COMPETITIVE JOLTS

By DEBORAH SHAPLEY

The $200 billion-a-year electric-power industry slept for decades under a cozy blanket of cost-plus-profit income streams and fat dividends that seemed to promise payouts forever. The status quo is about to get a jolt from, among others, John W. Rowe, 52, president and CEO of New England Electric System of Westborough, Mass. NEES is New England's second largest power utility, with $2.3 billion in 1996 revenues and 5,000 employees. Under Rowe, the utility has become a leader in allowing consumers to shop around for electric power the same way they shop for long-distance telephone service. It also plans to largely take itself out of the power-generation game.

By Jan. 1, 1998, about 1.3 million households and businesses in Rhode Island and Massachusetts will have become pioneers in electric consumption as a result of landmark pacts that Rowe negotiated with each state. His achievement is the latest step in a process that began developing nearly two decades ago. As far back as the 1970s, independent producers started selling power to utilities; a 1992 federal law required utilities to open their lines free of charge to such wholesalers. The growing wholesale competition created a demand for retail freedom of choice.

Rowe decided to make NEES the first electric utility to get out of power generation. Under its new marketing pacts, the company will cut customer rates 10%. It will also divest itself of 20 power-generation plants. The anticipated $1 billion or so from the sale, however, will not pay down NEES's $3.5 billion to $4.5 billion in "stranded costs"--capital and other expenditures related to mandated power contracts with independent producers.

After divestiture, NEES will morph into a power-transmission and -distribution company--and one that is still regulated at that. And in its new role, NEES will net enough--about 3[cents] per kW-h--to pay off its stranded-cost overhang. Rowe expects to make money, but he could make more if transmission were deregulated too, by charging more for access to his power cables, which reach 1.3 million homes and businesses.

Rowe has had a lot of practice breaking ground. "I spent my childhood on a Wisconsin farm with Depression-era parents who taught me to fear disaster," he recalls. He studied law at the University of Wisconsin and in the early 1980s helped engineer Conrail's financial turnaround. In the mid-1980s, as president of Central Maine Power, he steered the divestiture of the controversial Seabrook nuclear plant. Rowe compares himself to the pilot of Mark Twain's Life on the Mississippi, "navigating shifting waters" where "the shore is never quite the same."

Rowe talks of expanding NEES's transmission network to twice its current size in five years. NEES now has a subsidiary to market natural gas and plans a partnership with a communications company to add phone and data service. "If we accept the gruesome realities of dealing with change," he says, "there eventually will come a time when this business is fun again."

--Reported by Sam Allis/Boston

With reporting by Sam Allis/Boston