Powerplay: Q&A with Ferland and Rowe

New Jersey Business, Sep 01, 2005

New Jersey Business Magazine and executives of the New Jersey Business & Industry Association recently sat down with James E. Ferland (above right), chairman, president and CEO of Newark-based Public Service Enterprise Group, and John W. Rowe (left), chairman, president and CEO of Chicago-based Exelon Corporation, at PSEG headquarters to discuss the pending $16-billion merger of the two companies for the creation of Exelon Electric & Gas. The goal was to find out what impact the merger would have on New Jersey's business community, and discuss the new company's commitment to keeping energy rates in check, amid skyrocketing natural gas prices, and area development.

Rowe and Ferland are candid on a variety of items, and their comments reveal that the new Exelon Electric & Gas will continue PSEG's strong commitment to its customers and the communities it serves.

In looking at the numbers, the merger creates the country's largest power generation company, with combined annual revenues of $27 billion, more than 7 million electric customers in Illinois, Pennsylvania and New Jersey, and more than 2 million gas customers in Pennsylvania and New Jersey.

Exelon Corporation brings 5.1-million customers and revenues of $15 billion to the new company, while PSEG, the state's largest energy provider, brings 2 million electric and 1.6-million gas customers and revenues of approximately $11 billion. Currently, the two companies have a combined workforce of 28,000. A five percent reduction in overall employment is expected after the merger.

The deal is expected to close by the end of the first or second quarter of next year. Meanwhile, it has already received the approval of the Federal Energy Regulatory Commission (as long as the new company divests itself of 6,500 megawatts of generating capacity) and PSEG and Exelon shareholders. At press-time, approval is needed over the next few months from the New Jersey Board of Public Utilities, the Pennsylvania Utilities Commission, the U.S. Justice Department's Anti-Trust Division and the Securities Exchange Commission.

Upon completion of the merger, Rowe will become president and CEO of the new entity and Ferland will become nonexecutive chairman until his planned retirement in 2007.

In New Jersey, Ralph LaRossa, currently the vice president of Electric Delivery for Public Service Electric & Gas (PSE&G), will become president of PSE&G. Ralph Izzo, the current president and COO of PSE&G, will become executive vice president of Exelon Electric & Gas and president of Exelon Energy Delivery, the subsidiary that encompasses three electric and two gas utilities.

The two companies are not strangers to each other. Exelon, which operates 17 nuclear plants across the country, already owns a share of PSEG's two Salem nuclear power plants and operates the two Peach Bottom nuclear plants in Pennsylvania, in which PSEG holds a 50 percent ownership. Through a Nuclear Operating Services contract signed last January; Exelon is applying its wellregarded nuclear management model at PSEG's Salem and adjacent Hope Creek nuclear stations. The two executives say this agreement is already delivering cost savings to the company and consumers.

The merger is expected to be invisible to customers. PSE&G, the existing regulated utility, will retain its name. According to Emma Byrne, director of corporate communications and federal affairs at PSEG, the company will have the same call centers, customer service centers and same workers on the streets. The bill will still come from PSE&G.

Ferland and Rowe are confident that users small and large will see benefits once the merger is completed. Here are their comments:

Q&A WITH FERLAND AND ROWE

Q: Who will benefit from the merger of Exelon and PSEG?

Ferland: Generally, the merger will be good for our customers. It's going to improve quality of service. This may sound strange, but it will also be good for employees. In the longterm, this will be a big, healthy company that will be able to grow much faster than PSEG could all by itself.

It's also a great thing for investors because of the savings we will realize.

Rowe: We are trying to build what you might call the first super-regional utility that is as big as the kinds of companies that succeed in other industries. It will be the first utility that has the depth of capital to deal with new-generation commitments. We will also be able to trade broadly across an entire region.

These are things that capture the attention of the stock market very quickly. We were quite sure that over time, we would convince investors this was a good deal. What surprised us was that time was 48 hours. The stock of both companies was going up almost from the announcement of the merger because investors immediately saw the value.

Q: What benefits will business customers encounter?

Ferland: Mostly, the merger will be invisible to businesses, but what they will see will be marginally better. Customers will get a share of whatever savings we will create for them. I'd like to think that we do some things better than Exelon and Exelon does some things better than PSEG, so on quality of service and reliability to customers, we will learn from each other and deliver those benefits to customers. Customers will also get a good share of lower costs that are coming about because of our nuclear plants running at higher capacity factors.