Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership, and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's Exchanges & Clearing houses around the world. And now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
In over 380 episodes, we've worked hard to bring our audience a spectrum of stories spanning all across ICE's businesses and touching on disparate topics, from sports to elections that could impact them. And along this journey, we've brought our audience deep inside the unique ways that people have risen to the top of their companies, fields, or governments. That's why it wasn't that strange that when we were preparing for this episode that according to our research, we were about to have only the second Wisconsin-born CEO on the show during our five-year history.
Our regular listeners should be able to guess who the first was. I'll wait for it. Of course, it was Jeff Sprecher, founder, chair and CEO of Intercontinental Exchange, NYSE ticker symbol ICE. It isn't to say we've ignored the Badger State, we've had several of the 33 Wisconsin headquartered companies listed on the NYSE on the show, including Fiserv with my friend, and its CEO, Frank Bisignano, and Schneider Trucking with its CEO, and Green Bay Packers Director, Mark Rourke. Our guest today, Gale Klappa, chairman of WEC Energy, allows us to add another Badger State guest and company to both of those tallies, our conversation with Gale Klappa on the evolution of WEC Energy, the state of the energy transition in the Midwest, and how we went from the radio waves to leading one of the largest utilities in the country. That's all coming up right after this.
Speaker 3:
Connecting the opportunity is just part of the hustle.
Speaker 4:
Opportunity is using data to create a competitive advantage.
Speaker 5:
It's raising capital to help companies change the world.
Speaker 6:
It's making complicated financial concepts seem simple.
Speaker 7:
Opportunity is making the dream of home-ownership a reality.
Speaker 8:
Writing new rules and redefining the game.
Speaker 9:
And driving the world forward to a greener energy future.
Speaker 10:
Opportunity is setting a goal-
Speaker 11:
And charging a course to get there.
Speaker 3:
Sometimes the only thing standing between you and opportunity is someone who can make the connection.
Speaker 12:
At ICE, we connect people to opportunity.
Josh King:
Our guest today, Gale Klappa, is the executive chairman of WEC Energy Group, that's NYSE ticker symbol WEC. He was previously chairman and CEO of Wisconsin Energy and We Energies before serving two stints as CEO of the merged utilities company following the joining of those companies with Integrys Energy Group. Prior to joining WEC, Klappa held executive positions roles at Southern Company, that's NYSE ticker symbol SO. And in addition, Klappa owns a minority interest in the NBA's Milwaukee Bucks who we hosted here at the NYSE after they won the Larry O'Brien Trophy, which included a sit down right here with the Bucks now former principal owner, Marc Lasry. Welcome, Gale, Inside the ICE House. It's great to have a new representative of Buck ownership in the house.
Gale Klappa:
Delighted to be with you.
Josh King:
I'm not going to start by asking you how long Giannis is going to stay with the Bucks, but how long is Giannis going to stay with the Bucks?
Gale Klappa:
Giannis is under contract for at least two more seasons. And knowing a little bit about Giannis, he's not an LA guy, he's not sparkle, he's not glitz. He's all about winning. He's all about family. And I suspect there'll be a long storied history still to come in Milwaukee for Giannis.
Josh King:
We're going to talk a lot more about the Bucks in the second half of the show, but onto other Wisconsin matters. Jeff Sprecher talked in our episode 14 about the impact Wisconsin had on him, particularly his grandfather in Empire Falls. How did growing up, Gale, in Wisconsin Rapids and graduating from Assumption High and later Madison shape you as a leader and help you in your current role?
Gale Klappa:
Goodness. When I was growing up in Wisconsin, Wisconsin was one of the most important manufacturing states in the US, still is. In terms of its history, in terms of the companies that we serve with energy, it still is one of the leading manufacturing states in the US. I think growing up, a couple of things, not only just seeing companies survive and thrive and grow in a business environment that was very supportive. I think that had an impact on me. But believe it or not, the Green Bay Packers had an impact on me.
Back in the day, Vince Lombardi turned the Green Bay Packers around, turned them into world champions, and the state was just incredibly excited about what Vince Lombardi had accomplished, what the Packers had accomplished. And there were a couple of things that always stuck with me about Vince Lombardi's management style and his philosophy. And one was, back in the day, he had the smallest playbook of any head coach in the NFL, but it was all about focus and concentration, execution and excellence. And those factors I think have played a huge role in how I try to help guide our company and our industry today.
Josh King:
Did dad, mom ever get you to Lambeau when Vince was on the sideline?
Gale Klappa:
Actually, no. But I did have an opportunity to... Early in my college days, I worked my way through college as a newscaster. I did have an opportunity to actually go to Lambeau to be in the media room to interview a number of the coaches and players. For a teenage guy working his way through college, that was an exciting, exciting time.
Josh King:
I saw an episode of Peyton's Places with Peyton Manning a couple of years ago when he actually explored through Vince's man cave that he would always go to with his friends and guests after a win. Have you ever been able to visit the Lombardi residence?
Gale Klappa:
I have not been able to visit the Lombardi residence, but understand the man cave is preserved and is just a great place to visit.
