The District of Columbia and Maryland are the last hold-outs now against the proposed acquisition by Exelon Corp. of Pepco Holdings, one of the major utility companies in the mid-Atlantic and the parent company of Delmarva Power, Pepco and Atlantic City Electric.
The merger would be a bad deal for ratepayers, as we detailed in a report we published in January (“Exelon’s Proposed Acquisition of Pepco: Corporate Strategy at Ratepayer Expense”). The merger has been approved nonetheless by the Federal Energy Regulatory Commission and by three of the five jurisdictions in which Pepco does business. Virginia, Delaware and New Jersey have signed off, leaving Maryland and D.C. as the last bastions.
In our January report we explained how the deal would hurt D.C., and the same case can be made for Maryland. We see three reasons not to let it go through:
- It would expose customers to rate increases aimed at supporting Exelon’s struggling nuclear-generation fleet;
- It would undermine local renewable-energy initiatives;
- It would expose customers to long-term risks that are significantly larger than the short-term protections and public benefits Exelon claims.
Maryland and D.C. are wary for good reason, and Maryland’s resistance in particular comes, thankfully, as no surprise. Attorney General Brian Frosh, calling in last week to the Kojo Nnamdi Show on American University NPR affiliate WAMU, said skepticism comes well deserved, in part due to Exelon’s failure to show how its takeover would provide customers “adequate, tangible” benefits. Frosh also noted—as we have noted—that Exelon is angling to shore up revenues to support its nuclear-generation fleet, which totals 23 reactors scattered across Illinois, Maryland, New Jersey, New York and Pennsylvania. All of Exelon’s reactors are having trouble competing with natural-gas-fired plants, which is why the company is seeking outside revenue to support them.
Maryland also has its history with Exelon to consider. Regulators approved Exelon’s acquisition of Baltimore Gas & Electric in 2012, and BG&E customers have seen four rate increases since then. What’s more, Maryland legislators have been subject to Exelon’s tireless local campaign against renewable energy legislation, a campaign that would only grow stronger if the merger goes through. Approval would mean Exelon would control over 80 percent of Maryland’s retail electricity market, beefing up its political muscle within the state.
Exelon has sweetened the pot by making “enhanced commitments” in both D.C. and Maryland. In Maryland, these “enhanced commitments” include increasing a one-time payout to customers (from $50 to $128) and promising higher reliability metrics.
Exelon made these fresh promises after the evidentiary hearings in that ran Feb. 26-Jan. 10 in Maryland, at which Exelon’s witnesses were cross-examined on the company’s original case. Now that those hearings are concluded, other parties have no opportunity to offer additional evidence to contest Exelon’s new claims or to cross-examine Exelon witnesses on those claims. Such ploys not only violate the due process of merger opponents but also call into question the credibility of Exelon’s pitch, as noted astutely by the Maryland Energy Administration in its post-hearing reply brief, coming as it did “barely three weeks after [Exelon] witnesses swore repeatedly that, for both legal and engineering reasons, they neither could nor would set annual [reliability] targets absent the completion of a six-month circuit-by-circuit analysis.”
Exelon then cut a side deal with seven of the eighteen other parties in the case. The proposed settlement with these parties, which would have to be adopted by the Maryland Public Service Commission before any settlement is formalized, underscores Exelon’s strategy across the entire case: offering relatively short-term commitments and benefits to certain special interests in exchange for their support.
Final briefs in the case were filed with the Maryland Public Service Commission last week. Of note among those filings was one by the Maryland Office of People’s Counsel, a state agency representing residential utility customers, which repeated its staunch opposition to the merger on the grounds that it ignores long-term consequences.
And Attorney General Frosh pulled no punches in his filing, which he made on behalf of the Maryland Energy Administration, stating that Exelon’s scheme “is grossly deficient” and that “the merger portends serious competition harms.”
Frosh added this in his tartly worded objection: “The commission should not engage in regulatory cartwheels in a fruitless effort to save the deal. The proposed merger is bad for Pepco and Delmarva ratepayers and for the State of Maryland as a whole. The application should be denied.”
A decision is expected from the Maryland commission by the end of April, and from the District of Columbia Public Service Commission by May 13.
Will these commissions do the the right thing and disallow this harmful merger?
Cathy Kunkel is an IEEFA fellow.
