Exelon, Pepco Weighing New Takeover Terms After DC Rejection

  • Regulators give 14 days for parties to review revised deal
  • Proposal offers new path for Exelon's $6.8 billion takeover

Exelon Corp.is weighing new terms for its $6.8 billion takeover of Pepco Holdings Inc. after Washington regulators rejected its latest proposal for the deal.

The District of Columbia’s Public Service Commission voted to reject an earlier merger settlement and to present new conditions, the commission said Friday in a statement. If those terms are accepted within 14 days, the takeover is approved with no further action.

After nearly two years trying to gain regulatory approvals for the tie-up and two denials, Exelon must now weigh new conditions that one analyst characterized as “minor.” Chief Executive Officer Chris Crane said on Feb. 3 that without a decision from Washington by March 4, Exelon would walk away from the deal. A sign-off from Washington is the last one needed by the companies.

"The amendments are a clear path for approval and provide more clarity than we expected," Shahriar Pourreza, a utility analyst for Guggenheim Securities LLC, wrote Friday in a research note. Exelon will agree to the terms "given how the amendments seem relatively minor."

Chicago-based Exelon is reviewing the new provisions to decide if they are acceptable, spokesman Paul Elsberg said in a statement. “Once we have had a chance to study the order and confer with the settling parties, we will have more to say about what it means and our next steps," Elsberg said.

Predictable Revenue

Crane wants to add Pepco’s predictable utility revenue to help reduce his company’s reliance on power sold into competitive wholesale markets by Exelon’s nuclear power plants, the largest collection in the nation. Some of Exelon’s reactors have been losing money due to low prices.

Commissioner Joanne Doddy Fort and Commissioner Willie Phillips voted in favor of considering the alternative terms, which would allow the transaction go forward if the parties agree. Chairman Betty Ann Kane dissented, saying the alternative proposal was not in the public interest.

Utility Consolidation

Other opponents of the takeover decried the new proposal.

"This is a huge loss for consumers, a discouraging setback for the institutions to protect them and a sad commentary on how things are done in the District," said Allison Fisher, public outreach director for Public Citizen.

The U.S. utility industry is consolidating in the face of stagnant sales and increasing costs to replace old infrastructure as well as comply with more stringent pollution rules. Since 2014, about $123 billion worth of utility takeovers have been announced in the U.S., according to data compiled by Bloomberg.

The alternative proposal would defer a decision on the allocation of $25.6 million of customer credits until Pepco’s next rate case, remove Exelon as the developer of a 5-megawatt solar facility at a D.C. water treatment plant, create a $32.8 million fund out of a promised $72.8 million in customer investments for upgrading Pepco’s distribution system and for energy-efficiency programs for low-income residents and strike provisions regarding Pepco developing microgrids.

Mayor’s Review

"We’re pleased that they offered that, and we’re going to study it, and we hope to have some decision soon," Vincent Morris, a Pepco spokesman, told reporters after the meeting. "We need to review them first.”

Exelon reached a settlement with Mayor Muriel Bowser in October after the commission first voted down Exelon’s proposal in August. Parties involved in the settlement include D.C.’s Attorney General and the Office of the People’s Counsel.

Bowser is reviewing the new order "to determine if it meets our goals for ratepayers, especially residents," according to a statement.

Exelon fell 0.1 percent to $31.97 at 1:02 pm in New York. Pepco rose 1 percent to $26.78.

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