[USML Announce] Fwd: Exelon CEO Threatening to Divest ComEd

springkerb at aol.com springkerb at aol.com
Mon Sep 26 11:11:50 EDT 2005


Somewhat ironically, the Democrats' appointments to the ICC have been more business-friendly than the Republicans' for the past 10 years or more.  What happened here is that two business-friendly commissioners earlier appointed by Blago (O'Connell and Hurley) got themselves into a scandal when they were caught dining privately with some Peoples Energy executives, while Peoples just happened to have some major business pending before the commission.  The Gov has seen his poll numbers going down the drain for some months now, so he did what any politician would do--he pandered to the press.
 
CUB really ran the table here, because they have major proceedings pending against both Peoples and ComEd right now, and not only do they get rid of the two commissioners least sympathetic to their positions, they replace the chairman (Hurley) with the executive director of CUB.
 
If this were an attorney being appointed to a judicial position, he'd of course have to recuse himself from any matters in which he had been involved as counsel.  I'm willing to bet a buck that Marty Cohen doesn't recuse himself from any of CUB's currently pending commission dockets--which is really at least as dirty as O'Connell's and Hurley's little dinner outing.
 
Mark
 
-----Original Message-----
From: JOHN FRUIT, USBANCORP ASSET MANA <JFRUIT1 at bloomberg.net>
To: ANNOUNCE at USML.NET
Sent: Mon, 26 Sep 2005 10:34:07 -0400
Subject: [USML Announce] Fwd: Exelon CEO Threatening to Divest ComEd


Good read for the Chicago lawyer-types among you....this is what you get when 
your governor flunked out of Econ 101 (and when you appoint a consumer advocate 
chieftain to a powerful state agency).
----- Original Message -----
From: ROGER PLATT, BANK OF AMERICA N.A.
At:  9/26  8:36

---- Original Msg from: FAITH KLAUS, BANC OF AMERICA SECU At:  9/26  8:35
---- Original Msg from: Faith N Klaus  <faith.n.klaus at bankofamerica.com>

                    At:  9/26 22:31
Exelon CEO John Rowe is threatening to divst Commonwealth Edison if regulators
set the utility's rates below the wholesale market power. See highlighted area
below:


> ===========================================
> Power struggle
> Exelon CEO Rowe in face-off with Blago over profits and pricing in electricity

> By Steve Daniels
> September 26, 2005
> Exelon Corp. CEO John W. Rowe holds a hot hand in the electric power market,

but he'll have to wrestle his winnings away from Gov. Rod Blagojevich.
>
> Mr. Rowe staked Exelon's future on nuclear power plants, a move that proved

prescient beginning nearly two years ago when rising natural gas prices pushed
up the cost of electricity generated by natural gas-fired plants. The lower cost
of nuclear plants positions Mr. Rowe to reap big profits when a freeze on
electric rates in Illinois expires two years from now.
>
> But Gov. Blagojevich is taking dramatic steps to stop him. Last month, the
governor all but ordered Illinois regulators to reject Exelon's proposal to set
electric rates through an auction-based system expected to produce big price
hikes. And last week, he appointed consumer advocate and longtime Exelon
adversary Martin Cohen to chair the Illinois Commerce Commission, the state
agency that regulates utilities.

>
> Now it's Mr. Rowe's move. In the face-off with the governor, he holds strong,
if controversial cards. The 60-year-old executive told Wall Street in August
that he'd consider selling Exelon's Illinois unit, Commonwealth Edison Co., if

regulators set the utility's rates below the wholesale market price of power.
>
> "I'll divest it," he told the group.
>
> Mr. Rowe wasn't available last week to comment on the governor's latest moves,
but ComEd President Frank Clark backed up his boss, saying ComEd would have to
file for bankruptcy protection "in a matter of months" in 2007 if it were forced
to buy power at market prices but couldn't pass those costs to its customers.
Asking Exelon's nuclear power plants to subsidize the utility, which no longer
owns any plants, would be unfair to the company's investors, he argues.

