Exelon's $6.8 Billion Takeover of Pepco Approved by D.C.by and
D.C. was the final approval needed for completion of deal
Exelon and Pepco say they accept decision and close merger
Exelon Corp.’s $6.8 billion takeover of Pepco Holdings Inc. was approved by Washington regulators on its third attempt, paving the way for the companies to form the nation’s biggest utility almost two years after the deal was first announced.
The District of Columbia Public Service Commission voted 2-1 in favor of the merger at a meeting in Washington Wednesday, with Chairman Betty Ann Kane dissenting. Pepco shares jumped as much as 28 percent. The sign-off was the final hurdle for Chicago-based Exelon to complete the deal after the federal government and four other states cleared it.
Exelon and Pepco said late Wednesday that they accepted the commission’s terms and have closed the merger, according to a joint statement. Pepco’s stock will be suspended on March 24.
Washington’s approval comes after regulators there had twice rejected the tie-up, which faced vocal opposition from local environmental groups and city council members. Earlier this month, Exelon and Pepco made a renewed bid to salvage the deal, offering the commission three options for approval of the transaction including one that reallocated customer benefits they had pledged.
D.C.’s decision allows Exelon Chief Executive Officer Chris Crane to complete his long-running quest to add Pepco’s steady, regulated earnings to offset losses at his company’s nuclear power plants. The U.S. utility industry is consolidating as power companies are looking to grow through acquisitions in the face of tepid electricity demand, low prices and rising costs to upgrade aging equipment and comply with pollution regulations.
D.C. regulators made their decision based on the commission’s proposed revised terms of a settlement Exelon had reached with Washington Mayor Muriel Bowser and other city officials. Bowser had said she couldn’t sign off on that plan because it removed a guaranteed freeze in residential rates for three years.
“It appears the Public Service Commission favors government and commercial ratepayers over DC residents,” Bowser said in a statement. “Instead of a three year rate increase reprieve that we negotiated, it appears that DC residents will be hit with a rate increase as soon as this summer.”
Opponents of the merger expressed disappointment and surprise. Consumer advocacy group Public Citizen called the decision a "shocking flip."
“By clearing the path for Exelon to take over Pepco, the D.C. Public Service Commission has abdicated its responsibility to put the public interest before corporate profits,” Allison Fisher, outreach director for Public Citizen, said in an e-mailed statement.
D.C. regulators first turned down the merger in August, saying it wasn’t in the public interest. Last month, regulators rejected Exelon’s effort to win approval with a settlement it struck in October with Bowser and other city officials that included $78 million in benefits. At that time, Commissioner Joanne Doddy Fort offered a counter-proposal that would allow the agency to approve the merger if all the parties to the settlement agreed to its terms. Bowser and the Office of the People’s Counsel said they couldn’t accept the commission’s revisions.
On March 7, Exelon filed its latest proposal, which was an attempt to strike a compromise with regulators and D.C. officials by providing an option that would preserve the residential rate freeze as well as giving the commission discretion to spend $20 million of the $78 million of promised customer benefits. On Wednesday, the commission approved the takeover based on Fort’s proposed revisions of the settlement with one additional change.
The next step is “to read the order and to see exactly how this impacts consumers," particularly D.C. residents, Sandra Mattavous-Frye, people’s counsel for the District of Columbia, said in an interview after the meeting. "Then we will take whatever measures are necessary."
The Office of the People’s Counsel can ask the commission to reconsider its decision, Mattavous-Frye said. If the regulatory board were to reject that request, the people’s counsel can file an appeal to the D.C. Court of Appeals. The whole process may take more than 90 days, she said.
The companies had already gotten approvals from Maryland, Virginia, New Jersey, Delaware and federal regulators.