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The Man Who Would Be King

Exelon Chairman, President, and CEO John W. Rowe, on the proposed merger that would create the largest utility in the United States.

Fortnightly Magazine - May 2005

deal that will give you that scale which the cost synergies will pay for? We have found such a transaction.

Fortnightly: In corporate America today, some media companies have actually been scaling down and spinning off unprofitable subsidiaries from their extensive acquisition sprees during the late 1990s. How will you avoid the inefficiencies that can come from being a larger company?

J.W.R: Well, scale brings efficiencies and inefficiencies. I am quite confident that in the electricity industry there is vastly more efficiency to be had. For one thing, when you consider the cost of things like new generating plants, particularly in a market-based regime, there are only a few companies big enough to have the equity to be able to afford to build the new generation plant. That's just one example.

Fortnightly: But five years from now, will we be having a discussion about how Wall Street thinks you have too many disparate type of companies under one holding company umbrella, and how the answer is a spinoff of the regulated or unregulated businesses?

J.W.R: Well, I think that is always possible, [but] that is certainly not our strategy. The key thing is that we learned the lessons that everybody else did in the late 1990s, and the first couple years of this decade, which is that utilities are not organizations that are very good at going into dramatically different businesses. We have spent the last three years shrinking down to our core businesses, which are generation, energy marketing, transmission, and delivery. So I don't think we are guilty of "conglomerate fever."

At the present time, the balance of risks that comes from having both a regulated, relatively predictable delivery business and a more commodity-cycle generation business is a good mix.

But the gods are always bigger than I am. If the world should evolve in the most market-based regions in a way that encourages a split between the regulated and unregulated businesses, obviously you are better off to be large enough so that the resulting companies are big enough to have some meaning. We don't think that's the direction things are going to go. We think the whole California experience militates very strongly against that sort of breakup between the two businesses. But it is always plan B, I guess. Plan A is very clear-to try to get as much value as we can out of having companies of both kinds in the corporate family, but to be very careful that we obey the [federal] and state rules in terms as to how those operations work together.

Fortnightly: How do you propose to allay regulators' concerns that Exelon will not become too big to regulate?

J.W.R: Well we work very hard in Illinois and Pennsylvania to be responsive to the state regulators. You don't hear us say, "You can't have that kind of information," or, "We don't have to follow public policy." We worked very hard in Pennsylvania when they adopted their alternative energy portfolio standard to help with that. We worked on similar things in Illinois. I think it is