Pepco-Exelon Merger Denied

By Liane Scott, on August 27th, 2015

In a big win to Power DC and it’s coalition of grassroots energy activists, DC’s Public Service Commission rejects the merger between Exelon and Pepco. More than 3,000 residents, small businesses and non-profits submitted testimony on both sides. There were four community hearings and comments from 26 Advisory Neighborhood Commissions, several smart-energy groups, and at least six members of the D.C. Council. In the end, the D.C. Public Service Commission denied Chicago-based Exelon’s proposed $6.4 billion takeover of Pepco Holdings.

The three-member commission unanimously rejected the utilities’ application, saying it was not in the best interests of the ratepayers and that there was no evidence the combination would improve the reliability of service. But according to the Washington Post article D.C. Regulator Rejects Proposed Exelon-Pepco Merger, proponents may still hold out hope of making a deal in the future. On the hand, the article DC Regulators Reject Exelon-Pepco Merger in Utility Dive, points out a few reasons why this may be unlikely.

For the record, the press release from DC’s Public Service Commission reads as follows:

Commission Denies Pepco/Exelon Merger Application

(Washington, D.C.) Today, the Public Service Commission of the District of Columbia (“Commission”) voted to deny an application for acquisition of Pepco Holdings, Inc. (PHI) by Exelon Corporation as not being in the public interest. In determining whether the Proposed Merger is in the public interest pursuant to D.C. Code §§ 34-504 and 34-1001, the Commission first considered the effect of the Proposed Merger transaction on each of the seven public interest factors. This included the effects of the transaction on ratepayers and shareholders, on competition in the local retail and wholesale markets and on conservation of natural resources and preservation of environmental quality. In doing so, the Commission identified how the effects of the Proposed Merger on each of the seven public interest factors would benefit or harm the public (including Pepco, District ratepayers, and the District community). The Commission then used its findings to assess the transaction as a whole. The Commission concluded that, taken as a whole, the transaction as proposed by Exelon and Pepco is not in the public interest. In a separate opinion, Commissioner Phillips concurred in part and dissented in part.

Exelon announced its purchase of PHI, the parent company of the Potomac Electric Power Company (“Pepco”), on April 30, 2014, and the application seeking a change of control was filed on June 18, 2014. Parties to the proceeding included the Office of the People’s Counsel, the District of Columbia Government, the Apartment and Office Building Association of Metropolitan Washington, D.C. Solar United Neighborhood, District of Columbia Water and Sewer Authority, the General Services Administration, GRID2.0 Working Group, and others. Over 3,000 residents, non-profits and small businesses submitted written testimony on the merger, both in support and in opposition. In addition, the Commission held four community hearings in which 178 participants submitted testimony. Further, the Commission received comments from 26 Advisory Neighborhood Commissions and several members of the D.C. Council.

Chairman Kane stated, “The public policy of the District is that the local electric company should focus solely on providing safe, reliable and affordable distribution service to District residences, businesses and institutions. The evidence in the record is that sale and change in control proposed in the merger would move us in the opposite direction.”

Commissioner Fort agreed, stating that “The Proposed Merger would diminish Pepco’s ability to directly raise issues that address the needs of District ratepayers while posing regulatory challenges for the Commission and the interested parties who participate in Commission proceedings.”

Commissioner Phillips stated, “I agree with my colleagues that the merger application as filed is a bad deal for the District. However, I am disappointed in the loss of the many opportunities that could have achieved benefits for our local communities and across the region.”

In other jurisdictions, the application for the merger of PHI and Exelon has been approved, including Virginia, New Jersey, Delaware, Maryland, and the Federal Energy Regulatory Commission. The only jurisdiction to deny the application is the District of Columbia. Pepco and Exelon have 30 days to ask the Commission to reconsider its decision.

The Public Service Commission of the District of Columbia is an independent agency established by Congress in 1913 to regulate electric, natural gas, and telecommunications companies in the District of Columbia.