Josh King:
In your most recent earnings call, Gale, you talked at length about Wisconsin's economy and its outlook going back to what you just talked about, its role as a manufacturing state. This included the news that Microsoft's opening a billion dollar data center in the state and also this company putting its operations in Pleasant Prairie. Let's take a listen.
Speaker 14:
Welcome to Haribo's first-ever American factory opening this year in Pleasant Prairie, Wisconsin.
Speaker 15:
That is like Willy Wonka's factory.
Speaker 16:
It is.
Speaker 15:
That's insane.
Speaker 14:
Our exclusive behind-the-scenes tour kicked off with a sweet spread and a warm today welcome.
Speaker 15:
Hi, Goldbear.
Speaker 14:
Among the array, Haribo's Classic Goldbears, as well as Twin Snakes, Watermelon, and peach gummies.
Josh King:
Now Gale, we know about cheese and I can see how a data center with its need for dozens of terawatts a day can be a boon for a power utility. But how did gummy bears help the economy in Wisconsin and the region that you serve? Oh,
Gale Klappa:
I'm glad you asked. There's a great story behind Haribo's decision to locate in Pleasant Prairie, which is just north of the Illinois state line and tucked in the southeastern corner of the state of Wisconsin. Just as an aside, I've been involved for nearly two decades with a public private economic development partnership in Wisconsin, we call it the M7, the Milwaukee 7, stands for the seven counties of Southeastern Wisconsin, and our M7 team actually visited Haribo in Germany. Now, Haribo is a legendary company in Germany making gummy bears for distribution all over the world. But Haribo was thinking, for the first time in its more than 100 year history, of making a major investment in building a confectionary plant outside of Germany. They chose Pleasant Prairie, I think in part because we convinced them it was the best place in the United States for them to make a huge investment.
They now have, and they're up and running a 500,000 square foot plant pumping out... This year, they will try to pump out 132 million pounds of gummy bears. That's a lot of gummy bears. And just recently they announced a major expansion. They're going to double their footprint in Pleasant Prairie. They're very happy with their investment. And one of the reasons why they chose Southeastern Wisconsin, other than great utility management, I'm kidding, is the fact that Wisconsin and the upper Midwest is less prone to natural disaster events than almost any other region in the United States. We don't have hurricanes, we don't have earthquakes, we don't have major wildfires. And they were very concerned when making that type of huge investment for the first time outside of Germany, that they actually find a place that they could feel comfortable, that when they made that investment, it would stand.
Josh King:
Talking about feeling comfortable, Wisconsin and the Upper Midwest is also home to a huge German American population, as I recall from the effort that we made back in the nineties to bring President Clinton to Milwaukee to receive Dr. Helmut Kohl, the Chancellor of the German Republic.
Gale Klappa:
Yes, yes. And the next time you come, we'll take you to Maders and we'll have you some great schnitzel.
Josh King:
And I think there was also Herman's Custard or something like that. Which is a great stop.
Gale Klappa:
Yeah. Famous custard place, still operating in Milwaukee.
Josh King:
So Gale, Wisconsin also has its own version of Shark Tank. How did you get involved with Project Pitch It, and what is the state of entrepreneurship in the Badger State?
Gale Klappa:
The state of entrepreneurship in Wisconsin is growing, and part of the ethic of people wanting to turn their passion into a business, has been amplified by this show that we call Project Pitch It. Project Pitch It is essentially the Midwest nice version of Shark Tank. We don't argue about who's going to invest in what or not invest in what, but three entrepreneurs per show, they go through a bootcamp and are chosen to be on the show. And if they're on the show, they get one of three prizes. We have five of us who are panelists, who are judges, and this will be my third season coming up on Project Pitch It. It's a lot of fun. It's a great outlet and it's amazing how people present their ideas and how people come up with these tremendous ideas and turn them into businesses. So it's just been great fun to be a part of that, to be a of that effort. And Season eight is coming up.
Josh King:
Where do we find season eight if we're here on the right coast of the country?
Gale Klappa:
Season eight will be found on WISN-TV, which is the ABC affiliate in Milwaukee. It'll be on their website, but also broadcast on virtually every major television station across the state of Wisconsin.
Josh King:
Excellent, excellent. I mentioned your career in the introduction, but how does a young college graduate go from the Fast Eddie and the Joe Gale morning show to working for Alvin Vogtle, the longtime CEO of Southern Company, NYSe ticker symbol SO?
Gale Klappa:
Oh, you have done your homework. Oh my goodness. Back in the day to level set everyone, I worked my way through college as a newscaster and my first opportunity on upon graduation, I was offered the morning news anchor slot at a station in Minneapolis, and that was a top 10 market. That was a big deal to be offered the morning news anchor slot at a station in a top 10 market just coming out of college. It was basically Fast Eddie and Joe Gale in the morning. And Fast Eddie had been a nightclub comedian in Vegas, so it was quite an experience to work with Fast Eddie.
Josh King:
You were the straight man and he was-
Gale Klappa:
I was definitely the straight man.
