The Public Service Commission of the District of Columbia on Feb. 26, in a 2 to 1 decision, rejected a settlement agreement covering the proposed takeover by Exelon Corp. (NYSE: EXC) of Pepco Holdings (NYSE: POM).
Chairman Betty Ann Kane and Commissioner Joanne Doddy Fort comprised the majority vote rejecting the settlement, with Commissioner Willie L. Phillips dissenting. However, Commissioner Fort proposed alternative terms for a revised agreement that would, if accepted by the settling parties, result in the approval of the merger without additional action by the commission, and asked for approval to send the alternative terms to the settling parties. Commissioner Phillips agreed to allow the alternative terms to be sent to the settling parties. If all the settling parties accept the revised deal with the alternative terms, the revised settlement as amended is approved with no further action required by the commission.
Chairman Kane dissented concluding that a revised agreement with the alternative terms would still not be in the public interest. The commission ruled by a vote of 2 to 1 that if all settling parties accept the proposed conditions within 14 days from the date of this order, the revised agreement and the Exelon/Pepco Merger will be approved as in the public interest without further commission action.
Chairman Kane and Commissioner Fort agreed that there are four areas that warrant rejecting the settlement as filed:
- the evidentiary record failed to provide a persuasive rationale for excluding non-residential ratepayers from sharing in the proposed $25.6 million allocation of the Customer Investment Fund (CIF) for base rate credit relief and failed to persuade the commission that the proposed allocation would not undermine the commission’s ability to address the negative rate of return that currently exists for residential ratepayers and the resulting subsidies that are placed on non-residential customers;
- the settlement assigns roles to Exelon, as developer of a solar generation facility at the district’s Blue Plains water treatment plant, and to Pepco, as a developer of four public purpose microgrids, that undermine competition and grid neutrality and are inconsistent with the district’s restructured market;
- the proposed uses of the CIF for sustainability projects and Low Income Home Energy Assistance Program (LIHEAP) payments do not improve Pepco’s distribution system nor advance the commission’s objective to modernize the district’s energy systems and distribution grid; and
- the proposed method of allocating the CIF funds to district government agencies and designated funds deprives the commission of the ability to ensure that all of the funds are being used to enhance the distribution system and benefit district ratepayers, and to enforce the terms of the settlement.
Commissioner Fort’s alternative terms resolve the four areas of concern by:
- deferring a decision on the allocation of the $25.6 million Customer Base Rate Credit until the next Pepco rate case;
- removing the provision that designates Exelon as the developer of a 5-MW solar generation facility at the DC Water Blue Plains Treatment Plant and requiring Pepco’s commitment to facilitate the interconnection of a 5-MW solar project for any vendor selected by DC Water through its procurement process;
- creating an escrow fund with two sub-accounts at Pepco to hold $32.80 million of the $72.8 million Customer Investment Fund funded by Exelon under the settlement, $21.55 million of which is to be used for pilot projects emerging from a case to modernize the district’s energy system, and $11.25 million of which would be used for energy efficiency and energy conservation initiatives with a primary focus on housing, including multifamily buildings, for low and limited income District residents; and
- striking as premature the provisions regarding Pepco’s role with the district to develop public purpose microgrids and requiring Pepco to facilitate and support the pilot projects under another case.
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. Subsidiaries Pepco, Delmarva Power and Atlantic City Electric provide regulated electricity service.