Maryland PSC approves Exelon/Pepco merger – with conditions

The Maryland Public Service Commission on May 15, in a tight 3-2 decision, approved, with conditions, the application to merge Exelon Corp. (NYSE: EXC), Pepco Holdings Inc. (PHI), Delmarva Power & Light and Potomac Electric Power.

The commission’s approval lists 46 conditions, including higher reliability standards, a $100 rate credit for Delmarva and Pepco residential customers and $43.2 million for energy efficiency programs in Prince George’s and Montgomery counties and the Delmarva service territory. The commission approved two settlement agreements between the joint applicants and multiple parties in the case with some modifications. 

A major condition of the merger is a requirement that Delmarva and Pepco meet aggressive reliability performance standards from 2016 through 2020 within projected budget targets and subject to penalties for non-compliance.

Under the merger, Delmarva and Pepco will share support functions with Exelon’s other distribution utilities, including Baltimore Gas and Electric (BGE) in Maryland, PECO Energy in Pennsylvania and Commonwealth Edison in Illinois. The commission found that the sharing of best practices among Exelon’s distribution companies “will lead to day-to-day operational efficiencies and increased effectiveness, reducing operating expenses and ultimately rates for customers lower than they otherwise would have been.”

The commission said it revised certain commitments made by Exelon to ensure a balance between short- and longer-term benefits to customers. Among other conditions, Exelon is ordered to provide to Delmarva and Pepco customers $66 million for residential rate credits, and $43.2 million for energy efficiency initiatives – 20% of which shall be dedicated to limited-income programs.

The commission also ordered Exelon to provide $14.4 million in Green Sustainability Funds for Prince George’s and Montgomery Counties, and $4 million for sustainable energy workforce development programs. Additionally, Exelon must provide for the construction of 20 MW of renewable energy generation, 10 MW each in the Delmarva and Pepco Maryland service territories.

The commission imposed enhanced “ring fencing” measures to ensure that Delmarva and Pepco customers are protected from any possible financial risks associated with Exelon’s generation businesses. “These robust protections are similar to those imposed by the Commission to protect BGE customers and will likewise mitigate any potential harm to Delmarva and Pepco ratepayers,” said the PSC in a May 15 statement.

The proposed transaction, in which Exelon proposes to acquire PHI in an all-cash transaction for approximately $6.8 billion, needs approvals from four states, the District of Columbia and the Federal Energy Regulatory Commission. The joint applicants must accept or decline the Maryland Public Service Commission’s conditions for approval by May 26. The May 15 order included a dissent from Commissioners Harold D. Williams and Anne E. Hoskins.

Exelon and Pepco Holdings (NYSE: POM) said in a May 15 joint statement: “We are pleased that the Maryland Public Service Commission has approved our merger. However, the Commission’s order modifies a number of the proposed conditions and we must carefully review it in its entirety. Our proposal delivers significant economic benefits to Maryland customers, increases reliability, promotes energy efficiency and advances clean energy as part of a long-term commitment to improve service and modernize our grid. We will have more to say once we have time to study the order.”

Exelon is the nation’s leading competitive energy provider, with 2014 revenues of approximately $27.4 billion. Headquartered in Chicago, Exelon does business in 48 states, the District of Columbia and Canada. Exelon is one of the largest competitive U.S. power generators, with approximately 32,000 megawatts of owned capacity comprising one of the nation’s cleanest and lowest-cost power generation fleets.

Pepco Holdings is one of the largest energy delivery companies in the Mid-Atlantic region, serving about 2 million customers in Delaware, the District of Columbia, Maryland and New Jersey.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.