Exelon, Pepco file merger settlement in Delaware, enhance proposed package in D.C.

Exelon (NYSE:EXC) and Pepco Holdings (NYSE:POM) as well as its subsidiaries Potomac Electric Power Company (Pepco) and Delmarva Power & Light, in a Feb. 18 filing, advised Maryland state regulators that a settlement agreement involving the proposed merger between Exelon and Pepco Holdings has been filed with Delaware state regulators.

According to the filing, Exelon, Pepco Holdings and Delmarva Power on Feb. 13 submitted a motion to the Delaware Public Service Commission (PSC) to amend the scheduling order in Docket No. 14-193 regarding the proposed merger because a settlement agreement was executed by the PSC staff, the Division of Public Advocate, the Department of Natural Resources and Environmental Control, the Delaware Sustainable Energy Utility, the Mid-Atlantic Renewable Energy Coalition and the Clean Air Council.

That motion comes on the heels of the New Jersey state regulators’ Feb. 11 approval of the companies’ proposed merger.

According to the Feb. 13 motion filed in Delaware, which the companies included in their Feb. 18 filing with the Maryland PSC, the current scheduling order sets evidentiary hearings before the Delaware PSC for Feb. 18-20.

In light of the settlement reached by the parties, the companies said that they move to amend the scheduling order by canceling the evidentiary hearings scheduled for Feb. 18-20, and in lieu thereof scheduling a hearing before the PSC, to be administered by the hearing examiner, to consider whether the settlement agreement is in the public interest.

In order to allow all parties and the PSC time to consider the settlement agreement and to accommodate other scheduling matters, the companies said they propose a date of April 21 for a hearing to consider the proposed settlement agreement, with the PSC issuing its order by May 5.

The companies noted that the settlement agreement provides for, among other things, significant savings for ratepayers, including a larger customer payment than originally proposed, and a workforce development initiative.

According to the settlement agreement, upon consummation of the merger and for at least the first two years following that consummation, Exelon and Delmarva Power will not allow a net reduction, due to involuntary attrition as a result of the merger integration process, in the employment levels at Delmarva Power, and will continue their commitments to workforce diversity.

Also upon consummation of the merger, Exelon will initiate a workforce development effort that will partner with Delaware Technical and Community College, among others, and will implement and fund the program through a $2m grant over four years, with the objective of providing a pipeline of trained Delawareans in such areas as energy efficiency.

The agreement further noted that the settling parties recognize the importance of a balance between the reliability improvements that can be achieved with increased investments and the impact to customers for the recovery of those costs. According to the agreement, Delmarva Power agrees that it will maintain its 2015-2019 reliability capital budgets at a level no greater than $225m.

In addition, in lieu of the customer investment fund proposed in the companies’ application, after consummation of the merger, Exelon will make total payments of about $49.2m to residential customers over 10 years. The total monthly credit for all residential customers will remain fixed at $409,750 during that time period and will be provided as a bill credit to residential customers starting within 60 days after the merger is consummated, and will continue until the approximate $49.2m is depleted.

The settlement also noted that Delmarva Power will not seek recovery in distribution rates of the acquisition premium or goodwill associated with the merger, or the transaction costs incurred in connection with the merger by Exelon, Pepco Holdings or their subsidiaries.

Among other things, the settlement noted that Exelon commits that Atlantic City Electric, Delmarva Power, Pepco, PECO and Baltimore Gas and Electric will remain as members of PJM Interconnection until Jan. 1, 2025; provided, however, that if there are significant changes to the structure of the industry or to PJM during that period that have material impacts on those companies, then any of those companies may file with FERC to withdraw from PJM.

In a Feb. 13 notice, the Maryland PSC modified the briefing schedule in its proceeding on the merger (Case No. 9361), noting that all parties’ initial briefs are to be filed by March 3, followed by reply briefs to be filed by March 17.

District of Columbia changes outlined

In a joint Feb. 18 statement, Exelon and Pepco Holdings said that they have enhanced their proposed package of merger benefits in the District of Columbia to provide even greater benefits to Pepco customers, their communities and the District (Case No. 1119).

The companies said they have proposed to increase the value of the District customer investment fund to about $33.8m from $14m, adding that the District PSC will determine the use of the funds for direct customer benefits, such as rate credits, energy efficiency or low-income assistance.

In addition, another $51.2m in projected merger savings over 10 years will flow back to District customers through rates lower than they would be absent the merger.

The companies added that their prior commitments for maintaining Pepco’s local presence, continuing its support for the community, and promoting Pepco’s low-income customer assistance, energy-efficiency and demand-response programs have not changed. Their commitments related to Pepco employment as well as workforce and supplier diversity, remain the same as well.

The companies further noted that they have enhanced their commitments for reducing the frequency and duration of power outages in the District. Pepco’s reliability performance will meet or exceed the PSC’s existing standards for the period from 2018 to 2020. Under the new targets, Pepco’s average outage frequency in its District operational area will not exceed 0.66 outages, and its average outage duration in its District operational area will not exceed 90 minutes.

According to the Feb. 17 filing made with the District PSC, if that level of reliability improvement is not achieved across either System Average Interruption Frequency Index (SAIFI) or System Average Interruption Duration Index (SAIDI), the return on equity to which Pepco would otherwise be entitled in its next electric distribution rate case filed after Jan. 1, 2021, will be reduced by 50 basis points.

The companies noted in the statement that following the expiration of the U.S. Department of Justice’s review period on Dec. 22, 2014, the Hart-Scott-Rodino Act no longer precludes completion of the merger. The transaction was approved by the New Jersey state regulators in February, by FERC last November, by Virginia state regulators last October, and by Pepco Holdings stockholders last September. The companies added that they expect to complete the merger in 2Q15 or 3Q15.

About Corina Rivera-Linares 3286 Articles
Corina Rivera-Linares was TransmissionHub’s chief editor until August 2021, as well as part of the team that established TransmissionHub in 2011. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial from 2005 to 2011. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines.