The Scramble To Keep Commonwealth Edison Aglow

Fresh rivals, high costs, and nuclear ills await new CEO Rowe

For the past seven months, executives have been abandoning Unicom Corp., parent of Commonwealth Edison, like rats off the proverbial sinking ship. Chairman James O'Connor stepped down, Vice-Chairman Leo Mullin departed for Delta Air Lines Inc., and President Samuel Skinner resigned.

But on Feb. 6, the company got a new captain. John W. Rowe, chief executive of New England Electric Systems, signed on as chairman, chief executive officer, and president. When Rowe arrives officially on Mar. 16, he will take the helm of one of the most troubled utilities in the nation. At 11 cents per kilowatt-hour, the electricity that Commonwealth Edison sells its 3.4 million customers is among the most expensive in the country.

TITANIC-SIZE. Until now, that hasn't caused serious problems--beyond customer grumbling. But ComEd, like many other electrical utilities, is about to get its first taste of competition. The Illinois giant is surrounded by a half-dozen companies in neighboring states that already offer power at lower rates--and are eagerly preparing to enter ComEd's market. Their rates are even well below the new 9.4 cents-per-kwh that ComEd expects the regulators to approve by August.

ComEd may have trouble cutting costs fast enough. Its nuclear plants dominate the federal government's list of poorly performing nukes. And the $7 billion utility is only now starting a costly update of its long-neglected transmission and distribution systems.

These are Titanic-size problems compared with those of New England Electric, where Rowe, a lawyer by training, earned his reputation as a savvy executive who succeeded in one of the nation's most deregulated markets. At New England Electric, the worst problem was an inefficient network of old fossil-fuel plants, which Rowe sold for $1.59 billion--$500 million more than their book value.

At ComEd, that prescription won't work. "The market for nuclear plants is sticky, to put it best," Rowe observes. In fact, no such plant has ever been sold. In January, having sought and failed to find a buyer for its Zion Nuclear Plant, ComEd shut down the facility, prompting a fiscal-fourth-quarter charge of $523 million. That expense, combined with an $810 million charge to write down other power-generating assets, resulted in a quarterly loss of $1.36 billion.

"LITMUS TEST." As a result, Rowe is on the lookout for other ways to cut costs. In sizing up ComEd's operating plants, "the litmus test is: Is it profitable?" he says. "If it isn't, we don't need it." That's welcome news to ComEd's antinuke critics. "He's already signaling he's going to shut down unprofitable nuclear plants," says Howard Learner, executive director of Chicago's Environmental Law & Policy Center.

But no matter how much Rowe might like to jettison ComEd's generating plants--fossil and nuclear--and turn his utility into a transmission-and-distribution business more along the lines of NEES, he can't. ComEd's investment in nuclear has been too great.

Analysts, meanwhile, anticipate a respite from special charges in 1998--and probably the next year even with plant closings. But earnings will still not be too robust--between $450 million and $488 million--a far cry from the $666 million that the company earned in 1996. Still, investors are encouraged by the recent writeoffs and Rowe's appointment. The stock closed at 31 13/16, close to a high for the past 12 months.

Deregulation, however, will probably keep a lid on ComEd's earnings. Although Illinois has given its utilities a more leisurely pace for deregulation than many other states, some business customers--typically the most profitable sector--will be allowed to switch suppliers as soon as this fall. So rivals are massing on the Illinois borders. Rowe knows he must move fast. But can he bail fast enough to avoid sinking?

Before it's here, it's on the Bloomberg Terminal.