Meet Mr. Nuke
John Rowe of Exelon is staking out a megashare of what could be America's great atomic revival.
(FORTUNE Magazine) - The CEO of Exelon (Research) is not the sort of man you'd expect to be king of America's nukes. His mammoth utility will soon have 20 nuclear plants in its fleet (the term harks back to the industry's roots in the nuclear Navy), but he's no stolid ex-seafaring engineer--he's a brainy, maverick, Midwestern lawyer.
But then John Rowe, 60, is full of surprises. He doesn't like to cheerlead for his company or industry, and he readily discusses bad news, infuriating his PR staff. He doesn't drop names of powerful friends; Chicago locals and ancient-history buffs are his crowd. His office is modest, and he shares it with a 2,600-year-old Egyptian coffin.
He answers his own e-mail. When he received one in 2004 from an employee who objected on religious grounds to Exelon's favorable policies for same-sex partners, Rowe didn't delete the message; he cited Leviticus to defend the company's stance, starting a correspondence that went on for months. That kind of engagement is standard for Rowe, who "certainly keeps it interesting," says Betsy Moler, the company's public-policy chief. "There is nothing fuddy or duddy about utilities under his watch."
What makes now a good time to meet this CEO is that since he took over in 2002, Exelon has lit up a lot more than the Chicago skyline. Exelon is the industry's most profitable company, earning $923 million on $15.4 billion in sales in 2005; its stock, recently at $53 a share, has consistently outshone the S&P utility index. This year FORTUNE named Exelon America's most admired utility.
Already America's largest nuclear power operator, Exelon will become the second-largest in the world once it completes its acquisition of New Jersey's PSEG (No. 1 is Electricite de France; Russia's Rosenergoatom is today No. 2). That $13.7 billion deal, announced over a year ago, was severely scrutinized by regulators because of the size of the business it will create, but is expected to close this summer.
The new behemoth will have an estimated $27 billion in annual revenue and $3.2 billion in net earnings, employ 28,000 people, and serve nine million businesses and households in Illinois, New Jersey, and Pennsylvania. Exelon's itch to supersize was prompted by a desire for PSEG's nuclear plants. Rowe is betting that as states begin to open their electricity grids to competition, nukes will gain share by producing energy more cheaply than rival sources of power. "I go to a nuclear power plant and love it," he says happily.
It's not surprising that a utilities boss loves nukes; what's amazing is that so many people agree. Almost 30 years after the Three Mile Island disaster, nukes have regained luster in the public eye. Today 56% of Americans say they favor nuclear energy, vs. 38% opposed, according to Gallup. (A surprising 42% even say they're willing to have a nuke near their home.)
Influential environmentalists like James Lovelock and Stewart Brand favor using nukes to replace coal to help slow global warming. Exelon and other utilities are in discussions with the Nuclear Regulatory Commission to build at least ten reactors.
Perhaps the biggest boost to nuclear's prospects is the Bush administration's support. Last year's federal energy bill offers billions of dollars in subsidies, tax breaks, and incentives for new plants to help reduce long-term dependency on oil. The White House also launched the Nuclear Power 2010 Initiative, a $1.1 billion effort by government and industry to start building new plants by then. As the sole utility exec on the privately financed National Commission on Energy Policy, Rowe helped mastermind the energy bill, insiders say; that and nuclear's resurgence make him one of the most influential CEOs you've probably never heard of.
John Rowe grew up on a dairy farm in Wisconsin. The one-room school he attended had an outhouse. His parents, who had both experienced the Great Depression, believed life was about work; today Rowe gets to the office by 7:30 A.M. and works late into the night.
"Mother believed that if you had very much fun, you somehow wasted a day," he says. His interest in civilizations began as an escape from farm tedium. When he was in seventh grade, a family friend gave him Richard Halliburton's Book of Marvels, a history volume that divided the world into the Occident and the Orient, with a chapter on each major country.
Rowe keeps a vintage copy in his office and marks off the chapters of the places where he has traveled. (He believes in using his collectibles; he likes to fidget with a 2,300-year-old Athena ring crafted in the reign of Alexander the Great that he wears on his left hand.)
After earning a law degree from the University of Wisconsin, Rowe landed a job at a Chicago law firm. His introduction to the nuclear business was as a punishment for arguing with his boss, who relegated him to the division that represented nuclear plant owners. To Rowe's surprise, he liked the industry's mix of private-sector and policy work. When he eventually redeemed himself and got promoted to doing railroad law, the nuclear business stuck with him.
