The proposed $6.8 billion merger of D.C.-based power supplier Pepco and Chicago-based power generator Exelon looked dead Tuesday, as D.C. officials rejected a regulatory panel’s plan for a proposed fund to offset residential rate increases — apparently ending a nearly two-year bid to create the country’s largest electric utility.
Pepco spokesman Vince Morris would not say Tuesday whether the energy provider had any hope about the merger, which was first announced in April 2014 and was approved by utility regulators in Maryland, Virginia, New Jersey and the federal government.
“We continue to have conversations with the D.C. government and other settling parties about the [Public Service] Commission’s order and the new provisions,” Mr. Morris said. “The discussions are ongoing, and we will provide an update at the appropriate time.”
Exelon CEO Christopher Crane said last month that his company would abandon the merger and issue bonds to cover the $250 million Exelon has spent on it if the deal was not completed by Friday. The company did not return calls seeking comment Tuesday.
“This deal was bad all along and now appears politically untenable. There is a fundamental, unsolvable conflict between what Exelon wants and what D.C. needs for its citizens,” said energy analyst Mike Tidwell, director of the Chesapeake Climate Action Network. “It’s time for Mayor [Muriel] Bowser to pull the plug on Exelon-Pepco once and for all so that we can move on to real solutions for affordable, reliable and clean energy.”
Other analysts have speculated that the failure of the Pepco-Exelon merger could have a cooling effect on the energy market.
“With the Pepco merger, at least for now, being denied, companies might be a little more reticent, a little more hesitant to try a merger,” utilities analyst Andy Smith for Edward Jones & Co. told Bloomberg News in September.
Under the D.C. Public Service Commission’s order, Pepco, Exelon and various city agencies must agree to the commission’s revised proposal by March 11 in order for the merger to proceed. Otherwise, the deal is dead.
But an agreement appeared unlikely Tuesday, with Ms. Bowser and D.C. People’s Counsel Sandra Mattavous-Frye using similar language to criticize a revision that would relinquish the District’s control of a proposed $25.6 million escrow fund to offset anticipated increases of residential rates.
Ms. Bowser, who was instrumental in negotiating the $78 million deal rejected Friday by the commission, said the PSC’s counterdemand that it — and not her administration — oversee the $25.6 million escrow fund creates a situation that she cannot back.
“From the start, we focused on affordability, reliability and sustainability,” the Democratic mayor said in a statement. “We pulled everyone together to negotiate an agreement that was a great deal for D.C. residents. The Public Service Commission [rejected] an agreement that had the support of the People’s Counsel, Attorney General, D.C. Water and others.
“The PSC’s counterproposal guts much-needed protections against rate increases for D.C. residents and assistance for low-income D.C. ratepayers. That is not a deal that I can support,” Ms. Bowser said.
Ms. Mattavous-Frye said the deal “eviscerates” benefits to the public by removing to the city’s control of the $25.6 million fund to offset residential rate increases through March 2019. She said part of the agreement was “the single most critical provision I supported.”
Opponents of the merger cheered Ms. Bowser and Ms. Mattavous-Frye for taking a stand against what they say is a bad deal for city residents.
D.C. Council member Mary M. Cheh, Ward 3 Democrat, quickly offered her support to the people’s counsel.
“The new deal is doomed, and the victory belongs to the people of the District of Columbia,” she said. “Although we may have disagreed rather strenuously on prior terms, I am delighted that People’s Counsel Sandra Mattavous-Frye has taken the lead and shown courage and integrity on this critical issue that safeguards the District for decades into the future.”
Under the plan brokered by Ms. Bowser, Pepco and Exelon would have paid the city $78 million, and the District would have used $25.6 million to offset anticipated rate increases on residences over the next four years. The remainder of the payment would have been used to create a customer investment fund that would pay for workforce training, energy assistance for low-income households and renewable energy projects such as solar and wind power generation.
The commission, which originally rejected the merger in August, struck down the compromise proposal Friday over concerns about how the District would set aside money for the investment fund, how the city would use the fund to improve the power grid and pay for renewable energy, how Pepco would participate in producing solar energy and whether the PSC would be able to oversee the city’s use of the fund.
The majority of commissioners said the Bowser plan would unfairly call upon businesses and the federal government to subsidize residents’ rates and suggested that Pepco and Exelon resubmit the plan with a provision that allows the PSC to allocate the funds, which would allow businesses and the government as well as residents to receive benefits.
People’s counsel spokeswoman Doxie McCoy said all parties involved in the negotiations — including the Bowser administration, the people’s counsel and both companies — must agree to the commission’s alternative terms or propose new ones by March 11.
Ms. Bowser and Ms. Mattavous-Frye rejected the PSC’s plan Tuesday. It is unlikely that a viable alternative will be ready by deadline because the compromise offer took several weeks to put together and Exelon’s chief executive has said his company will pull out of the deal by Friday.
“Going forward, we will need to work cooperatively to ensure that all consumers in all 8 wards of our city are guaranteed affordable rates and reliable service, and that once the fanfare dies down, our most vulnerable residents are not forgotten,” Ms. Mattavous-Frye said in her statement.
Council member Elissa Silverman expressed support for the people’s counsel, saying the deal had been bad from the beginning.
“Ms. Mattavous-Frye’s decision further highlights that, while the merger may have been good for Pepco’s shareholders, it would have exposed District ratepayers to large risks in the long run,” said Ms. Silverman, at-large independent.