2009 Utility of the Year: Exelon

by Kristen Wright, associate editor

Exelon made the top five of nearly all the 2009 utility rankings, so Electric Light & Power editors knew from the beginning that it would be a strong contender for the 2009 Utility of the Year award. This year’s winner is pro-nuclear, pro-environment, pro-consumer and pro-business. We interviewed Exelon CEO John W. Rowe about his company’s success.

ELP: How important is climate change awareness to the future of Exelon and the power industry?
Climate change is not only the single greatest technological and financial challenge facing Exelon and our industry, it is one of the greatest challenges facing the nation and the world. Electricity production accounts for about 40 percent of U.S. greenhouse gas emissions, and our industry must play a leading role in charting a responsible course to a low-carbon future. Awareness of the issue and its consequences among the public, policy-makers and consumers is growing. Both presidential candidates last year discussed the need to address climate change. Most congressmen and senators with whom I speak talk about what solution is right, rather than if a solution is needed. This continued growing awareness will be critical in committing to a solution.

Exelon believes that we must have a national, economywide response, but we are not waiting to address this growing danger. Last year we introduced Exelon 2020, which is our program to essentially eliminate our entire 2001 carbon footprint—some 15 million tons annually by 2020. We will do this by greening our operations, helping our customers and the communities we serve reduce their greenhouse gas emissions and offering more low-carbon electricity in the marketplace. We have already achieved one-third of our goal—the same impact as taking more than 1 million cars off the road. Exelon 2020 is not only a very tangible program to reduce carbon, but also a tool by which we can increase awareness of the issue and how to respond most effectively. I believe it is the industry’s most comprehensive plan to address climate change.

Some energy consumers dispute global warming, citing October 2009 snowfalls as much as 4.5 inches in parts of Pennsylvania—PECO territory. How has Exelon explained to consumers the colder weather and continued need for energy conservation and lower carbon emissions?
I am not a climate scientist, but I know that there is a difference between long-term and short-term weather patterns. I believe that the climate change science is strong, as exemplified by the comprehensive work of the most widely respected scientific bodies around, such as the National Academy of Sciences and the United Nations Intergovernmental Panel on Climate Change (IPCC). The IPCC has declared that evidence for a discernable warming of the planet’s climate system is now “unequivocal” and has warned that much larger changes are coming if we don’t begin reducing global emissions of heat-trapping greenhouse gases and do it soon.

The science is real, and the impacts are real. So we simply must take action now to address this problem. The longer we wait to start, the more expensive and more difficult it will be for our economy and our citizens to deal with it.

From White House spokesmen to Rush Limbaugh, people are talking about the U.S. Chamber of Commerce. In September, Exelon, along with PG&E and PNM Resources, withdrew their memberships. Why did Exelon pull out? What was your intended effect, and will it really have an effect?
We have a fundamental disagreement with the Chamber about the urgency of addressing the climate challenge through federal legislation. Exelon has been publicly supportive of climate change legislation for years.

As part of Exelon 2020, we analyzed the cost of every method of reducing carbon emissions in the electricity industry. We believe that market-based cap-and-trade legislation is essential to ensure that we do the cheapest of those things first. We felt that it was time that our actions matched our words, and decided to stop paying dues to an organization that is opposed to us on the issue that is at the top of our priority list.

Exelon’s Conowingo hydroelectric station in northern Maryland

Some people have labeled your pull-out an anti-capitalism move. If Exelon doesn’t make money, however, you’ll be one of the first to lose your job. You’ve done a good job, evidenced by your being the longest-serving utility CEO, the company’s annual rankings and subsequent 2009 Utility of the Year selection. How will Exelon continue to make money, curb carbon dioxide emissions and keep consumers happy with low energy costs?
On climate legislation, as on other matters, we advocate a market-based approach, one where competition drives us to the lowest-cost solutions. It is hard to be more of a capitalist than that. The three goals you mention really work in tandem. The analysis behind Exelon 2020 gives us a roadmap to eliminating our carbon footprint and tells us which options cost the least. We have found that those options can also provide strong value for our shareholders. Our nuclear uprate program is an excellent example. Exelon plans to add 1,300-1,500 MW of zero-emission nuclear power through uprates over the next eight years. Not only will this build long-term value for the company, but it will displace up to 8 million metric tons of carbon emissions. Exelon 2020 indicates that these investments offer far better returns than building a new nuclear plant. Similarly, our delivery companies plan to invest $725 million in coming years to build up our smart grid infrastructure. These projects offer a regulated return on investment, but also will help consumers manage their energy costs and reduce carbon emissions.

How has the industry changed during your 26 years as a CEO?
Perhaps the greatest change has been the restructuring of electricity markets, which has made the environment much more competitive. Based on what I’ve seen, I believe this is a good thing for consumers, society and the industry. Competitive electricity markets provide important economic and environmental benefits for consumers. Competition has spurred increased investment in low-carbon energy sources, promoted customer demand response and energy efficiency, incented generators to improve operating performance and increase supply, all while shifting investment risk from consumers to investors. But my 26 years have also taught me that the regulatory framework is never static. It is always changing, and I am certain that we will see continued evolution in the coming years.