Josh King:
Yeah.
Gale Klappa:
I was in Minneapolis for about a year, got offered to be a news director in Atlanta at a chain of stations. And this was at the dawn of FM radio. Before this particular genre of radio came into being, FM was pretty much just elevator music, but a company called General Cinema, the movie theater people.
Josh King:
GCC out of Chestnut Hill, Massachusetts.
Gale Klappa:
You nailed it. They were rethinking their business model and they were acquiring licenses for FM stations to turn them into real broadcast stations. So I was offered to be the news director at one of the stations in Atlanta that they had just purchased. And then they asked me to become, a few months, later the national news director, which was responsible basically for hiring and staffing and setting the policies for newsrooms across the stations that they were purchasing. So that was a great opportunity for me, a great experience. And believe it or not, and this falls under the category of if you want to make God laugh, tell him your plan for your life. I was literally paging through the Sunday edition of the Atlanta Journal-Constitution, and I saw, honest to goodness, this blind box ad and it said, "Fortune 500 company, Fortune 500 energy company needs spokesperson."
And I thought, "Energy and Watergate were the stories of the 1970s. They were the stories of the decade." And I thought, "It might be interesting, on a lark, I'll send in my resume." I did. I was hired. And probably one of the most fortunate things that's ever happened in my life is the then CEO Alvin Vogtle, who was a true World War II hero, his exploits basically formed the movie The Great Escape with Steve McQueen. He took me under his wing. For whatever reason, he almost treated me like a son. He really required me to learn the business. I thank goodness he saw some spark of potential in me. And I will never forget his advice to me, his training to me, and his absolute kindness to me. He did a lot of public speaking. I ended up writing his speeches. He had a photographic memory. So when he liked the speech, he never took the script. That really led to a long career in the energy and utility industry. And I hope I've made a positive difference.
Josh King:
You have. And it is so broad, Gale. How did your time at Southern, both here in the States, and I believe your first stint as a CEO at their UK subsidiary, Southwestern Electricity, teach you about business, prepare you to come back to Wisconsin to take on the mantle of Wisconsin Energy and We Energies?
Gale Klappa:
I think at one time over almost 29 years at Southern Company... I think I counted that I had 14 different positions. So one of the very good things that Southern Company has always done a really, really outstanding job with is grooming people. And if they see some potential, they give you more to do, they give you more responsibility and test you. So my last position at Southern was chief financial officer.
And that position I think really helped to broaden me. But the most broadening experience is the one you mentioned earlier, which was Southern was the first American company to buy a British utility. That was back in 1995. It was the largest acquisition Southern had ever made at that point. Southern wrote a check for a billion, we put in 800 million of debt. And we parachuted in there. And what was interesting about that was, first of all, it was highly controversial. To many Britains, selling one of their prized utilities to an American company was like selling the family jewels.
Josh King:
What city was it in the UK?
Gale Klappa:
It was the UK's second city, as they call it, Bristol.
Josh King:
Bristol.
Gale Klappa:
Which is the gateway to the west country of England. So it was highly controversial. And we took over a company that frankly had been run by the government for many years and had just been privatized by Margaret Thatcher only a few years earlier. So there was a ton of work to do to really modernize the management and to really focus on customers and customer satisfaction. And I think going into a brand new situation with an entirely different set of regulatory rules than anything different than we've ever seen in the United States, it really forced me and my management team that I was allowed to take over to Britain with me, it really forced us to completely relearn the business in a different way. I think that was the most broadening thing that I've ever had the opportunity to do. And thankfully, very successful. The last year that I was there before coming back to the US, we achieved a return on equity of 25%, and we went from worst to first in a national survey of customer satisfaction.
Josh King:
So between 2004 and the formation of WEC Energy, upon the acquisition of Integrys, you made nearly 10 billion of infrastructure investments in the company. Here at ICE, we're constantly evolving thanks to the M&A activity. Most recently, a couple of weeks ago with the closing of our $11 billion purchase of Black Knight. How did the merger complete your plan to keep your company competitive in the modern world?
Gale Klappa:
It starts with one fundamental principle, in that in our industry, in the utility industry, we are in a scale business. Scale really does matter. And when we had an opportunity at a very competitive price to put together two Midwestern utilities whose service areas really abutted one another, we had an opportunity essentially to combine the two companies and to drive to the efficient frontier.
So as an example, we have been able to basically eliminate $300 million a year of annual operating costs from the combined entity. We've done that in a number of ways, including essentially putting all of our major systems on one platform. We had two customer information systems, we had two general ledgers, we had two employee payroll systems. All of those systems have now been combined into one platform. And we've shared best practices across the seven customer-facing utilities that we have now as part of our family of companies. So driving to the efficient frontier and focusing on continuous improvement. Those things are really important along with the scale that it gives you from being a company now that's one of the largest in our industry and serves over 4.7 million customers.
Josh King:
We looked at the US census data numbers for Wisconsin from 2010 to 2020, an increase in population over the decade of 3.6% and uptick in housing units of 3.9%. And considering the utilities are prescribed by providing people services at specific addresses. Beyond acquisitions, how does a major electric and gas supplier achieve growth? Do you need to start looking beyond Wisconsin's borders?
