Exelon’s Takeover of Maryland’s Pepco Approved by Regulators

Exelon Corp.’s $6.8 billion takeover of Pepco Holdings Inc. was approved by Maryland regulators over the objections of the state’s top lawyer who argued it would slow the growth of rooftop solar.

The 3 to 2 decision posted Friday on the Maryland Public Service Commission’s website includes 46 conditions. Exelon still needs approval in Delaware, where a settlement has been proposed to the utility regulator, and by the District of Columbia Public Service Commission. Pepco serves 1.3 million customers in Washington, its neighboring Maryland suburbs and Delaware.

Friday’s order requires Exelon, the nation’s biggest nuclear plant operator, to meet higher reliability standards, provide $66 million in credits for its residential customers in Maryland and pump $43.2 million into energy efficiency programs, according to a statement from the commission.

“There are no onerous terms here for Exelon,” said Charles Fishman, a Chicago-based analyst for Morningstar Inc. “Exelon’s challenge here is to improve reliability. Maryland and D.C. had punished Pepco with some of the lowest rates in the nation because of poor reliability.”

Pepco rose 8.8 percent to $27 at the close. Before the announcement it slid to $24, its low for the year. Exelon rose 2.9 percent to $34.50.

Exelon is “pleased” with Maryland’s decision and will “carefully review” the commission’s terms before saying more, Paul Adams, a Baltimore-based spokesman for the company, said in an e-mail.

Market Clout

Maryland attorney general Brian E. Frosh said the combination would give Exelon enough market clout to favor its high-cost nuclear reactors at the expense of residential solar systems. Chicago-based Exelon countered with a promise to develop 15 megawatts of solar power in the state, and to create a $19.8 million fund to encourage investment in rooftop solar and energy efficiency.

Exelon offered $27.25 a share in cash for Pepco last April, in a deal to expand its holdings in the mid-Atlantic and reduce reliance on dwindling profit from its nuclear plants.

“The evidence shows that Exelon intends to control the pace of development of distributed energy resources,” Frosh said in a filing with the commission. Solar and wind, “while threatening to Exelon’s central station merchant power plants, offer unprecedented and transformative opportunities for Maryland consumers.”

Higher Rates

The takeover will lead to higher electricity rates and make it harder for Maryland and the District of Columbia to meets its renewable energy goals, Tyson Slocum, energy-program director at Public Citizen, a nonprofit consumer watchdog group in Washington, said in a statement.

“Exelon has demonstrated that it knows how to run electric and gas distribution companies; indeed it is nationally recognized for its standards of excellence, and Maryland’s consumers will be better off for it,” the commission wrote in its order.

The commission gave Exelon until May 26 to respond to the decision.

“The stock’s movement speaks for itself,” said Paul Patterson, a New York-based analyst for Glenrock Associates LLC. “The focus will now turn to the DC Public Service Commission and it will interesting to see how they come down.”

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