Exelon in Settlement Talks With Washington on Pepco Takeoverby and
Companies ask D.C. regulators to reconsider rejection
Utilities say proposal shortfalls can be 'easily cured'
Exelon Corp. and Pepco Holdings Inc. are in settlement talks with the Washington mayor’s office over a $6.8 billion merger proposal and have asked the city’s regulator to reconsider its rejection of the deal.
The District of Columbia Public Service Commission failed to explain conditions needed for approval of the merger, and deficiencies found in the companies’ proposal “can be easily cured,” Chicago-based Exelon and Washington-based Pepco said Monday in a filing with the agency. Separately, the office of Washington Mayor Muriel Bowser said it was in "substantive discussions" with Exelon and Pepco regarding a settlement agreement that would address the administration’s own concerns and potentially resurrect the merger.
The request for reconsideration with the D.C. PSC was filed Monday after the market closed. Pepco fell 0.4 percent to $23.815 as of 10:59 a.m. in New York, as Exelon added 0.2 percent to $29.27. The companies would file a new application with the commission if a settlement with the mayor’s office is reached, according to a statement by City Administrator Rashad Young.
The talks “suggest that the mayor’s office is open to a settlement and is presently negotiating in order to potentially get one,” said Paul Patterson, a New York-based analyst for Glenrock Associates LLC. “We will see what comes of this. It is an indication of how much the companies want to get this merger done versus the alternative.”
Utilities including Exelon are seeking to consolidate as they confront low energy prices, tepid demand and rising costs to comply with new environmental rules. Exelon Chief Executive Officer Chris Crane wants to add Pepco’s predictable utility revenue, reducing his company’s reliance on power sold into competitive wholesale markets by Exelon’s nuclear generation business, the nation’s largest.
The request and settlement talks come after D.C. regulators voted Aug. 25 to deny the deal, saying the merger wasn’t in the public interest and would create a company less focused on local customers. Regulators also raised concerns that Exelon, which gets 63 percent of its revenue from generation assets, would have a conflict of interest with local plans to invest in more clean energy. Exelon and Pepco had 30 days to ask the commission for reconsideration.
With Pepco, Exelon would be the largest U.S. utility-owner by customer count.
Opponents to the deal said they will continue to pressure D.C. officials to reject Exelon’s overtures.
"Exelon’s attempt to breathe new life into its takeover of Pepco should be rejected by the D.C. Public Service Commission," Anya Schoolman, a spokeswoman for PowerDC, a coalition of Washington-based groups that are opposed to Exelon’s takeover, said in an e-mail. "The PSC unanimously rejected Exelon’s attempt to buy Pepco in August for a very simple reason: the merger is not in the public interest. Nothing Exelon said today will change that fact."
Utility mergers face increased scrutiny in other parts of the U.S. as well. Iberdrola SA and New Haven, Connecticut-based UIL Holdings Corp. submitted a new application July 31 for Connecticut’s approval of a proposed $3 billion takeover by Iberdrola, promising it addressed state concerns that the deal would hurt customers. The Connecticut Public Utility Authority on June 30 rejected the deal in a preliminary decision, saying it wasn’t clear how the Spanish suitor planned to run the company.
Washington was the last jurisdiction Exelon needed to sign off on its acquisition of Pepco. The company had received approvals from the U.S. government and state regulators in Maryland, Delaware, New Jersey and Virginia.