Exelon line crew

How can a utility company support cap and trade? Is Waxman-Markey the best solution?
Exelon believes that the Waxman-Markey bill that passed the House and the Kerry-Boxer bill moving in the Senate constitute a good start toward a cost-effective, efficient, market-based response to the climate change challenge. A cap-and-trade system incents companies like ours to find the lowest-cost solutions to the climate problem. Markets will reward low-cost solutions rather than higher-cost solutions and require that alternatives compete on a price basis. This idea is at the heart of our Exelon 2020 plan.

The reality is that whether we pass cap-and-trade legislation or not, the nation is already addressing climate change in one way or another. We are currently subsidizing renewables through tax credits, backstopping new nuclear plants through loan guarantees and promoting ways to build coal with carbon sequestration. In other words, we are, through ad hoc legislation and regulation, focusing on the most expensive options first. In my mind, that is bad economics and bad policy. Moreover, if Congress does not act legislatively to put a price on carbon, the Supreme Court has told the EPA that it can regulate CO2 as a pollutant. The result will be more arbitrary, more expensive and more uncertain than a reasonable, market-based legislative solution. Command and control options like this one do not impose the discipline of the marketplace on solutions. They encourage ad hoc responses to the climate issue and subsidize expensive solutions.

Exelon, based in Chicago, operates the third-largest commercial nuclear fleet in the world. What was your initial reaction to President Obama’s selecting Dr. Steven Chu as energy secretary, given Chu’s remarks on nuclear?
We welcomed Secretary Chu’s nomination. He is a very impressive scientist and made it clear that energy policy would be a high priority and tied closely to environmental policy.

On the subject of nuclear power, there is much that we agree with Secretary Chu on—the role of nuclear power as an important part of the low-carbon energy mix, the need to accelerate the loan-guarantee program for new nuclear reactors and the need for a new permanent storage option for spent nuclear fuel. We have had a good working relationship with Secretary Chu and the Department of Energy over the past year and are confident it will continue.

Exelon’s Byron Generating station in northern Illinois

What lessons did you learn from the attempt to purchase NRG? How would the addition of NRG have contributed to the Exelon portfolio, and what other options are you looking at for the future?
We believed that an Exelon-NRG combination had great potential; however, it was not critical to our success. We are currently focused on organic growth opportunities such as nuclear uprates and smart grid, as well as our recently announced transmission company. On the M&A front, we will look for any possibilities that provide value. That said, Exelon has no immediate acquisition plans at this point. Our shareholders have told us that they don’t want to see us attempt a merger unless the value is very compelling and the certainty of success is very high. We don’t see anything right now that meets those criteria.

What are you most proud of at Exelon?
I am proud of the exceptional level of performance and continual improvement Exelon has achieved. Exelon as an entity came into existence in 2000 with the PECO-Unicom merger, which I think is the most successful combination of electric utility companies in the history of the industry. Since then, through disciplined management and hard work, our nuclear fleet—the nation’s largest—has earned a place as one of the best-operating in the world. Our nuclear units, which had an average capacity factor of about 47 percent in 1997, consistently achieve a capacity factor of 93 percent or more today. We invested to add more than 900 MW of capacity from existing plants in the past 10 years and solidified Exelon’s position as the least carbon-intensive large power generator in the U.S.

Exelon substation

Meanwhile, Exelon’s delivery companies continue to strive for outstanding operational performance. ComEd in northern Illinois has achieved the best year-to-date results on record for both outage duration and outage frequency. PECO, our delivery company for southeastern Pennsylvania, this summer had its best reliability performance on record. Besides achieving top-quartile performance against industry benchmarks, both companies are moving aggressively to implement a portfolio of energy efficiency and smart grid programs to help our customers reduce their energy consumption and reduce peak load.

Exelon’s Platinum LEED-certified headquarters in Chicago

Exelon today has the opportunity to realize our vision of becoming the best company in our industry. I continually remind our employees of what a special position that is. In my first CEO position, at Central Maine Power, we wanted to be the best utility in Maine. In my next job, at New England Electric, we wanted to be the best in New England. To have a real shot at being the best in the nation, and the premier low-carbon utility, is an extraordinary opportunity.

What has been your most difficult decision at Exelon, and what was the outcome? Would you do it again?
Aside from tough decisions related to staff reductions, my most difficult judgments have been those that took a long time to pay off. When I first testified in favor of tackling climate change in 1992 before the House Energy and Power Subcommittee, my position was not a popular one among electric utility CEOs—but I thought it was the right direction for the industry. I brought the same position to Exelon in the late 1990s and even then found myself in the minority among industry peers. We were again in the lead when we formalized a low-carbon approach into Exelon’s business and environmental strategy last year with Exelon 2020. Now that we find ourselves on the possible verge of passing comprehensive climate legislation, I am gratified that there is industrywide consensus that something must be done and proud that Exelon has positioned itself to lead in the transition to a low-carbon energy future.

How do you, as chairman and CEO, manage all of these issues at once? Is there ever any downtime? Can you ever turn off your phone or take a vacation?
Running a company in this industry can be consuming. A union leader at one of my former companies told me that I was one of those people who lived to work rather than worked to live.

But I do get away from work with some success. It is rare that I don’t spend an hour each day reading history. My wife and I try to take two weeks of vacation each year in a place where it is difficult for work to intrude—this year it was Italy, and next year it will be India. I usually still have my BlackBerry with me, but I spend more time looking at antiquities than I do at my e-mail.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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