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Exelon’s Appeal of D.C. Refusal to Allow Electric-Company Takeover Dodges the Core Doubts

September 29, 2015
Cathy Kunkel

In its petition this week asking the District of Columbia’s Public Service Commission to rethink its decision not to let Exelon Corp. take over Pepco Holdings, Exelon ignores the underlying reasons for why the merger would be a bad deal for D.C ratepayers.

The appeal makes no mention, for instance, of the elephant in the room: That in seeking to acquire a regulated subsidiary, the company is angling to prop up its struggling merchant generation business (such an arrangement would position Exelon to extract more money from customers of Pepco, which is D.C.’s electricity company, through higher rates and affiliate transactions).

The petition also fails to speak to the risk that Exelon—if it gets its hands on Pepco—would squelch D.C.’s renewable-energy momentum. It repeats the company line that Exelon is an “industry leader” in renewable energy, presumably because it owns utility-scale renewable energy in other parts of the country. But it expresses no support for distributed solar in D.C. or any commitment to meeting the district’s renewable-energy goals.

Exelon shows particular mettle in its appeal by arguing that the commission has a statutory obligation to propose conditions under which it would find the transaction to be in the public interest, arguing essentially that there is no circumstance under which the commission can outright reject the merger.

The petition comes at the 11th hour. Exelon filed it minutes ahead of a 30-day deadline, asking the commission to rethink its strongly worded decision in August blocking the Chicago-based company’s proposed $6.4 billion acquisition of Pepco. The District of Columbia was the last jurisdiction to rule on the proposal, and remains the sole obstacle. The deal was approved in Maryland, Delaware, Virginia and New Jersey.

THE D.C. PUBLIC SERVICE COMMISSION’S REJECTION OF THE DEAL SEEMED TO SURPRISE EVERYONE, INCLUDING EXELON AND ITS SHAREHOLDERS. The company’s stock price has fallen 11 percent since D.C. rejected the merger. Analysts have speculated on various ways Exelon could try to make the deal go through even if it loses its appeal to the commission. It could submit an entirely new application. It could negotiate a settlement with D.C. that would let it proceed in some fashion. It could take the case to the District of Columbia Court of Appeal. It could try to purchase only that portion of Pepco that serves territory outside D.C.

And the company is clearly pursuing other options. D.C. Mayor Muriel Bowser released a statement yesterday confirming that her administration is engaged in “substantive discussions” on a settlement agreement “that would address, in a new application, the administration’s concerns.”

Any such deal would have to be presented to the Public Service Commission for review and public comment. But even if Exelon is not able to come to a political agreement that would allow the deal to go through, it could go to court (the commission has 30 days to respond to Exelon’s petition for reconsideration).

None of these machinations get at the heart of the matter. As the commission acknowledged when it rejected the merger in August, much is at risk:

“The Commission must decide who will control the District’s only local electric distribution company at a time when our city’s leadership, at the urging of many residents, has mandated that the District must pursue a cleaner and greener future that includes more renewable energy resources and more distributed generation and at a time when the electric utility industry is undergoing significant transformation.”

Nothing in Exelon’s petition for reconsideration suggests that the commission should arrive at a different conclusion than it reached in August.

Cathy Kunkel is an IEEFA energy analyst.

Cathy Kunkel

Cathy Kunkel is the Energy Program Manager at CAMBIO PR, a non-profit organization based in Puerto Rico that designs, promotes and implements sustainable policies and practices. 

Cathy also served as an IEEFA Energy Finance Analyst for 7 years, researching Appalachian natural gas pipelines and drilling; electric utility mergers, rates and resource planning; energy efficiency; and Puerto Rico’s electrical system. She has degrees in physics from Princeton and Cambridge.

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