John Rice

John G. Rice GE Power Systems, the world's leading provider of high technology power generation equipment and services, recently completed the most successful year in its 110-year history, logging an estimated $20 billion in revenue for 2001. Despite the slowing US power generation market, GE sees strong growth ahead in such segments of the industry as services, oil and gas and energy management, along with increased power generation opportunities in Europe and Asia.

World Generation recently posed the following series of questions to John G. Rice, the President and CEO of GE Power Systems:

World-Gen: Has GE updated its forecasts in new capacity for the US, Europe and Asia for the period extending to 2005? In general, how do you view the global power generation market?

John G. Rice: The bulk of the growth will be outside of the US For a few years, the US market will not need the kind of power generation capacity increases that we have seen since 1998. Clearly there will be a period where the US will go back to more normal levels, and we will see more relative growth in Europe and Asia. We are not surprised by this; in fact, we have expected it.

There are segments of Europe - Spain and Italy, for example - that offer some strong opportunities over the next few years. In Asia, there will be some growth opportunities in the short-term while in the longer-term (beyond 2005), China will be a very interesting market.

Latin America is certainly an area of opportunity. The individual economies tend to be cyclical, but over the longer term, it is a very attractive market for us.

We believe that simply looking at new capacity forecasts, however, no longer is the most meaningful way to measure our overall growth potential. Going back 5-7 years, our traditional, dominant market was power generation. Growth in that market was easily expressed in terms of unit shipments or total gigawatts. With the diversity of our business today, however, there is a lot more to our business equation than just power generation. Globally, we see significant growth opportunities in energy management, oil and gas, and through new acquisitions.

For example, our energy management activities started out a few years ago as a $200 million business, may be half a billion this year, and could double over the next couple of years. We see the energy management business, in the next two years, becoming 30% the size that our entire Power Systems business was, just 5-6 years ago.

World-Gen: Can you discuss the investments you plan for new technology, and for other aspects of your business, such as Six Sigma?

John G. Rice: We are reinvesting in our business at levels that were unimaginable just a couple of years ago, levels that are three, four or five times higher than 1993 or 1994. In 2001, we reinvested over $2 billion in our business, divided into three buckets: new technology, plant equipment and new acquisitions. We expect to reinvest that level or higher in 2002.

In our Energy Services business alone, in 2002 we will spend almost as much on new product introductions, technology and investing in the future as the entire Power Systems business spent in 1998.

We will continue to invest significant funds and energy into our Six Sigma program, which lies squarely at the heart of all our customer relationships. Over 700 full-time professionals work on Six Sigma activities, including 15,000 actual projects. Our operating teams across the US and Europe delivered power generation equipment at record levels in 2001, using Six Sigma tools and processes to meet commitments and achieve cycle time reductions of up to 45%.

World-Gen: Will you be continuing GE's integrated market approach of adding value along the whole chain by merging companies into Power Systems?

John G. Rice: We see acquisitions as a critical element of our growth plan. We have to find ways to deliver more value to our customers, and some of that we will do by improving ourselves and our core capabilities. Some of it we will achieve by going out and acquiring great technology companies and leadership teams that will further strengthen and expand our portfolio of products and services.

In 2001, we concluded acquisition and investment agreements to add more than 20 businesses to the Power Systems family that will generate almost $0.8 billion in revenue next year. Each business brought excellent technology, great people and solid growth prospects to our existing oil and gas, energy management and power generation activities. Two examples include A-C Compressor, which added to our downstream equipment capability in the oil and gas business; and Conmec, which strengthened our ability to service other OEM turbomachinery.

Already in 2002, we have announced the intent to acquire PII Group Ltd., a global leader in oil and gas pipeline inspections; and the completion of our purchase of Bently Nevada, a leader in machinery monitoring and diagnostics.

World-Gen: Are you planning to expand the Greenville facility or the manufacturing facilities in France and Germany?

John G. Rice: There probably will be some areas where we will add capability because we have a particular need, but I don't foresee any major plant expansions or the purchase of significant new manufacturing facilities. With our earlier expansions in Greenville, and our acquisitions of additional manufacturing facilities in Europe, we believe that we have already added the capacity we need to serve today's global market.

World-Gen: What do you see on the horizon? Does distributed generation hold promise for GE? How about fuel cells?

John G. Rice: We see them as opportunities for the longer term. Distributed generation definitely holds promise. We're enthusiastic about fuel cells, and we like the idea of a hybrid fuel cell concept. But it will take a while for these products and technologies to develop.

World-Gen: Could you provide us with Energy Services achievements to date?

John G. Rice: Our portfolio of Energy Service businesses continues to expand significantly, with revenue growing by $800 million to $5.7 billion in 2001. Commitments for multi-year service agreements grew to more than $25 billion, positioning the company for double-digit growth into the future. Around the world, GE now has contractual service agreements at 384 customer sites in 40 countries, including 66 contracts to operate and maintain customers' facilities. We also closed more than $730 million in orders for upgrade packages to enhance the performance of operating turbines. These programs improve efficiency, increase output and lower emissions, helping customers be more competitive in their markets.

World-Gen: How critical is e-business to the continuing success of GE Power Systems?

John G. Rice: We think we can add more value to our customers in today's fast-moving energy industry by applying e-business across all of our business processes, including research, products and services and project management. Among the key e-business applications launched for our customers are the Outage Optimizer, an on-line tool which enables owners of GE turbines to improve their planning for outages and uprates; and GEPartsEdge, which provides customers with a single portal for buying and selling power generation equipment parts.

World-Gen: How would you summarize GE's continuing strategy for the global energy industry?

John G. Rice: Our strategy to remain a vital part of the energy industry's next century rests on four key pillars. First, we will continue to invest in technology and be ready for the next wave, because those companies with the superior technologies will be best suited to ride it out. Second, innovation is a must. We must keep looking not just for ways to improve what we have, but also to add the capabilities that will make our customers' lives a little easier and better. Third, whenever possible we will build on our experience and successes.

Finally, we will keep investing in our people, encouraging them to stay focused on delivering benefits for both customers and shareholders. In addition, we are very proud of the fact that our people embrace the idea of giving something back to their communities where they live, volunteering their time and talents to help support local activities and organizations. That has never been more important than it is today.