>
> "(Shareholders) are buying (Exelon stock) because they think we have low-cost
generation capacity that can be sold into a market that's rising," Mr. Clark
says. "We cannot and will not deceive them."
>

> "I know Exelon would like to see ComEd perform like a high-growth company," a
spokeswoman for the governor says. "But that approach is not good for consumers.
And ComEd does have a responsibility to provide reliable electricity at
affordable rates."
>
> The dispute between Mr. Rowe and Gov. Blagojevich boils down to a fight over
the benefits of the state's abundant, low-cost nuclear power. Gov. Blagojevich,
a politician facing re-election next year, wants consumers to get those benefits
in the form of lower electric rates. Mr. Rowe, chief executive of a publicly

traded company, has promised them to shareholders in the form of higher profits.
>
> Mr. Rowe largely has pleased Exelon's investors since his hiring as CEO in
1998 after leading utilities in New England. Called Unicom at the time, the
company was better known for frequent power outages and a fleet of
underperforming nukes than as a consistent earnings generator.

>
> But Mr. Rowe - aligning himself with former Navy submariner Oliver D. Kingsley
Jr., whom Mr. Rowe's predecessor had hired to turn around the ailing nukes -
believed the plants could be turned into a strategic advantage. With Mr.
Kingsley riding herd on the company's nuclear plant workforce and quickly
improving the plants' production, Mr. Rowe bet against conventional industry
wisdom that the future was with plants fueled by natural gas, touted in the late
1990s as clean, plentiful and cheap.

>
> FAITH IN GAS
>
> Consumer groups and politicians believed the gas boosters. As part of the
state's 1997 deregulation law that cut ComEd rates 20% and froze them for a
decade, they agreed to allow ComEd to sell or spin off its power plants and
focus exclusively on delivering power.>

>
> That led to the sale of ComEd's coal-fired plants to a California company in
1999 and the spinoff into a separate subsidiary of the nukes a year later. The
upshot: The state's utility regulators no longer had jurisdiction over what the
power plants could charge. The state's bet was that the market would keep prices
low once the rate freeze expired.
>

> Through the early part of this decade, Mr. Rowe saw few signs his bet would
pay off. Falling wholesale power prices actually meant ComEd customers were
paying more in their frozen rates than they would have in a market-priced
system. Investors were anxious that rates, and Exelon's profits, would fall once
the freeze expired.
>
> PURCHASE FAILED
>

> Mr. Rowe two years ago attempted to package a proposed purchase of troubled
Decatur-based utility Illinois Power Co. with a deal to raise rates by no more
than 9% through 2010. House Speaker Michael Madigan, D-Chicago, shot down the
bill, which had passed the state Senate.
>
> Almost immediately thereafter, natural gas prices began to rise, and power

prices along with them. A year after Mr. Rowe's offer was rejected, it was clear
that a market-based system of setting rates beginning in 2007 would result in an
increase well above 9%.
>
> Today, any market-based, post-freeze system of pricing electricity is certain
to produce rate hikes of at least 16% in Illinois. Wall Street investment firm
Sanford C. Bernstein estimates the auction means 42 cents per share to Exelon,
or 11% of consensus 2007 earnings projections.
>

> But to collect, Mr. Rowe must be willing to counter the governor's seizure of
power rates as a potent political issue with dramatic action of his own, like
committing all the 2007 power from Exelon's nukes to outside buyers, selling
ComEd or allowing the utility to spin toward bankruptcy.
>

> There's not much talk of compromise in Mr. Rowe's statements so far. "We don't
do this for theory," he told investors last month. "We do it for money."
>
> Wall Street cheers the tough talk. Kit Konolige, utility analyst with Morgan
Stanley & Co. in New York, recently wrote: "Because ComEd is a relatively small
part of Exelon, especially after the closing of the proposed merger with (New
Jersey-based Public Service Enterprise Group Corp.) - less than 10% - we believe
Exelon could earn about $4.50 to $5 (per share) in 2007, even if ComEd
contributed nothing."
>

> A spokesman for Mr. Madigan, one of Exelon's toughest critics, isn't fazed by
the bankruptcy threat.
>
> "That's the power company's traditional message - my way or the highway," he

says, predicting no resolution of the dispute until next year.
>
> ?2005 by Crain Communications Inc.
>


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