Did the D.C. Commission Issue a Stealth Exelon-Pepco Merger Approval?

The District of Columbia Public Service Commission (PSC) on Friday (Feb. 26) rejected a restructured $6.8 billion merger proposal between Exelon and local electric utility Pepco, but offered a counter proposal with conditions that the two companies are likely to approve easily, according to local opponents of the merger.

The commission turned down the merger last year, with Betty Ann Kane, the commission chair, arguing that the deal was "not in the public interest." Exelon and Pepco then went to D.C. Mayor Muriel Bowser. The parties worked out a proposed settlement, with an additional $78 million in benefits to the city. That required PSC approval.

The commission on Friday rejected the Bowser deal by a 2-1 vote, then approved a counter-offer by a 2-1 vote, which contains what many observers consider minor conditions for the two companies to meet. The most significant, according to several accounts, is installation of a 5-MW solar facility at the city's Blue Plains wastewater treatment plant.

"It appears they want it to happen," Pepco spokesman Vincent Morris said of the PSC action.

Under the PSC's plan, Exelon and Pepco Holdings Inc. have 14 days to approve the new conditions. If they do, the merger is approved. No further PSC vote will be necessary, allowing the members of the commission to say they voted against the merger, while it goes forward.

Chairman Kane, who voted against the concessions offer, denounced the PSC action on Washington public radio station WAMU (American University). D.C. council member Mary Cheh called the concessions "immaterial" on the radio show. In a written statement, council member Elissa Silverman said, "While the PSC officially rejected the merger, the proposed changes are so minor that the PSC is essentially approving the merger. The four additional conditions that two of the three commissioners want are lipstick on a pig; these terms do not change the fact that this merger is a step backward."

If the companies accept the conditions, the merger goes into effect automatically. It has already won approval from the Federal Energy Regulatory Commission and Delaware, Maryland, New Jersey, and Virginia state regulators, although it faced opposition in New Jersey and Maryland.

The deal would create the nation's largest utility in terms of number of customers, with nearly 10 million accounts. Exelon offered $27.25/share for Pepco when the merger was announced two years ago. RTO Insider commented, "The deal continues a shift by utilities to increase their regulated assets, with their dependable earnings, and decrease their reliance on volatile merchant generation." Pepco has no generation, buying its power from the PJM Interconnection and passing it through its transmission and distribution network to its customers, primarily located in D.C. and Montgomery County, Md., as well as customers in New Jersey, Delaware, Maryland, and Virginia through its 2000 merger with Connectiv, parent of Atlantic City Electric and Delmarva Power.

-Kennedy Maize is a long-time energy journalist and frequent contributor to POWER.

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