A wave of mergers and acquisitions is moving through the industry, as utilities and financial players position for growth and strategic advantage. Will economic and regulatory forces continue...
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.
a matter of the management remembering that you are not bigger than the states that you serve and that the regulated delivery business[es] are still interests with very special public trusts.
Remember, as the world of big corporations goes, three or four states is not a lot. It would be hard to name another business that has the capital and technological responsibilities of the electric utility industry [but] that only functions in three or four states. These are big states. These are very important states. They have very parallel public policies. They are all pro-competition and they are pro-environment. It's our job to find a way to make certain that our state responsibilities implement public policy rather than fight with it. I have spent a career doing it, and it has gotten to be quite a long career now.
Fortnightly: There has been discussion that public policy more than anything else is driving the utility business model. What do you read into the public policy tea leaves as far as how a utility should be structured and what its primary mission should be?
J.W.R: Public policy on that question is split across the country. Right now there are three models for what a utility should be and what it should look like. There is the model that tends to prevail in New York, New Jersey, New England, Pennsylvania, Illinois, and Texas (perhaps Maryland, Ohio and Michigan), that says you should have a very active competitive wholesale power market. You should have very effective regional transmission organizations. You should have choice that is open to retail customers and you should have regulated safety-net service provided by the retail companies. That's one model.
You have another model that is perhaps best typified by the Southeast companies. The Southern Co., but also Progress Energy and the Florida companies, which still tend largely to be fully integrated, [with] some wholesale competition (but not as much as the Northeast), relatively little retail choice, [and] with at least a rebuttable presumption that new generation would be rate based. That also prevails to some extent in the Northwest, but that is where it is, of course, heavily influenced by public power participants. Then you have California and some other states that appear to be drifting from a competitive model back to some sort of integrated resource management model where the utility is required to make long-term commitments to buy generation from other people. I think over the next five to 10 years we are going to see some slow blending of those models, but I don't think that anyone has a clear picture what one surviving model will be.
I just think, as more and more new generation is needed, these questions of competition versus regulated procurement will be considered anew. For me, one of the cynical advantages of old age is that when people in my industry are quick to say competition didn't work and it won't build new coal or nuclear power plants, [that] gas is expensive [and] therefore we have to go back to rate base,