Updated: Exelon, DC Mayor Bowser announce settlement deal on Pepco merger
- District of Columbia Mayor Muriel Bowser announced a negotiated settlement with Exelon Corp. on its proposed $6.8 billion acquisition of Pepco Holdings Tuesday. The deal will now be sent to the D.C. Public Service Commission (PSC) for approval.
- In August, the PSC rejected Exelon's initial merger proposal, claiming an "inherent conflict of interest" between Exelon's business model and D.C.'s clean energy goals. Exelon is appealing the decision, and approval by the D.C. PSC is the final hurdle for the proposed merger to clear.
- In the settlement, Exelon has agreed to invest $78 million in D.C., compared to the $14 million originally proposed. Utility Dive was the first to report on Friday afternoon that Exelon had reached the settlement with the mayor's office, citing sources with knowledge of the negotiations.
- The D.C. Public Service Commission voted Wednesday afternoon to extend consideration of Exelon's motion to reopen the merger proceeding until Wednesday, Oct. 16, and will accept comments on the motion until that time.
Just over a week after the D.C. Mayor's Office announced it was negotiating with Exelon to come to a settlement that would help boost the company's chances on appeal, Bowser announced Tuesday that a deal had been reached.
In a press conference, the mayor said the initial proposed merger "did not do enough to benefit residents of D.C." and that she "fully supported" the PSC's decision to reject the deal in August.
In opening settlement talks with Exelon, Bowser said she instructed her team to pursue a settlement "until we got the deal that put District residents and ratepayers first."
The proposed merger between Exelon and Pepco would make Exelon the largest electric utility in the nation by customer base, with about 10 million ratepayers located almost entirely in the PJM region.
As part of the settlement, Exelon would invest $78 million in the District and relocate the headquarters of its corporate strategy and utility operations to the city. The funds would be used to "promote sustainability, increase reliability, and create pathways to the middle class," Bowser said.
The agreement includes:
- A $25 million fund to offset future rate increases for residential ratepayers until 2019
- A fund to distribute a one-time ~$50 credit to D.C. residential ratepayers over the next 60 days
A $15 million fund to support low income residents through a home energy assistance program
A commitment by Exelon to buy 100 MW of wind power and 10 MW of solar
The new monetary and fuel mix commitments do not alone address the PSC's concern about the "inherent conflict of interest" between Exelon's generation-heavy business model and the District's clean energy goals.
In particular, the regulators took issue with Exelon's large generation business, which includes nation's biggest nuclear fleet. District law, commissioners pointed out in their decision, "requires the electric company to be focused on distribution only."
When Utility Dive asked about the PSC's concerns during the press conference, People's Counsel Sandra Mattavous-Frye said that new provisions in the settlement provide for a system of "checks and balances" to ensure that Exelon will align with the District's goals.
In particular, she said that "ring fencing" provisions, designed to insulate the District from the financial risks in other parts of Exelon's business, had been strengthened in the new settlement.
"The ring fencing provisions that are established actually provide protections against any bad actions that happen to Exelon as a company, so they will not affect or impact the District," she said. "They have increased substantially. They are more extensive and direct and targeted to make sure those types of violations do not occur."
Councilmember Mary Cheh (D-Ward 3), a leading merger opponent in the city's legislative body, flatly rejected those claims. She said the ring fencing provisions "almost make you want to start laughing" because they will do little to protect D.C. ratepayers from the risks of Exelon's generation fleet.
"Anyone who knows anything about creative accounting knows that we will not be insulated from the loss of money from their huge power plants," she said after the press conference. "Inevitably that will all be incorporated and we will pay for their folly of being a 20th century company."
Mattavous-Frye, whose office opposed the original merger deal, also touted the boost in Exelon's renewables commitments and its promise to eliminate a $100 grid interconnection fee as prime examples of how the company will benefit District residents.
Those promises did not impress Anya Schoolman, the head of D.C. Solar United Neighborhoods who has been one of the leaders of the anti-merger movement.
“This settlement does nothing to change the fundamental conflict of interest identified by the Public Service Commission in their unanimous rejection of this bad deal," she wrote in a statement. "The token renewable energy provisions in the Exelon settlement are a smokescreen that will allow the company to dismantle the progress the District has made to develop renewable energy."
Sources with knowledge of the initial draft settlement said that Exelon's goal was to hammer out a proposal that can convince the mayor and skeptical intervenors to support the merger, putting increased pressure on regulators for approval. The merger has already been approved by the Federal Energy Regulatory Commission (FERC), and utility regulators in Virginia, Maryland, New Jersey and Delaware, but has consistently met its stiffest opposition in the nation's capital.
After its initial rejection, Exelon launched a public relations campaign in the District after the PSC's rejection, recruiting popular former mayor Anthony Williams to publicly call for Bowser, his former mentee, to support the merger.
The stakes in the merger proceeding are high for Exelon, which is seeking the predictable income of Pepco's utility business to hedge against risks from a generation fleet that includes many older nuclear plants running on the verge of being unprofitable in PJM markets.
Last year, Crain's reported that Exelon CEO Chris Crane told analysts the company could finance its entire dividend for shareholders with its regulated businesses if the Pepco merger were approved — no small benefit for a company that cut its dividend 41% the year before.
Correction: An earlier version of this post incorrectly stated that the D.C. PSC repoened the Exelon merger proceeding on Wednesday, Oct. 7. The commission in fact extended consideration of Exelon's motion to reopen the proceeding until Wednesday, Oct. 16.
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