from homes or business. The well cap no longer needs to be located directly atop the energy source.

"We can tap something a couple of miles away," Mr. Cartwright said. "We can drill down and bring the drill exactly where we want it over long distances."

One of the biggest changes Mr. Cartwright has witnessed has been the deregulation of the power industry.

"The power industry was never competitive," he said. "Each utility was given a territory and allowed to operate within that territory. With guaranteed returns for their investors, their main challenge was keeping the utility commission happy."

That changed with the deregulation of the utility industry. The change began in 1978, when the Public Utility Regulatory Policies Act made it possible for nonutility generators to enter the wholesale power market.

The industry is currently in the midst of a transition from a vertically integrated and regulated monopoly to an entity in a competitive market where retail customers choose the suppliers of their electricity. After spending almost 19 years with General Electric, Mr. Cartwright founded Calpine Corp. in 1984 to participate in the emerging independent power industry.

"I started this company when I was 54 years old," he said. "I had no backing at all. Two other people joined me, and within a couple of months, two others joined. We never, never once, worried about the fact that 90 percent of new businesses fail. It just never occurred to us."

Today, Calpine is the leading independent producer of power in the United States. The company produces more green power than any other company in the nation, and future plans call for developing and building modern gas-fired plants that are environmentally friendly and more efficient than older coal-fired plants.

"Now this is a competitive business," Mr. Cartwright said. "We have to be the lowest cost producer and do a better job than anybody else, or we will get run over. But it makes it exciting."

Peter and June Cartwright during their recent visit to Princeton.

The fallout from the nuclear blast Enron made during the fourth quarter of 2001 provided a bit more excitement than necessary for many independent energy businesses. Fears of radiation spread throughout the industry, and Calpine Corp. was among those not outfitted for a Level-A emergency response situation.

Calpine's stock took a beating before beginning to show signs of recovery with the beginning of the New Year. The company's stock fell from a high of $58 to a low of $10 per share in December. Now trading at $14, hopes are that the worst is over.

"We are proud that Calpine achieved a growth rate of 63 percent even as our nation and industry faced difficult economic conditions," Mr. Cartwright said. "While 2002 will be a challenging year for the entire power industry, we believe the underlying, long-term growth in electricity demand, the historic swiftness with which power demand recovers in the wake of a recession, and the recent decisions by many of our competitors to curtail new plant construction will all work to Calpine's favor. We have a competitive advantage in our people, our strategies, and our market position designed to enable us to deliver solid performance to our shareholders."

Mr. Cartwright said Calpine has a different management model. He actively encourages an entrepreneurial spirit.

"One of the major challenges of building a company is maintaining the entrepreneurial spirit as the company grows," he said. "At Calpine, we treat people like responsible adults rather than telling them exactly what to do. We set broad principles at the corporate level. Things like safety. We will not compromise safety in order to get more kilowatt hours. And we are not going to compromise on environmental standards. We want to be a good member of the community. But the specific day-to-day operations, we entrust that to the individuals at the site. We don't tell them how to operate their equipment. That's up to them."

Mr. Cartwright said his Princeton education set very high standards that have served him well.

"Although I have a degree in geological engineering, I have never practiced geological engineering," said Mr. Cartwright, who is a licensed professional engineer in New York and California. "But my engineering education gave me the background for what I do. The whole Princeton experience was invaluable to me in many, many ways.

"The specifics of the courses are less important than the overall experience of being at Princeton and getting to know people-the professors and the students. To succeed, you need the principles more than you need the specifics."