Gale Klappa:
No, not necessarily. We can, and if there's an opportunity, we will look beyond Wisconsin's borders. But the way we will grow is really through the proper investments that drive efficiency, emission reductions and affordable, reliable, clean energy. So we have today, just to give an example, a five-year investment plan that totals $20.1 billion. And under the regulatory concepts that we work under, we're allowed to earn a return on those investments that are approved by the regulator. So $20.1 billion of new capital investments, much of that will come in essentially retiring older, less efficient power plants that are fueled by fossil fuels, replacing them with solar, with wind, with battery storage.
And we have, and we're on track to achieve one of the strongest emission reduction goals in the industry. We're planning on reducing our CO2 emissions by 80% by the end of 2030 off a 2005 baseline. So we will grow by making prudent proper investments. And just to put that all in a capsule for you, everything we look at is through the prism of what I call the ARC. Affordable, reliable, clean. That drives our decision making on investments.
Josh King:
On the topic of affordable, reliable, and clean, ARC, I listened to your appearance on Magellan's podcast and wanted to ask you about one thing in particular that you said. Let's hear that clip.
Gale Klappa:
As we look at how to plan our business and how to basically continue to, as you say, balance the needs, regulators, consumers, shareholders, really if you line them up and the objective is basically to meet the needs of all three, what you really find is those needs are not different, and we sum it all up by every decision we make now, particularly on capital allocation and capital investment. We sum it all up with basically what I call the ARC. So every capital decision we make, it has to follow the prism of the ARC, which is stands for affordable, reliable, clean.
Josh King:
So I think we all get the C on that clean. Reliable, coal and oil burn when you burn it. Affordable, the economics of new energies are still in their early-year stages. But talk about those first two things, affordability, reliability compared to some of the things that we all want to see part of the energy transition.
Gale Klappa:
That's a great question and I'll start with the affordable. Let me give you an example. When you retire a older, less efficient power plant, say, fuel today by coal, you eliminate a tremendous amount of operating costs to keep that plant maintained and alive. You eliminate fuel purchases, you don't have to truck in or by train, you don't have to bring in coal. You eliminate fuel handling, you eliminate a significant amount of operating costs. And if you replace that with wind or solar, your energy is basically free past the investment. So one of our calculations, which I think directly addresses your question is that just with that $20.1 billion capital plan that we've announced for the five-year period, starting this year. Over 20 years, we expect those investments, that 20.1 billion to actually save customers $2 billion as compared to the status quo. Doing this right and with the right mix of solar, wind, batteries, and yes, modern efficient natural gas field plants, those efforts, those investments actually drive cost savings compared to where we are today. So I think that's a good example for you of affordable.
Reliable, is why we need to continue to invest in modern efficient natural gas fired generation when the wind doesn't blow, when the sun doesn't shine, when you have a polar vortex that lasts a week. And I want to give you an example about that, batteries won't get you through that polar vortex. So we have to have the right mix as we continue to decarbonize our system. And just as an example of how important that right mix is to stay reliable, not this past winter but the winter before, a polar vortex event hit Wisconsin on Valentine's Day weekend. In the northern part of our service area, the temperature dropped to minus 42 degrees Fahrenheit. That's before the windchill. It never got above zero for an entire week. When it's that cold and that harsh and the conditions are that difficult, you simply have a core responsibility to keep the lights on, to keep heat flowing. And that's why it's so important that we focus not only on the A and the C, not only on the affordable and the clean, but couple that importantly with our core responsibility of being reliable.
Josh King:
On the C then, Gale, how will the conversion that we're all beginning to get to, the next car that I probably buy will be electric, by both businesses and people, become a boon for energy providers like WEC?
Gale Klappa:
And we're already seeing the companies that have fleets make a major transition away from gasoline-powered vans and vehicles to electric vehicles. But I'll give an example of how it will positively affect our company. If you buy one electric vehicle, that's equivalent in terms... And you just have a normal driving pattern. That's equivalent to adding one half of the energy of a new household. So two new EVs equals one new household demand, if you think about the potential here.
So for example, there're not that many electric vehicles on the road in Wisconsin today, roughly maybe 10,000, but a recent study by the State Department of Transportation in Wisconsin projects, and we'll see if we get there, but projects 300,000 EVs by the end of 2030. Even if it's half that much, we will see a significant increase in energy consumption to fuel those electric vehicles. That also means though grid hardening and grid upgrades. So if you're in a neighborhood and two or three houses get EVs, we're going to have to add a bigger transformer. We may have to rewire the subdivision. So there's a tremendous investment opportunity as America goes electric and goes cleaner with its transportation
Josh King:
For your own operations. Gale, you've committed to replacing your coal plants with natural gas, including a couple of innovative ways like this. Let's just take a quick listen.
