Updated: Exelon, Pepco file proposal to save merger

Dive Brief:

  • Exelon Corp. and Pepco Holdings Inc. filed a new proposal on Monday morning with the D.C. Public Service Commission (PSC) aimed at saving their proposed $6.8 billion merger, according to a statement issued by the companies.
  • The filing comes after the PSC rejected a settlement deal struck by the companies, the mayor's office and other merger stakeholders. However, the PSC also outlined four new conditions for the deal that would result in automatic approval if adopted. Last week, the D.C. mayor, ratepayer advocate and attorney general all announced their opposition to the new conditions. 
  • The new alternative proposal put forward by Exelon addresses concerns over how to allocate a $78 million customer investment fund (CIF) to be set up by the companies. While the original settlement set aside about $25 million for residential rate relief, the PSC said those funds should be allocated at Pepco's next rate case — a provision the mayor and other city officials oppose.
  • Under the new proposal, a $45.6 million allocation of the CIF would be split into two parts — $25.6 million for a residential rate freeze and $20 million for the commission to use at its discretion.

Dive Insight: 

On Feb. 26, the D.C. PSC rejected a settlement deal struck between the Exelon, Pepco, D.C. Mayor Muriel Bowser, and a number of merger stakeholders. In doing so, they outlined four conditions on the deal that would result in its automatic approval if adopted by all the parties.

In their order, regulators expressed concern that non-residential ratepayers were shut out of the $25.6 million allocated for residential rate relief under the settlement deal. Under the new conditions set by regulators, that money would be allocated as a part of Pepco's next rate case, a process that the PSC oversees.

While many observers expected quick approval of the conditions by all the settlement parties, Mayor Bowser balked at the order, saying it "guts much needed protections against rate increases for D.C. residents and assistance for low-income D.C. ratepayers."

Under the PSC order, some of the CIF funds could still be allocated to residential customers in Pepco's next rate case, but some D.C. officials were dissatisfied with relying on regulatory oversight to allocate the funds. Hours before the mayor came out against the deal, the residential ratepayer advocate for the city issued a statement saying the PSC proposal "could translate into much higher rates for residential consumers ... and therefore cannot be supported."

The filing from Exelon and Pepco on Monday aims to find a compromise between the positions of the PSC and city officials. While the companies stopped short of offering more money for D.C. ratepayers, the companies aimed to preserve the original $25.6 million allocation for residential customers while also offering the regulators a chunk of money to allocate as they see fit.

“This alternative proposal provides flexibility in determining a path forward for the merger, addressing the guidance the Commission provided in its order and the desire to protect District residents, including those most in need, from rate increases,” Exelon CEO Chris Crane said in a statement. “And it maintains the full $78 million in benefits for the District and Pepco customers agreed to in the original settlement.”

In their filing, the companies request that the PSC reaches a decision on the new filing by April 7. Last year, Exelon officials threatened to walk away from the deal by March 4 if it had not received regulatory approval, but indicated on that day that they would continue to work to secure the merger.

In their Feb. 26 order, regulators gave settlement parties until March 11 to respond to the new conditions. After that, parties have seven days to file reply comments. 

Approval from D.C. regulators is the final hurdle for the deal to clear. Federal regulators, as well as those in Maryland, Virginia, Delaware and New Jersey, have already cleared the merger.​

Merger opponents reacted quickly to criticize the new merger filing, saying it gives the PSC three bad options — approving the initial deal regulators rejected last year, approving the settlement conditions Bowser opposes, or approving the "last-ditch proposal that is not supported by any of the settling parties."

"Exelon’s latest filing is another example of the company’s total arrogance and disregard for D.C. residents," Anya Schoolman said on the behalf of PowerDC, an anti-merger coalition. "The Public Service Commission shouldn’t let Exelon rearrange deck chairs on the Titanic. It is time for D.C. to move on."

A spokesperson for People's Counsel Sandra Mattavous-Frye —the city's ratepayer advocate — said in an email that she had not yet fully vetted the proposal as of Monday afternoon, but that she would review the filing "to ascertain if D.C. consumers get the level of protections that the People's Counsel considers critical, including immediate rate relief, and then determine next steps."

The mayor's office could not be immediately reached for comment. For more information on the deal, check out our story on the PSC decision and this timeline on the merger saga.

Editor's note: This post has been updated from the original version to add analysis and comments from stakeholders.

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