- The Washington Times - Monday, April 16, 2001

The winds of change are blowing hard at Pepco, as the power industry deregulates and each of its members embarks on its own path through the new world of electricity competition.

Heading the transition at the local utility is John M. Derrick, chief executive officer who has been with the company since the 1960s.

"This is a 105-year-old company that in the past few years has been changing itself to better suit the times," says Mr. Derrick, 63.

Pepco has been preparing for several years for deregulation in the District, which started Jan. 1. Maryland electric utilities opened to the market last summer, and Virginia will begin doing so by the end of the year.

As it sought to change its image, Pepco flirted with mergers and acquisitions. It started and folded new ventures. Ultimately, it shed its power generation plants, created two new divisions, and is on the verge of acquiring another power distributors.

"They sold what they perceived to be the riskiest part (power generation), and took the proceeds and bought another non-risky business," says Maurice May, an analyst with Friedman, Billing, Ramsey in Arlington. "They've in effect more than doubled their customers in the process."

The utility's board of directors will vote on the proposed $5.4 billion purchase of Conectiv on July 6 at Pepco's annual meeting.

In an interview with The Washington Times, Mr. Derrick says he is optimistic about the outcome, and expects the two companies to be fully integrated by this time next year. Then the utility would serve 1.8 million customers encompassing 10,000 square miles into Maryland's Eastern Shore and Delaware.

Meanwhile, Pepco's two new business divisions are competing in the market, something the company had not needed to do for 40 years under regulation.

"Our overall footprint is to be a regional company focusing on those three businesses," Mr. Derrick says.

"But we're becoming a mainstream enterprise, so there's a lot of change."

Pepco, short for Potomac Electric Power Company, serves some 700,000 residential and business customers in the District, Montgomery and Prince George's countries, and the city of Falls Church.

"It's not that we are going from one place absolutely into another world," Mr. Derrick says. "But we're clearly not going to generate the return we have in the past."

In the market

Shares of Pepco closed at $22.43 Friday on the New York Stock Exchange. The stock has been relatively flat, trading in the mid- to high $20s for the past year, in anticipation of deregulation in the local market.

Another change for Pepco has been in its shareholders. It used to be a stable stock that long-term investors mostly individuals and families depended on for stable earnings. Not so anymore.

"People that invested in [power companies] in the past for the most part are not going to be comfortable investing in them in the future, or even now," Mr. Derrick says. "The future is nowhere near as linear as it once was."

Sitting in his office on the top floor of Pepco's headquarters on 19th and K streets NW, Mr. Derrick is very much in his element. Everything in the room is large: his massive wood desk, the matching conference table next to it, the windows behind him.

A native Washingtonian, Mr. Derrick is the oldest of two sons, who followed in his father's footsteps by becoming an engineer.

John R. Tydings, the retiring president of the Greater Washington Board of Trade, has known Mr. Derrick from when he briefly worked at Pepco 35 years ago.

"We both were kind of pups at the same time," he says, characterizing Mr. Derrick as a homegrown success story with strong ties to his community.

"I think John is a guy who is a good role model for a lot of executives," he says. "Too often we find executives who are so busy with just work, delegating and sending checks. But John is personally ready to roll up his sleeves."

Mr. Derrick began his professional training at Pepco in 1961 the same year he married his high school sweetheart, Linda. They have a 33-year-old son.

Mr. Derrick briefly served as an engineering officer with the U.S. Navy, but returned to Pepco in 1965. His first promotion into upper management came 15 years later, when he was named vice president of customer relations.

From there he rose steadily, serving as vice president of other departments, president, CEO and now chairman.

"Mr. Derrick has spent a large part of his career in customer service and orienting his company to the customer," Mr. May says. "And the move away from generation to adding customers is really consistent with his career at Pepco."

Away from the office

Running a multimillion-dollar business has not kept Mr. Derrick buried in documents in his office. He's heavily involved in community groups, teaches Sunday school, and is a governor of Wesley Theological Seminary in the District.

When he can, he also enjoys walking, boating, golfing, and playing tennis. He also likes vacationing in Florida.

"I think John's activity in such a cross section of the community over the years has given him a real insight in terms of the need to change with the environment," Mr. Tydings says. "He has not been focused inward, but really outward-focused. That allows him to be flexible and nimble as the power generation business has changed."

Pepco's proposed marriage to Conectiv is the latest of numerous business ventures the utility has considered since the mid-1990s. Some worked and some didn't, but each experience was educational for Mr. Derrick, who says the transition from regulation to competition affects all his employees.

"This is a conservative business and conservative workers have to now learn how to be not so conservative," he says. "But we're still in business to light up the seat of government."

"We have to keep [employees] engaged … The secret to success, I think, is not a guarantee. It's a common view of where the business is going, and what it's doing so the employees understand."

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