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The Proposed Exelon-Pepco Merger: A Basic Primer

By Liane Scott, on March 30th, 2015

On March 20, 2015, the CEO of Exelon Chris Crane will testify before the DC Public Service Commission about his company’s efforts to buy Pepco Holdings, a company that owns three distribution utilities serving customers in Virginia, New Jersey, Maryland, Delaware, and the District of Columbia. According to Wikipedia, Exelon Corporation produces, trades and distributes energy in 47 states, the District of Columbia and Canada. If the deal goes through, Exelon will become (if it isn’t already) the largest competitive U.S. power generator and the dominant utility in our region. Little wonder that the DC Office of the People’s Counsel (OPC) considers the proposed merger to be “by far the most significant undertaking in the local electric industry since Pepco’s divestiture of its generation plants in 2000.”

The sustainability contingent of DC’s progressive community has come together to oppose this merger under the umbrella organization Power DC. We should know in the next few weeks whether their efforts will prove effective. I for one am on the edge of my seat. Although, I’ve been receiving emails from progressive list serves for months about this issue, I’m still trying to get my head around the deal itself and what it would take to stop it.

Stop it, you ask? We live in a capitalist country where corporations have the same rights, if not responsibilities, as citizens. As long as they have the money, what’s to stop them? Well, some things that we all agree everybody needs in order to promote the general welfare—schools, healthcare for the poor, roads, public utilities, etc—are regulated by the government. So, if the government and presumably its citizens don’t approve, then no merger. Where do things stand now?

The hoops that must be navigated in order for the merger to take place include approval from the Federal Energy Regulatory Commission, which will weigh Exelon’s potential market power, an antitrust review by the Justice Department and the Federal Trade Commission, as well as approval by the public service commissions in the three states where Pepco operates and the District of Columbia. The deal has already been approved by the Federal Energy Regulatory Commission, which seems to suggest that federal regulators consider a lot of market power a good thing, given Exelon’s size that is. The Public Service Commissions of Delaware and New Jersey are also on board. The Maryland Public Service Commission came out against the initial proposal but Exelon has filed an appeal.

The DC Public Service Commission is still considering it but before they can approve the deal, Exelon needs to prove that it will benefit Pepco customers. So, what would we get out of the deal? If you happen to be a Pepco shareholder than the deal is good for you, at least financially. Exelon is offering Pepco $6.8 billion dollars despite the fact that Pepco is only worth $4.3 billion, which sounds hinky to me. So, I turned to the comprehensive reporting on this issue provided by the Grist and Utility Dive. Here’s what I learned that makes this merger more than palatable for Exelon’s shareholders.

Exelon makes the majority of its money via a sizable fleet of nuclear power plants. In 2013, 81 percent of the electricity it produced was nuclear, which accounted for some 60 percent of it’s revenue. Thanks to competitive pressure from cheap natural gas, rising renewables, and stagnant electricity demand, Exelon’s revenues have declined by about 40% in recent years. What’s the fix? Acquire distribution utilities like Pepco with a large customer base (Pepco Holdings, Inc., serves about 2 million customers) and a more stable and predictable revenue stream. If the merger goes through, all of these new customers will help to shore up Exelon and by extension the nuclear power industry. Hey, at least it’s not fossil fuels, right?

What’s most troubling to the sustainable-development contingent of DC’s progressive community is that all the work they’ve put into trying to make DC green may be put at risk by this merger. Thanks to their efforts, the District of Columbia’s official Sustainable D.C. plan calls for 50 percent renewable energy, a 50 percent decline in energy use, and a five-fold expansion of green jobs by 2032. If history is any judge, Exelon will do little to support DC’s efforts to promote sustainable energy and may in fact do what it can to put the kibosh on the whole thing. Evidence of their pro-nuclear, anti-renewable lobbying efforts are pretty numerous, but the Nuclear Information and Resource Service’s report Killing . . . → Read More: The Proposed Exelon-Pepco Merger: A Basic Primer

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