Surprise Decision Gives Pepco-Exelon Merger Regulatory Green Light

Tom Johnson | March 24, 2016 | Energy & Environment
Exelon would pick up Atlantic City Electric and become a bigger player in the New Jersey power market

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The nation’s largest utility appears to be gaining a bigger foothold in New Jersey.

In a surprise decision, the District of Columbia Public Service Commission yesterday narrowly approved a merger between Pepco Holdings, Inc., the owner of Atlantic City Electric, and Exelon.

The decision, which reversed an earlier rejection of the deal by the commission last summer, is the final regulatory approval needed for the $6.8 billion deal to go forward — if Exelon accepts the terms of the settlement approved 2-1 by the district agency.

For the more than half a million customers of Atlantic City Electric, the merger means they will receive up to $62 million in rate credits approved by the New Jersey Board of Public Utilities in February 2015.

The merger would create the nation’s largest utility with about 10 million customers and establish Exelon, the country’s largest operator of nuclear power plants, as a major presence in New Jersey. A decade ago, the Chicago-based energy giant’s bid to acquire Public Service Enterprise Group, the owner of the state’s largest utility, fell apart.

Atlantic City Electric deferred comments to Exelon, which has 30 days to accept the deal approved by the District of Columbia. As late as yesterday, the merger appeared to be in doubt as shares of Pepco fell to a 52-week low on the eve of the much- awaited vote.

[related]“It’s a clearly a surprise to the market,’’ said Paul Patterson, an energy analyst with Glenrock Associates in New York City. Wall Street apparently feels Exelon will go along with the terms set by the DC regulators as shares of Pepco rose by 25 percent after the vote.

The proposed merger was hugely controversial in Washington D.C., opposed at points by consumer advocates, the mayor’s office, and others.

In a statement, Allison Fisher, outreach director for Public Citizen’s Energy Program, expressed disappointment. “This is a huge loss for consumers, a discouraging setback for the institutions entrusted to protect them and a sad commentary on how things are done in the District,’’ Fisher said.

The merger deal was first announced in May 2014 and the time it took to resolve the issue underscores how difficult it is to secure approval from regulatory bodies in multiple states. Previously, regulators in Maryland, Delaware, and Pennsylvania had approved the merger as had the Federal Energy Regulatory Commission and the Justice Department.

Unlike Exelon, Pepco no longer owns any generating assets, although it delivers electricity to more than 2 million customers. With power prices in decline, companies like Exelon have been relying more on their regulated utilities to provide earnings, albeit with lower, but guaranteed returns on their investments.

Exelon is the owner of the Oyster Creek nuclear plant in Lacey Township, the nation’s oldest commercial nuclear unit. It also owns shares in the Salem nuclear plants in South Jersey and the Peach Bottom unit in Pennsylvania.