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FERC Approval of Exelon-Pepco Merger Is a Step Back

November 25, 2014
Cathy Kunkel

By Cathy Kunkel

By approving Exelon Corp.’s acquisition of Pepco Holdings Inc. last week, the Federal Energy Regulatory Commission (FERC) dealt a potential blow to the development of renewables and energy efficiency in the mid-Atlantic.

The deal still has to be approved by state-level public service commissions that regulate Pepco. The company provides electricity to markets in Delaware, Maryland, New Jersey, Washington, D.C., and Virginia (which has given the merger the green light). Those clearances may be a foregone conclusion, however.

The proposal is the regional manifestation of a broader trend of utility-sector consolidation that has companies looking for growth through acquisitions. Owning Pepco’s regulated distribution utilities—which are guaranteed profits because of their imprimaturs as regulator-approved businesses—would provide a steady income stream to Exelon even as its unregulated competitive-generation business continues to be challenged by low wholesale power prices.

These aren’t exactly disinterested players when it comes to renewable-energy markets or energy efficiency.

Pepco Holdings properties include Pepco, Delmarva Power, and Atlantic City Electric—all solely in the business of purchasing and selling electricity and/or natural gas to customers. As one of the largest utility-holding companies in the U.S. and one of the largest owners of nuclear power plants in the country, Exelon has an incentive to try to push wholesale power prices higher, earning more money for its unregulated power plants. That means it has a direct incentive to oppose renewable energy development, since renewables push wholesale power prices lower. The same is true of energy-efficiency initiatives.

History is a guide on this point. Exelon recently opposed an increase in Maryland’s renewable portfolio standard that would have required Maryland’s distribution utilities to source more electricity from renewable source, and it also opposed legislation in Maryland that would have facilitated the development of distributed renewables. Exelon is seen, too, as the primary force behind the defeat of renewables legislation in Illinois this past year. Renewable-energy supporters rightly fear that if the Pepco merger goes through, Exelon will act to stifle renewable programs in the mid-Atlantic.

Testimony earlier this month before the District of Columbia Public Service Commission by Scott Hempling, an expert witness, summed up the situation precisely: “Approval would subject Pepco’s customers to a conflict of interest lasting as long as Exelon lasts.”

Cathy Kunkel is an IEEFA fellow.

Cathy Kunkel

Former Energy Finance Analyst Cathy Kunkel has written reports and given expert testimony on the finances of 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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