Exelon CEO Advocates Death of ‘Deregulation’ Catchphrase

CHICAGO – Though many executives today focus on what they’ve done right, John Rowe, CEO of Chicago-based Exelon, recently painted himself to area executives as the kind of cheerleader who apologizes when he’s wrong and actually admits to having a disjointed business model.
Before 500 or so suits at the Executives’ Club of Chicago breakfast on Thursday, Rowe reminisced back to 1998 when he first took the helm. He said: “Times weren’t good. We had disgraceful performance in the nuclear fleet industry. Our distribution service was slipping to the same degree. It was also bad to be at odds with the local government entities.”

In 1999, Rowe says he wasn’t proud to show Mayor Daley that the city was right about Exelon’s poor state of affairs. That was the same year Chicagoans experienced a string of blackouts from utility company ComEd, a unit of Exelon. Unicom of Chicago united with PECO Energy of Philadelphia to form Exelon in October 2000.

Rowe attributes the blackouts to an inflated devotion to time and resources that poured into the company’s nuclear plants, poor management and an antiquated culture. He added: “We used to think it was enough if we tried. We didn’t think we had to finish the job.”

I told Ken that he’s a dragon and I’m a mortal. Mortals die when they mate with dragons.
– Exelon CEO John Rowe on the past discussion of a potential joint partnership with Enron Chairman Ken Lay
Today, Rowe says he’s lucky that Illinois gave Exelon a chance and he’s proud to be the only remaining electric company headquartered in Illinois. Exelon is the third-largest company in Chicago in terms of market capitalization (trailing Boeing and Bank One).

Along with securing 5.1 million customers, enjoying revenues of about $15 billion and as one of the nation’s top five utility companies, Rowe says his immediate point of pride is having the highest net income in 2002 of any electric utility in the country. He noted: “It’s not written that we shall do that every year or even again.”

In terms of the industry today, Rowe was quick to stick a finger in the cliché notion of deregulation. Rather, he says something else is afoot.

“You will never, ever hear me call it deregulation. I have stamped that word totally out of my mind,” Rowe said. “What is going on in Illinois is something loose and amorphous that folks like to call restructuring. I want to blow away the idea that it’s deregulation.”

In 1997, the act that introduced competition in Illinois did in fact provide for the deregulation of certain components of Exelon’s power generation and marketing business, Rowe offered. It also required Exelon to slash its prices to residential customers by 20 percent. He added: “If anyone thinks that sounds like deregulation, I would be surprised.”

That same year, the company was required to permit its competitors access to Exelon’s customers over Exelon’s wires. Rowe continued: “Again, that’s something important but it’s not deregulation.”

Rather than centering on the notion of deregulation (which especially happens in the telecommunications industry), Rowe focused on the view that the industry is restructuring from a state of disrepair. He blamed three key reasons for today’s environment, the first of which is the late 2000 and early 2001 energy crisis in California.

Rowe pointed to the shuffling of the utility business following the fall of energy company Enron as his second reason. He jested: “No one in my business ever had anything good to say about them.” He also commented on a past meeting with Enron Chairman Ken Lay concerning a potential joint partnership. Rowe said: “I told Ken that he’s a dragon and I’m a mortal. Mortals die when they mate with dragons.”

Finally, Rowe commented on the “great wholesale trading scandals” that gave way to wash transactions and inflated management egos. Still, even though he says the nation is plagued with lots of ideas rather than finite and durable business consensus, Rowe pointed to Illinois and Pennsylvania as two states that have the utility industry in harmony.

Now with plenty of excess energy capacity, Rowe says the Illinois legislature – which isn’t nearly as “elegant” as California, he says – is remarkably practical. One of the tangible results to consumers, he says, is that Chicagoans now pay lower rates than they did in 1990. Since 1999’s service meltdown, Rowe says Exelon has reduced outages by two-thirds.

Now with 2,300 employees in the city of Chicago and even more in the suburbs, Rowe says Exelon is one of the area’s largest employers. He says the company occupies some 750,000 square feet of office space, pays $180 million or so in annual taxes and has donated about $25 million to charities over the last few years.

Though Rowe admits that his “crystal ball isn’t much better than yours,” his take on the current next-generation energy debate is that natural gas will only serve as a bridge to the future. A new and currently undefined passive technology, Rowe says, will then take over.

When asked about what’s in the pipeline for Exelon on the acquisition front, Rowe responded by saying he’ll try to buy the right assets at the right time. Despite strong sales, he admits that Exelon hasn’t bought any better than its rivals.

“We don’t have a strong track record of knowing when to buy low and sell high,” Rowe said. “If we can make the right acquisition, we will give this area the best power company in the U.S. But if we make a wrong one, we will do ourselves very great harm.”