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Proposed Merger of Atlantic City Electric and Exelon Hits Regulatory Snag

Public Service Commission in D.C. raises concerns about higher prices, gives parent companies 30 days to file appeal

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In a decision last week, regulators in the District of Columbia rejected a proposed merger between Exelon Corp. and Pepco Holdings Inc., the parent company of the South Jersey electric utility. Exelon is one of the nation’s largest generators of electricity.

The unanimous ruling by the district’s Public Service Commission prevents the deal from clearing the final major regulatory hurdle to moving forward. The New Jersey Board of Public Utilities approved the $6.8 billion merger this past February. It also was given the go-ahead by the Federal Energy Regulatory Commission and regulators in three other states.

What happens next depends upon the two holding companies, which have 30 days to ask the commission to reconsider its decision. In blocking the deal, the commission acknowledged some benefits of the merger but said it would likely lead to increased costs to ratepayers.

In a joint statement, the two companies said they are reviewing their options.

The decision marks the second time Exelon has been blocked from acquiring a New Jersey utility. In 2006, a merger between Chicago-based Exelon and Newark-based Public Service Enterprise Group fell apart when the companies balked at terms imposed by the BPU as a condition to approve the deal.

“The bottom line is these things are difficult to do,’’ said Paul Patterson, an energy analyst at Glenrock Associates in New York City.

If the latest merger had been approved, it would have created one of the largest electric and gas utilities in the nation with nearly 10 million customers. Atlantic City Electric is the state’s third-largest electric utility with approximately 500,000 customers in South Jersey.

In rejecting the merger, the district commission cited concerns about a potential conflict of interest between PHI’s three utilities and its parent company and Exelon. It also questioned the new parent company’s embrace of a “cleaner and green environment,’’ as well as the district’s goal of using 50 percent renewable energy by 2032.

As part of the merger approval in New Jersey, the BPU directed the utility to deliver $62 million in direct rate credits to its customers and to provide $15 million in energy savings over a five-year period. It also committed to maintaining Atlantic City Electric’s headquarters in Mays Landing in Cape May.

The New Jersey Division of Rate Counsel declined to sign off on the merger settlement, arguing there was no limitation on post-transition costs.

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