Speaker 17:
During the early fall of 2022 WEC Energy Group, along with EPRI and industry partners, Burns & McDonell, Certarus, Cleveland-Cliffs and Wärtsilä spent two weeks running the test at a power generation plant in Michigan's upper peninsula. Using cutting-edge technology, the group mixed various blends of hydrogen and natural gas.
Speaker 18:
What we've done at the [inaudible 00:27:24] plant is blend hydrogen with natural gas fuel. We have pipeline supply for our natural gas. We have tankered, high pressure hydrogen. We blend the hydrogen in at ratios of five to 25%, and during that burn we took emissions and performance data for each test point.
Josh King:
Go all the way to the upper peninsula to do this test away from view where the polar vortex is coming down. What have the results been so far?
Gale Klappa:
Oh, just terrific. Actually, that experiment, which is the first of its kind in the United States, using a blend of natural gas and hydrogen with this particular power generation technology. It's achieved everything that we expected it to. Emissions came down. We were concerned about whether there would be any corrosive effect on the power generation equipment. There was no corrosive effect on the power generation equipment. So we hit our missions targets. The plant performed exceptionally well. It did not lose efficiency. We're very excited about these results. And frankly, one of the reasons that we wanted to be an industry leader in trying that experiment is that I think a number of us believe that hydrogen could be a very major factor down the road, in the next 15 years or so, in helping to solve the decarbonization issue that we're all facing today.
Josh King:
On the topic of solar, Gale, your 2022 annual report highlighted in agreement to make an investment in the Samson Solar Energy Center in Northeast Texas where the sun shines a lot more than it does up in Wisconsin. How does operations outside your service area play into and hedge part of your growth strategy?
Gale Klappa:
It's been an interesting part of our growth strategy. We have a segment that we call the WEC Infrastructure segment, and that's investment in the Samson Solar Energy Center near Dallas is exactly what you're talking about. It's one of the projects that we have invested in. It's working out very, very well. We have wind projects in the Dakotas, in Kansas, in Nebraska. We have this solar farm in Texas that's been doing very well.
Long story short, we know we're going to need a lot more carbon-free energy in the decades ahead. These investments not only give us US growth today, but also give us the opportunity to potentially move some of these assets into our regulated business at very competitive prices down the road. So we're building optionality for our regulated business in Wisconsin because the power markets are such where you don't necessarily have to have an asset inside of Wisconsin to serve Wisconsin customers.
It's been an interesting adjunct, if you will, to our growth story. I will say this though, we intend to cap the amount of investment in that infrastructure segment at no more than 10% of our enterprise. Frankly, our core business is going to be growing so fast that we're going to need to focus a lot of our capital allocation increasingly on our core business going forward, which is really good news.
Josh King:
I read your thoughts about Wisconsin's own sun exposure lining up so well with where peak use is in the state, but for many, the weak link of green energy is storage. You mentioned batteries earlier. Is WEC working in the battery space, and how do you see that technology developing over the long term?
Gale Klappa:
We are working in the battery space. In fact, we have a new experimental pilot project that will be starting up in just a few months. We have, through the Electric Power Research Institute, which is a nationwide organization based in California that does tremendous research work. We've combined and hooked up with the Electric Power Research Institute and we have found a battery company in Germany actually. The name of the company's called CMBlu. It's been around a long time producing batteries. And they believe at CMBlu that they have found a new green battery technology that does not use some of the rare earth minerals that are so difficult to get and found in places not friendly to the United States.
They believe they have a green energy technology storage technology that we're going to test for the first time anywhere in the United States on our grid. And we're going to do it. We've actually going to move back the test schedule so that we can test these batteries in the dead of winter in Wisconsin. And we'll see. They believe they can get 10 hours of battery storage from this technology. State-of-the-art today is roughly four hours. So if we could double, or better than double, the duration of battery storage at utility scale, it would be a very positive breakthrough. So fingers crossed, we'll be testing it this winter.
Josh King:
Fingers crossed for this winter, we've been discussing the positive impact that technology has had on the business like this test, Gale, but each smart device and plug increases a company's particular cyber risk. I talked to Tom Fanning, the now retired CEO of Southern Company about that danger on this show. Want to take a quick listen.
Tom Fanning:
Maria, it's a little bit like this in the public consciousness, I could invite you out to a beach and I'm going to show you as we stand on the beach submarine warfare, and I wave my hands out at the ocean. And in fact you can't see a thing, all you see is the ocean. And I said, "But there's ongoing lethal activity out there and the only time you ever see it manifest itself is when there's an explosion, something cataclysmic happens." That's the way cyber is. And I would argue, because in the past, before the Solarium Commission, there has been no real understanding of what acceptable behavior was. I would argue cyber warfare has been going on for years, and the bad guys have tried to do bad things to us for years that in some other contexts would be considered an act of war.
Josh King:
Tom talked to me about Southern's preparation, including his team of experts who could operate the grid without any digital assistance. How is WEC prepared for potential disruptions or attacks such as Tom's talking about?
