Energy Regulators, Advocates Wary of Merger’s Impact on Consumers

Tom Johnson | August 14, 2014 | Energy & Environment
Worry is that Exelon acquisition of Atlantic City Electric would give it too much control of transmission facilities in regional power grid

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Mergers are a way of life in the energy industry, but Exelon’s proposed $6.8 billion deal to acquire Pepco Holdings Inc., the owner of Atlantic City Electric, is raising concerns among some regulators and an independent organization affiliated with the nation’s largest power grid.

In filings with the Federal Energy Regulatory Commission (FERC), the issues largely revolve around worries that Exelon’s acquisition of Pepco (PHI) might end up leading to energy generators having too much power – at the expense of consumers — in decisions made by the PJM Interconnection, the operator of the regional power grid.

Unlike Exelon, the nation’s largest operator of nuclear power plants, PHI has divested its generation plants and operating electric utilities in Maryland and the District of Columbia, and in Delaware and the Delmarva Peninsula, as well as Atlantic City Electric, which serves 542,000 customers in southern New Jersey.

In a filing with FERC, the Delaware Public Service Commission said PHI has typically been pro-consumer through its votes in the PJM stakeholder process.

“With the merger, PHI would no longer be able to vote separately from Exelon,’’ according to the filing. “Rather, if PHI merges with Exelon, PHI’s pro-consumer interests, positions and votes will cease.’’

The end result could be consumers lose important votes in the PJM, with power suppliers gaining more control to affect decisions, according to the filing.

In a separate filing, the District of Columbia’s Office of Public Counsel expressed similar concerns. “By combining so many regulated and unregulated affiliates under one corporate umbrella, the PJM stakeholder process will likely disproportionately reflect the views of one corporation,’’ that agency said, according to the filing.

The Independent Market Monitor for PJM, which oversees and promotes competition within the regional power grid, also expressed concern, noting that the newly combined company would account for nearly a quarter of the power-transmission assets in the PJM market.

“The combined owner will have substantial and increased influence over decisions that directly relate to competition in PJM among developers of transmission projects,’’ the filing said.

Public Citizen Inc., a Washington, D.C.-based public interest group, also weighed in against the merger, saying it would shift the operational risk stemming from Exelon’s dealings in the wholesale power market from the company’s shareholders to Pepco’s nearly 1.4 million “captive” household ratepayers.

“The reason so many Wall Street analysts cheered the proposed acquisition of Pepco is that Pepco’s 1.4 million captive ratepayers within Exelon’s footprint handily offset Exelon’s increasingly volatile wholesale market operations,’’ the filing said.

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

Exelon’s proposed acquisition of Pepco, including taking over Atlantic City Electric, would also require approval from the New Jersey Board of Public Utilities. Eight years ago, the BPU torpedoed a proposed merger with the Public Service Enterprise Group when both companies balked at the terms state regulators imposed on the deal. This latest deal, however, is likely to be less contentious than that prior proposed merger, according to analysts.