Utilities don’t want corporate culture to change – Exelon’s John Rowe

In what was termed his “farewell address,” recently retired Exelon (NYSE:EXC) chairman and CEO John Rowe told the 4th Annual EnergyBiz Leadership Forum March 21 that the industry as a whole does not want its corporate culture to change.

However, Rowe said change is not only necessary, it is inevitable.

Against the backdrop of the conference theme “Harnessing Disruption: Navigating Risk & Opportunity,” Rowe told a ballroom filled with utility executives of the need to disrupt the current corporate culture and bring about positive change. Excerpts of Rowe’s remarks follow.

On change

The people who work for us, by and large, don’t want culture change. And, if we’re honest with ourselves, we’re not all in love with it, either.

Utility cultures are very old, they are very strong, they are very embedded, they change very slowly. You have to change them by being very metrical, very clear about your standards. You have to change them by having a cadre of officers who are really committed to the change. You have to change them by respecting the people. These are decent people; they just want things the way they are.

Another example. My company sponsored at the Art Institute in Chiacgo an exhibit of art from the Pharaoh Akhenaten. He wanted to replace all the old gods with the sun god, and the of the Art Institute said to me, “I bet you love this! The sun, and energy is the god!” I said, “People who make 40-year investments don’t want the gods to change.” And it’s very important to remember that.

Change comes at a different pace in the energy business than it does in virtual businesses. And in some painful way, one of the first lessons to remember is that change happens differently when you’re dealing with megawatts, megatons, mega-this, mega-that, than it does when you’re dealing with microwatts. But it still comes.

On balancing competing interests

There is an intersection of certain things a leader has to get right. You have to get together operations, energy markets, financial markets, regulation, and politics.

Much of what we do in whatever energy business you’re in is operations. The people who do it tend to think they’re the real managers, and they are vitally important.

When I joined ComEd, our nuclear fleet had an average capacity factor of 49%. ComEd’s distribution system was a wreck. We’ve spend more than $5bn making it good again. Last year, we had our ninth year in a row of nuclear capacity factors over 93%, and ComEd had its best outage frequency statistics on record.

You simply must keep the lights on. Nothing else works unless you keep the lights on, keep the gas flowing. The reliability of the operations side of our business is critical.  But so is understanding the marketplace, and technology comes into both your operations and into the markets.

On dealing with disruption

The single most disruptive technology in my 28 years as a CEO was shale gas fracking. It has more and larger effects than any of the other technology changes we talk about.

The second most disruptive technology was the combined-cycle gas generation machine itself. After that, you get all kinds of things that have effects, whether it’s real-time metering, automated metering, digital transmission dispatch, improvements in solar cells. At the moment, their collective impact is less than those two changes in the natural gas side of the business.

As we look at change, we look at large, urban delivery systems that scream for money. We have 40 and 50-year-old cable that is working just fine; we have 30-year-old cable that needs to be replaced. We have customers who think they want more underground and if we rebuilt the system to what it could be, we would double or treble the size of the delivery portion of the rates.

In Chicago, for example, rates are about 12ȼ/kWh for residential. In Philadelphia, they’re 16ȼ, and of that, a third is the retail delivery charge. If you double or treble that, all of a sudden, ways of bypassing the grid — even solar – become economically attractive.

This huge delivery system has great value but the more you improve it, the more burdens you put upon it, the more you expose the delivery system itself to disruptive change.

We are used to change affecting the generation side of the business. We are used to the bulk of the cost being in the generation side. We are used to absolute confidence that the wires are worth two or three or four times what they cost. But as they slowly incur more burdens, you can’t double them or treble them again and be sure they will be worth more than they cost.

On giving back

You have to change things by showing people that you care. My wife and I give back. We invest in colleges and universities and scholarships and charter high schools and elementary schools. My wife and I teach in those schools. We try to set an example of using our good fortune in stewardship. And people are not foolish; they know we can afford it. It’s that they respect that we share it. And that’s very, very important.

The biggest change that I have seen in 28 years is today’s natural gas marketplace. I’m virtually certain it’s a 10-year change and, while uncertain, I think we’re looking at a 20-year change. If we are looking at 20 years of natural gas that is somewhere between $3 and $6, that is the most disruptive change in the energy marketplace in this country that I have ever seen. It’s a huge challenge for my successors at Exelon but it’s an immense boon for this nation.

This is the way we can have more domestic energy, more green energy, and economical energy, and we can do it at the same time and it revolutionizes the electricity sector, home heating, and even potentially a significant portion of the transportation fleet. We should take this blessing very seriously and we should not throw it away.