So in 1984 when a small utility called Central Maine Power began looking for a CEO, Rowe saw his chance. The utility wanted a senior engineer/executive from New England. Rowe was just 38 and had never even been to Maine. Scrambling to fill the holes in his credentials, he got engineer friends to send recommendations attesting to how much engineering he knew.
He persuaded Secretary of Labor Bill Usery, whom he knew from shared work in the railroad industry, to write a letter saying how mature he was for his age. His cleverest move was in dealing with his lack of New England roots. He drove to Maine and, in the space of a weekend, visited every town where a Central Maine Power director lived. When the inevitable question arose whether he'd spent much time in the state, he could truthfully tell the director doing the asking that he'd been to his hometown. "The joke was on us. We had no idea," laughs E. John Dufour, a director at the time.
Landing the job was only Rowe's first campaign. The company was under disciplinary review by the state utility commission. The new CEO set out to mend fences, sitting down with utility commissioners at even the most mundane meetings instead of sending other execs. It helped get Central Maine Power back on the state's good side in a matter of months. "By then we were all patting ourselves on the back on the great job we had done picking a CEO," recalls Dufour.
Rowe moved on after five years to become CEO of New England Electric in Massachusetts. In 1998 he became chief of Unicom, a big regional utility in Chicago, and in 2000 he orchestrated its merger with Philadelphia's PECO to create Exelon.
So now, 21 years after moving to Maine, Rowe is nuclear power's longest-serving CEO. But what a strange bird to represent an industry. He will rhapsodize about the "sensuous curve of a transmission line," yet he doesn't like to hype his business the way Phil Knight gushes over sneakers.
"Nuclear is not a cause; it is a business," he told shareholders recently. It is precisely for that reason that Rowe says he does not want to build another nuclear plant until the nation's spent-fuel disposal problem is solved. Opponents have stalled the Energy Department's plan to entomb nuclear waste more than 1,000 feet below Yucca Mountain in Nevada. Solving the waste problem is "essential" for good business, says Rowe. "We have to be able to look the public in the eye and say, 'If we build a plant, here's where the waste will go.' If we can't answer that question honestly to our neighbors, then we're playing politics too high for us to be playing."
Such outspokenness is unusual in the industry, where executives often feel too embattled to acknowledge their own doubts. It helps Rowe win. "Of course no one agrees with everything he says," says Tom Kuhn, president of Edison Electric Institute, the industry association. "But John is very persuasive and has a statesmanlike approach, which makes it hard to disagree."
When Rowe took over Exelon in 1998, the company's nuclear fleet was one of the industry's worst. Its plants were running at only 47% capacity--in fact, they were up only about half the time. Chronic safety problems had landed many on the NRC's watch list. The Zion plant on Lake Michigan had been shut down, and two more in Illinois were headed in that direction. Within the nuclear division, everyone was pointing fingers.
Rowe's first move was to replace the division's management team. (Exelon has other units that operate gas mains and coal-burning power plants.) The key survivor was its chief, Oliver Kingsley, a widely respected nuclear turnaround expert who had just joined Exelon. Rowe named him COO, and Kingsley helped recruit a new generation of executives who were approachable team players. Yet all the while, Rowe was threatening to pull Exelon out of the business. His order to the new team was simple: Turn things around or be shut down. "Rowe came in very skeptical of [the nuclear division], and rightly so," says Chris Crane, Kingsley's recruit to head the nuclear unit. "Our performance was embarrassing, and he told us so."
Crane and his team quickly raised safety standards, upgraded equipment, and replaced the plants' crazy quilt of management systems with a single system that all had to follow. It set a new industry standard by sending plant operators for retraining and simulations every six weeks. Exelon's production costs are more than 50% lower than they were in 1998, and the nuclear plants are running at 93% capacity, the best performance in the industry. Analysts like Steven Fleishman of Merrill Lynch expect Exelon's stock to rise as the company applies its know-how to PSEG's plants.
Rowe earned a reputation too, with his response to a summer 1999 blackout that paralyzed downtown Chicago in the middle of a busy workweek. In the days after power was restored, Mayor Richard Daley railed against Exelon to anyone who would listen. "We are sick and tired of them, and they had better change," he fumed, turning red and biting his nails at a news conference. Regulators began gearing up for a major investigation.
