Proposed Exelon, Pepco Merger Could Mean Fewer Outages for ACE Customers

Tom Johnson | September 26, 2014 | Energy & Environment
$7B deal would give Atlantic City Electric more money to beef up its infrastructure, company executives maintain

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If a proposed merger between Exelon Corp. and Pepco Holdings Inc., the owner of Atlantic City Electric (ACE), wins approval, it will reduce power outages for the utility’s 545,000 customers by one-third, according to executives of the companies.

The $6.8 billion merger, announced this past May, would provide greater resources to invest in utility infrastructure to improve reliability and provide modest benefits to ACE customers in the form of credits, assistance for low-income customers, and energy efficiency measures, executives said in an interview with NJ Spotlight.

Under the proposal submitted to regulators, a $100 million fund for customer benefits will be established, with $29 million allocated to ACE. For customers, that could amount to a one-time benefit of approximately $50.

“With the merger, it brings tremendous value to what we can do,’’ said Vincent Maione, president of the utility, which serves customers in eight southern counties of New Jersey.

The merger also would enhance the ACE’s efforts to respond to extreme storms by calling on utilities owned by Exelon in nearby states. The target of reducing power outages by one-third, however, does not apply to major storms when more than 10,000 customers lose power, according to Maione.

The deal needs to be approved by regulators in five different states, including by the New Jersey Board of Utilities. In 2006, a merger between Exelon and Public Service Enterprise Group fell apart after the companies balked at conditions imposed by the agency as condition of approval.

This combination may prove less contentious, largely because many of the issues in the previous proposed merger are not reflected in this case. That’s mainly due to the fact that this proposal chiefly involves merging utilities without power plants into Exelon, the nation’s largest operator of nuclear power plants. PSEG owns a large fleet of power plants, and officials worried the new entity in its proposed deal with Exelon could exercise market power to spike electricity prices.

Other states and some consumer advocates, however, say Exelon’s acquisition of Pepco would quash the ability of its independent utilities to influence policies at PJM Interconnection, the operator of the regional power grid, on issues important to consumers in favor of power generators. Executives dismissed those arguments.

In a brief submitted to the Federal Energy Regulatory Commission, the companies claimed all of the transmission facilities owned by the applicants are under the control of PJM and will continue to be under PJM’s control after the consummation of the deal.

“As a result, the transaction does not increase in any respect the ability of the applicants to use their ownership or control of transmission facilities to give themselves a competitive advantage in energy markets,’’ according to the brief.

The economies of scale created by combining the three Pepco utilities with the three Exelon already owns could prove beneficial to customers of ACE, according Paul Bonney, senior vice president and deputy general counsel at Exelon.

“We do expect ACE to provide service more cheaply,’’ he said.

If the deal wins approval, the new company would serve 10 million customers, making it one of the largest owners of utilities in the nation, according to Amy Trojecki, director of corporate affairs for Exelon.

If so, about 60 percent of Exelon’s revenues will come from the utility business, a trend reflected by other large energy conglomerates that own power plants, which have struggled in recent years as electricity prices have dropped significantly because of low natural gas prices.

The company hopes to have the merger closed in the second or third quarter of 2015, an aggressive timetable given how slow state regulatory agencies tend to operate. In New Jersey, however, the matter is going to be heard directly by a BPU commissioner, rather than going through an administrative law court proceeding, which can considerably lengthen the time frame.

Beyond committing to improving reliability, the companies have pledged to honor contracts — and even extend them in the case of ACE. They also pledge to maintain charitable donations for a decade, a $50 million commitment. Finally, ACE will retain its headquarter locations in Mays Landing, according to Bonney.