Gale Klappa:
Yeah, it's clearly a focus for all of us that have what the federal government has deemed properly so to be critical infrastructure. So we could operate the grid without electronic support, no question about that. And I will say this, you never are comfortable, because as Tom said, the bad guys keep getting more and more clever and keep doing more and more alternative things to try to attack our systems. But I will say this, one area where I think there's been tremendous cooperation and support and learning is essentially the cooperation between the federal agencies that are responsible for overseeing cybersecurity efforts and our industry. The cooperation, the information flow, the learning, the changes that we're making to continue to protect our systems, that is one area where the federal government and the private sector have worked extremely well together.
So I'm encouraged. We actually, at our company, survived a cyber attack just about 18 months ago with very minimal disruption one would never have noted if you were a customer. And I was really pleased because we actually survived very, very well with the protections that we had in place, what could have been a pretty serious attack.
Josh King:
After the break, Gale Klappa and I are going to talk about the business of basketball and how his career has really now come full circle. That's all coming up right after this.
Speaker 20:
Their grandfather once crashed an auto show by driving through a plate glass window on purpose. Their father was the most awarded SUV ever. And their crazy uncle raced sports cars and won. And while the blood of their relatives still runs true, none of them can do what these can. Introducing the next generation of Jeep Grand Cherokee. Available in two row, three row and 4xe. The legacy lives on.
Josh King:
Welcome back. Before the break, Gale Klappa, the executive chairman of WEC Energy Group, and I were talking about his career and WEC's energy transition planning. We talked earlier, Gale, about how your career began in radio until it took this unexpected turn in the last couple of years. It took another turn back where it started. Let's just take a quick listen.
Speaker 21:
It's time to go Courtside With the Milwaukee Bucks. Here's your host, Gale Klappa.
Gale Klappa:
Hello everyone, I'm Gale Klappa and this is Courtside With the Milwaukee Bucks. You can feel it in the air. The intensity building. The Bucks with the best record in the NBA striving to lock down the number one seed in the East. And the team has loaded up for the stretch drive and beyond adding veteran talent and playoff experience to the roster. Perhaps the biggest move was signing a player who Wisconsin fans know well, a star at Marquette, he blossomed as a pro. Big body, can shoot threes, dug it on defense. Our guest tonight is newly acquired power forward, Jae Crowder.
Josh King:
A little Phil Collins musical underlay to increase the drama of that intro, Gale. According to WTMJ's archive, that was your last appearance on the show recorded back on March 20th, 2023. And this episode is going to come out a day before your season opener for 2023-2024. Are you going to be making another return to the airwaves?
Gale Klappa:
Yes, we've just worked all the details out and I'm very excited about it. It's been a great outlet for me. Just a lot of fun to be involved with the Bucks, to follow the season as closely as we can follow it with a weekly show, and to have access to virtually anyone on the team. This coming year, our new head coach, Adrian Griffin will be doing 10 of the shows with me. And then we'll have the president of the Bucks, we'll have the GM of the Bucks, we'll have Brook Lopez, we'll have Khris Middleton, we'll have a number of the stars on the show. And it's just been a terrific fun outlet for me to do. And I think the Bucks have been very positive about letting me do it.
Josh King:
When you introduce your player and he comes on the air and calls you Mr. Gale and you can command the coach to come on and you can ask the players to come on, it is somewhat different from what we are seeing in the sports journalism business broadly, players really wanting to own their own identity, their own communication, their own channels and platforms in which they talk with their fans. How do we balance the broad level access that fans want to have, the way a team wants to deliver its message, and the way players themselves want to own their likeness and their fandom?
Gale Klappa:
And perhaps Milwaukee is unique in this respect. The fans in Milwaukee have just been so supportive of the team. When you talk to the players, they just love playing in Milwaukee. They love the fan support, they love the fact that we have the most modern arena in the country. And many of the players, even though a few of them have their own podcasts, are more than willing to spend a half hour with me during the season just because they're so grateful to the fans, and they're happy to talk locally to the fans in Milwaukee as well. Although this podcast now will go worldwide.
Josh King:
We're used to talking to people who wear a couple hats on sports teams. Jerry Jones was a guest, serving both as owner and general manager of the Dallas Cowboys, in addition to his ownership interest in Comstock Resources. That's NYSE ticker symbol CRK, in the natural gas space. You find yourself serving not only as a reporter on the team, but as an owner of it. We read through that you went through this interview process with our past podcast guest Marc Lasry. What was the vetting process like?
Gale Klappa:
Actually, the vetting was with the president of the Bucks, Peter Feigin. Marc was very aware of it. And there is a story behind it. The Bucks were about to hire a new coach, Mike Budenholzer five years ago, and I happened to be sitting in Peter Feigin's office. We were visiting on a number of things and Peter was talking about the coach's new contract and what elements should we put in there? He was thinking out and I said, "Why don't we put a coach's show in there?" And he said, "Yeah, let's do have him do a weekly coaches show. Great idea." So he puts it in the contract. A week later, Peter called and said, "Who are we going to have do the show?" And I said, "I'll do it." And Peter laughed and he said, "Seriously?" And I said, "No, I would love the opportunity to do that." And he said, "I know you're a minority owner, but I just can't. You're going to have to audition." So I said, "Fine." So I auditioned and apparently Peter liked it. Fast-forward, this will be season number six.
