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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

to treat that as junk.

I think … the single most important thing to the future of nuclear energy [is] more nuclear plant; [the industry] needs them for base-load power. It needs them to avoid excess dependence on natural gas. It needs them to deal with climate change. But I could not commit myself to a new fleet of nuclear plant until first, the need for base-load power is more established; and second, until I'm sure there is going to be a publicly acceptable solution to the spent fuel problem. I'm not going to go out and tell my customers we are building a lot of plants and we don't know where this stuff is going to go.

Fortnightly: What is your view of stock buybacks? Some have said this is typically done when an industry has no investment or growth ideas. Is there a dearth of growth ideas in the industry? Are mergers the only growth strategy available?

J.W.R: I think returning capital to your shareholders should always be one of your options. I think it is very clear that this is a low-growth industry. In a low-growth industry, merger or consolidation is almost always the most obvious way to grow. But also you have to be very careful in how you do it. Our investors are very clear that they will only support merger and acquisition activity if it is accretive on a basis such that cost synergies [savings] pay the merger premium.

We were able to negotiate the PSEG transaction on terms of that nature, thanks in significant part to the mutual advantage that the two companies get from improved nuclear operation. But you can't go about doing acquisitions in some sort of willy-nilly way. For us, the PSEG merger is the best way we have to continue to provide earnings growth over the next four or five years, like we have been able to do over the past four or five years. This is basically a cost and consolidation play. It's a conservative play. It requires keen attention to your cost synergies. It requires working those regulatory and public policy issues so that people know you will do your best to meet the need of each state. It requires a high commitment to maintaining regulatory and governmental respect and trust.

We in Illinois have spent $3 billion improving the T&D [transmission and distribution] system since 2001. That is a best investment in our customers and public trust. We do similar things in Pennsylvania. It is very important that one remembers this is a low-growth industry and there is nothing wrong with returning capital to our shareholders. Now, we did some major stock buybacks at the time of the PECO-Com Ed merger. Over the last year, we did some very minor stock buyback. But we have increased our dividend from something like $0.845 to $1.60 over the last several years.

Thanks to President Bush's fairer treatment of the dividend and the majority in Congress that passed it, you now have a tax treatment of dividend that makes traditional utility