Exelon Offers $7B for Pepco, Parent of Atlantic City Electric & Gas

Picking up NJ utility would give energy conglomerate half-million customers in southern part of state

Exelon Corp. is making another run at acquiring a New Jersey utility, this time Atlantic City Electric & Gas (ACE) in a proposed $6.8 billion deal to acquire its parent, Pepco Holdings.

The deal would give the Chicago-based energy conglomerate utilities serving more than 2 million customers in the Mid-Atlantic region, including a half million in southern New Jersey served by ACE. With other utilities spread across the region, the new company would serve approximately 10 million customers.

The acquisition fits a trend of big integrate- energy companies shifting capital expenditures to regulated utilities where they can earn a guaranteed rate of return, instead of investing in once-more-lucrative power plants, where prices have dropped in recent years because of historic low natural gas prices.

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Exelon, the nation’s largest operator of nuclear power plants, has long been seeking to extend its footprint in the Mid-Atlantic region. In 2006, its bid to merge with Public Service Enterprise Group, the owner of the state’s largest gas and electric utility and one of the biggest power suppliers in the region, fell apart when both companies balked at the terms state regulators imposed on the deal.

In 2011, Exelon purchased Constellation Energy, the owner of Baltimore Gas & Electric, for $7.9 billion. Pepco owns two other utilities: Delmarva Power, which provides electricity to customers in Delaware, and Pepco, which serves nearly 800,000 customers in Maryland and the District of Columbia.

Exelon’s purchase of Atlantic City Electric would require approval of the New Jersey Board of Public Utilities, although the issues before it in this deal would be far less contentious than those raised by the proposed Exelon and PSEG merger.

In that case, the BPU and opponents of the merger questioned whether the deal would have created an entity that would be able to exercise market power to spike electricity prices because of both companies extensive fleet of power plants. In the end, the companies refused to sell off the power plants that regulators made one the terms of the issue.

In the latest Exelon deal, that is not an issue, because Pepco has divested itself of all of its power plants. Instead, both companies said the acquisition will provide greater resources to invest in utility infrastructure, a pressing concern among state regulators given widespread power outages caused by extreme storms such as Hurricane Sandy.

Asked about potential problems with state regulators, Chris Crane, Exelon’s president and CEO, was diplomatic, saying the company has reached out to regulators without specifying in what states.

“We’ve learned a lot of things that worked in the past and those that did not work,’’ he said, conceding regulators have a tough job to do. “At the end of the day, we see a success path or we wouldn’t be doing this.’’

Energy analysts were more skeptical. “Little in New Jersey seems to be simple when it comes to energy regulation,’’ said Paul Patterson, an analyst with Glenrock Associates in New York City.

“You never know what you bring into the mix when a regulatory agency gets involved,’’ Patterson said. “What the state wants is unclear.’’

Others said the deal is a good deal for consumers.

“In this environment, it’s a smart move,’’ said Bob Marshall of the New Jersey Energy Coalition, which represents both Exelon and Pepco.

For utility customers, Exelon said the deal, if approved, would provide $100 million in benefits for ratepayers, equivalent to approximately $50 per customer in each of Pepco’s franchise territory — in the form of credits, assistance for low-income customers, and energy efficiency measures.

During the conference call with analysts, Crane repeatedly said the acquisition of Pepco does not represent a shift in Exelon’s commitment to expanding its base by developing new power plants or acquiring units. “This will not distract us from anything on the power side,’’ he said.