Rowe had been CEO only a few months. But during one of the mayor's outbursts, Rowe impulsively pushed his way from the audience toward the cameras, without warning or preparation from handlers or even, he says, knowing what he would say. "This level of service is a disgrace to us. It is a personal disgrace to me," he declared, awkwardly donning a hard hat as he stood in the rain. "I will not tolerate it, and you will not." He told the mayor, "No excuse, sir," and pledged to "grovel, if necessary" to win back the city's trust. The next day he asked for the resignations of five senior executives. He put hundreds of millions into upgrading infrastructure and turning things around.
Rowe was equally forthright last December when one of Exelon's nuclear plants in Illinois was found to be leaking tritium into the aquifer. A byproduct of nuclear generation, tritium is a radioactive form of water that can increase the risk of cancer, birth defects, and genetic damage. The state had designated a river for its disposal, but the stuff was leaking into the groundwater instead. Further investigation revealed two more Exelon plants to be leaking tritium too. Although regulators and the Illinois health department declared the leaks too small to threaten public health, the news caused an uproar. "Where we screwed up--and there is no other way to call it--is that some water with tritium leaked from our premises onto other people's property," Rowe says. "It is not dangerous, but it was sloppy operations on our part."
Customers today seem to like Exelon about as much as you can ever like the electric company. Says David Kolata, executive director of the Citizens Utility Board, a Chicago consumer group, of Rowe: "He has a tradition of working things out in Illinois that is good for the company and consumers." Yet lately Rowe has angered people by pushing to end a rate freeze put in place by legislators to ease the shift to a wholesale auction system for electricity. When it comes, it will probably raise Exelon's profits, as well as the rates consumers pay. Says Kolata: "Exelon thinks they are now a global company, so how dare the people of Illinois tell them what to do? John Rowe is risking a lot by being so aggressive. He has a very good reputation in Illinois that could be tarnished."
Rowe's tolerance for controversy served him well on the commission that shaped 2005's energy bill. The bipartisan panel included experts from industry and environmental groups. He joined it in endorsing carbon-emission limits to counter global warming. Such limits are anathema to most utility executives--they would raise the costs of fossil-fuel-fired power plants, including ones that account for about half of Exelon's business. Shrugs Rowe: "The utility industry is one of the few places I would be called a liberal."
The commission contradicted the White House, which maintains that humans' role in causing global warming needs more proof and that carbon limits would hurt the economy. Its report, in turn, emboldened an arm of the Energy Department to declare that limiting carbon emissions would not slow U.S. economic growth. In April, North Carolina's Duke Energy joined Exelon in testifying before Congress in support of carbon taxes. Commission co-chair John P. Holdren, a Harvard professor of environmental policy, says of Rowe's role, "True leaders can bring people along. He has so much stature that if he comes out and says something different, the industry stops and takes a look rather than assuming he's wrong."
It wasn't long ago that the energy industry was dominated by another company whose name started with "E" and which had a Texan CEO whom President Bush liked to call Kenny Boy. "I used to have to go to these lunches with Ken Lay," recalls Rowe, who met the Enron CEO in meetings with regulators and policymakers in New England. "The politicians would treat me like a Chihuahua on a leash: 'Come, John. Sit, John. Roll over, John.' And they would treat Ken like the Lord himself," he says. "About the fourth time I'm dragging my sorry tail out of lunch, the speaker of the state legislature says, 'I bet you're getting real sick of these lunches.' 'They're not a lot of fun,' I told him. He says, 'You're not having a lot of fun, but we're having a lot of fun.' " Rowe laughs. Now that Enron is in ashes and nuclear power may be on the rebound, he's the one having fun.
But gaining regulatory approval involves such elaborate applications, reviews, and hearings that a decade or more could pass before the U.S. sees a new plant. Though Exelon has launched applications for two new nukes, Rowe knows they almost certainly won't get built during his tenure, even if the nuclear-waste question is resolved. He's more likely to be remembered for helping the industry during its fallow phase. Yet for a man obsessed with history, he's surprisingly philosophical about leaving such a modest mark. "If I could pick what I do, I'd rather be the discoverer of the great biochemical innovation that revolutionizes health care," says Rowe. He pauses, leaning back in his chair as he twirls his ancient ring. Then he gestures toward that Chicago skyline Exelon keeps lit and laughs, "But I'm pretty good at this."