Josh King:
We had Matt Ishbia, CEO of United Wholesale Mortgages, that's NYSE ticker symbol UWM, on the podcast a couple years back before he became the principal owner of the Phoenix Suns, so we couldn't ask him this, but what type of questions exactly get posed in an owner interview that you won't become another Dan Snyder, for example?
Gale Klappa:
Oh my goodness. I can only speak from my experience. When I was invited to become a minority owner of the Bucks, I actually had an hour-long sit down with Wes Edens, who is the governor of the Bucks now, and one of the majority owners, and Marc Lasry. Marc and Wes came to visit me in person. We talked about Milwaukee, we talked about the Bucks, we talked about how the team might move to improve. We talked about building a new arena. They asked for my ideas on how to get things done in Wisconsin in the right way. I think they were really testing to see what your business philosophy was like and what commitments you were willing to make in terms of helping the Bucks move forward. We don't get involved on the ownership side, as you know. We do not get involved in player decisions. As much as I might like to make some suggestions, we don't get involved in player decisions.
But it's been a very interesting ride. We have monthly owner's calls, so we're very up to speed on the financials, on the direction of the Bucks, on some of the marketing opportunities. And I will say one thing, the vetting. Once you're invited by the current ownership group to join that group, the vetting by the NBA is incredibly extensive. It's almost a full FBI investigation. It takes at least six to eight weeks for the league to clear you for ownership. So it's very extensive and very carefully done.
Josh King:
Have you ever said anything on the air that got yourself into hot water, either with your fellow owners or the NBA or a player on the team? Or have you used anything from an interview, for instance, that you've brought into Wes or Mark's office to say, "Hey, this would make for a better environment in the locker room or the fan experience at Fiserv Forum?
Gale Klappa:
No, but Marc Lasry almost got me in trouble. At the end of one of the seasons. A couple of years ago, I interviewed Marc as we were going into the playoffs, as the Bucks were going into the playoffs, and we taped it live. I was asking Marc to explain the luxury tax in the NBA, which is incredibly expensive. So he's walking through the impact of a luxury tax and it's a ton of money. A ton of money that an NBA team has to play if their player salaries are over the league cap. As he was explaining this, I said, "Wow, Mark, where I grew up, that's a boatload of money." And he said, "Where I grew up, that's a shitload of money." And then he says, "I mean a shitload of money, can we say shit on the radio?" We can't. It's one of those words that the FCC has still banned.
Josh King:
As we all know from George Carlin.
Gale Klappa:
Exactly. That turned into a bit of a controversy. We had to go through the censorship of the station, et cetera, et cetera, but it was really fun. At the end of the day, we had one other tape that went to the league office. Marc had been fined a few weeks before that for some remark he made that the league office took his player tampering. And it was really very innocent, but he was fined. And I assumed that since he had been fined just recently for that, that he would know where the bright white lines were. And it turned out he did, but he got close to the line and I got a call the next day from the Buck saying, "Your tape's on the way to the league office. We think it'll be okay, but heads-up."
Josh King:
Talking about words that you can't say on radio, I loved watching Winning Time on HBO, which sadly wrapped after its second season, but it gave great insight into the pressures faced by owners like Jerry Buss, general managers like Red Auerbach. What front Office legends do you hold as role models, as you think about your role with the Bucks?
Gale Klappa:
Actually, and I really mean this sincerely, I have watched our young general manager with the Bucks, his name is Jon Horst. Jon came up through the ranks with the Bucks through the front office. He was assistant GM for a while. When Wes Edens decided as governor of the team to name Jon Horst the new general manager, Jon was the youngest GM in the league. And I will tell you, the way he approaches his preparation, his insight, his incredible instinct for player development, I think Jon Horst is just... Even though he's very young, I think he's an absolute role model in the NBA today. But then when you look back, obviously from the standpoint of player development, you have the legend in San Antonio who's the... Coach Pop, who's just incredible. And then back in the day, you've mentioned Red Auerbach, but there's a legend that will be a long, long time in the annals of the NBA.
Josh King:
I was just with some Spurs executives last week talking about Popovich and the way he loves to travel and visit restaurants and enjoy fine wine. What's his favorite place to go to in Milwaukee? Or what would you recommend that he see this season when the Spurs visit?
Gale Klappa:
Two places, there's an incredible steak place with great wine called Carnevor. And if he happens to be in a mood for seafood one night, there's a place called Lake Park Bistro that I think he would really enjoy. And both have excellent fine wines, which I know Coach Pop enjoys even more.
Josh King:
At the timing of this recording, the Buck's odds to win the O'Brien Trophy, make them maybe the third favorite behind the defending champion Nuggets and my hometown Celtics. Does that seem about right to you? What's your outlook for the season?
Gale Klappa:
So I would say, and I would quote what General manager Jon Horst says, because I think he's got an insight here that is absolutely worth repeating, and that is, to win a championship, three things have to happen. You have to be good, and I think we're good. You have to be healthy, and you have to have a little luck. To me, the chances of the Bucks coming back home with a trophy all come down to can the team and the players stay healthy?
