Washington, D.C. isn’t OK with handing over its hometown utility to Exelon. On Tuesday, the D.C. Public Service Commission denied Exelon’s $6.8 billion takeover of Pepco Holdings, dealing a major blow to one of the country’s biggest utility merger deals.
The commission voted unanimously to reject Exelon’s bid, finding that it would not be in Pepco's customers’ best interests. As the Washington Post reported, commissioners expressed concern that Pepco would become a “second-tier company” in the merger, losing its ability to concentrate on a “cleaner and greener” grid.
Exelon’s “primary interest is not in distribution, but in generation,” the decision read, highlighting Exelon’s position as one of the country’s top nuclear power-plant owners. “At a time of change in the energy field, Pepco’s ability to adapt will be constrained by an increased management bureaucracy.”
Tuesday’s decision presents a serious threat to the merger, which got underway in April 2014 and has already received approval from state regulators in Maryland, New Jersey and Virginia, as well as from the U.S. Federal Energy Regulatory Commission. Both utilities have 30 days to ask the commission to reconsider and are expected to press their case.
This is only the third time in 30 years that state utility regulators have rejected utility mergers, although a few other deals have fallen apart after regulators have imposed terms to which parties couldn’t agree. Indeed, Tuesday’s decision comes three months after Maryland’s Public Service Commission voted 3-2 to a deal that would have set 46 conditions on the combined companies, including improved reliability targets and allocating more than $150 million to customer rate credits and energy efficiency programs.
But the D.C. PSC’s decision appears to put an end to the deal entirely, with limited options available to reverse it, according to regulatory experts cited by the Post. It’s a stunning turnaround to a deal that could have made Exelon the country’s biggest energy provider, a title it's been vying for in competition with Duke Energy over the past few years. In 2012, Exelon merged with Constellation Energy in a nearly $8 billion deal that gave Exelon a reach into 38 states and parts of Canada. But Duke Energy’s $26 billion takeover of Progress Energy later that year put the North Carolina-based utility back in the lead.
The Exelon-Pepco merger has faced significant opposition from environmental groups and ratepayer advocates, who feared it would stifle competition and reduce Pepco’s ability to bring more renewable energy on-line. Maryland Attorney General Brian Frosh also opposed the merger on the grounds that “creating one company that controls 80 percent of the accounts in Maryland is just not a good idea.”
Pepco notified the U.S. Securities and Exchange Commission that it still believes its "proposal is in the public interest and provides direct immediate and long-term benefits to customers, enhanced reliability and preserves our role as a community partner.” The utility stated that it will “review [its] options” for appealing the decision. Shares of the company fell nearly 20 percent, while Exelon shares fell about 6 percent, Reuters reported.
Both companies have been making significant investments into smart grid technology over the past decade. Pepco, which covers parts of Maryland, Delaware and New Jersey, as well as the entirety of Washington, D.C., has invested in smart meters, distribution automation and grid analytics, and partnered with Washington, D.C. on energy efficiency and demand response. Exelon’s distribution utilities, Baltimore Gas & Electric, Commonwealth Edison and PECO, have also been spending billions on smart metering and distribution grid improvements.