Josh King:
The Buck's success this year hinges in some way, and the guy that we talked about at the very beginning of our conversation, Giannis, who visited the NYSE last year to launch the Calamos Antetokounmpo Global Sustainable Equities ETF, I want to listen to him talk a little bit about that on the NYSE Floor Talk show with my colleague Judy Shaw.
Judy Shaw:
All right, Giannis, what are you most excited about with SROI?
Giannis:
Everything.
Judy Shaw:
Everything.
Giannis:
To be able to learn, to be around great people that I'm able to share this journey with, be able to spend this day today here in the New York Stock Exchange.
Judy Shaw:
Yes, here on the trading floor.
Giannis:
Yeah, be on the trading floor, seeing the banner coming down, which that's once in a lifetime opportunity. I'm beyond blessed. And just being able to be with the team and create a fund that is outperforming S&P 500 from the time that this was launched, that's incredible to me.
Josh King:
When Marc was on the podcast with us, Gale, he talked about the important role he felt owners and management had to work with players on their personal finances. Given where he comes from, have you and Giannis ever talked about sustainable finance and those opportunities?
Gale Klappa:
Giannis and I have not talked personally about sustainable finance, but I can tell you that with Mark's leadership and with Wes' leadership, a number of us in Milwaukee have been invited to sit down with players and talk with them about potential investments that they might make in Wisconsin and Milwaukee. And in particular, I've been fortunate enough to give some advice to Khris Middleton, who now is a gentleman farmer. He's actually invested in farmland in the Middle Western part of the United States.
Josh King:
But also you have this great opportunity as a teacher to talk about not only how you are going to provide and are providing energy to Wisconsin and Midwestern states, but the tremendous challenges of electrifying Africa.
Gale Klappa:
Yeah, no question about that. And all of these players across the NBA really want to use their platform for good. And to give you an example, Jrue Holiday, he has started his own foundation, but his foundation is giving grants businesses, startup minority businesses to help them succeed. So there's a ton of ways that these players are really trying to make a difference, not only on the court, but for the betterment of society.
Josh King:
As we wrap up, Gale, building a contending NBA team takes years. Wyc Grousbeck told us all about that when he appeared with us at the Whiskey Wednesday on Wall Street with Wapner Show that we do here at the 1792 Restaurant. If you're lucky, it takes 10 years, he'd said. But fan temperament is so much shorter. What can general managers across all sports learn from CEOs like you who face a quarterly earnings call every three months, but also have to manage long-term investments and commitments like retiring the Oak Creek plant 7 and 8?
Gale Klappa:
I think it boils down to two things, at least in my opinion. And the first is you can't be overly swayed by the short term. You have to build the competitive enterprise for the long term. And that's really what the Bucks are trying to do. That's what we're trying to do. We've been in business for over 125 years and there's still room to grow. So I think two concepts. One, don't be overly swayed by the short term, build for the long term to stay competitive and to continue to grow. And then secondly, the way you continue to grow is to get a little bit better every day. I saw a fascinating statistic the other day, and this was around the time of the US Open here in New York. What that statistic showed was that if you are a pro tennis player and you're a middle of the pack pro tennis player, you win 48 to 50% of your points during matches. If you're the world's best tennis player, you win 54.9% of your points during matches. Think about that small difference.
Josh King:
Such a small margin.
Gale Klappa:
Such a small margin. The difference between greatness and just good is a small margin, but it's also the mindset of getting better every day, improving every day, being honest with yourself, driving forward, and always knowing that you can get better.
Josh King:
A little bit better every day. Gale, if we had you back on the show five years down the road, where do you think WEC is going to be in terms of making the most progress toward carbon-neutral? And what work do you think still needs to be done?
Gale Klappa:
We will be, I believe, on the cusp five years from now of achieving our 80% reduction in CO2 emissions while maintaining that ARC, affordable, reliable, and clean. And we will have, I think, an incredible track record of... And I'm very proud of the Microsoft investment and this billion dollar, a minimum investment that they're going to make, and not just building one data center, but a data center complex. Their reliability requirements are beyond anything we've ever seen. So I would hope five years from now, I could sit across the table from you and say, "We have done an incredible job of keeping Microsoft reliable and chunking the data out that they need to basically provide for their customers."
Josh King:
Affordable, reliable, clean. Thanks so much, Gale, for joining us inside-
Gale Klappa:
Thank you. Thank you for having me. It's been great fun.
Josh King:
That's our conversation for this week. Our guest was Gale Klappa, the executive chairman of WEC Energy Group, that's NYSE ticker symbol, WEC. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show or hear from a guest like Gale Klappa, email us at [email protected], or tweet at us @ICEHousePodcast. Our show is produced by Pete Ash with production assistance, editing and engineering from Ken Abel and Ian Wolf. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next one.
Speaker 1:
Information contained in this podcast was obtained in part from publicly-available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes offered to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.
