MONEY

Exelon chief disagrees with merger demands

Jeff Montgomery
The News Journal

Exelon’s top officer has challenged some demands to sweeten Delaware’s share of the company’s $6.8 billion merger with Pepco Holdings Inc., saying one “would completely wipe out Delmarva Power’s earnings for years.”

The comment by Exelon President Christopher M. Crane appeared among a series of documents filed with the Delaware Public Service Commission in recent weeks in advance of a three-day public hearing set for Feb. 18-20 at Legislative Hall in Dover. PSC members are scheduled to discuss the hearings at a meeting Tuesday in Dover.

Crane also said some of the changes sought by regulators or third parties “seemingly have little or nothing to do with our application.”

Exelon, PHI, Delmarva and associated companies applied for the merger in June. Delmarva, now part of PHI, would become an Exelon subsidiary, operated as a separate utility. Among other concessions, the companies have offered a $17 million customer incentive payment – to be potentially used for rebates or other purposes – that would amount to more than $50 per customer.

Other commitments were offered as well, ranging from headquarters locations to charitable giving commitments and liability protections for Delmarva.

Virginia regulators already have approved that commonwealth’s part of the deal, and the utilities recently signed a settlement agreement with New Jersey’s Board of Public Utilities outlining additional concessions in that state. Proceedings in Delaware, the District of Columbia and Maryland have been more contentious, with Crane recently filing a rebuttal in Maryland similar in tone in some cases to Delaware’s.

“Among the requests that seem particularly inappropriate is the proposal by [PSC] staff to micromanage the composition of PHI and PHI utilities board of directors,” Crane said, adding that Exelon “must have the ability to exercise control over its subsidiaries.”

In a three-page set of merger requirements filed earlier this month, the PSC staff had recommended independent directors for PHI after the merger.

Among other points, the PSC staff also recommended: a $50 payment to each Delmarva residential customer when the merger closes; a $40 million, 10-year set aside for energy efficiency or other pro job protections for Delaware workers,; charitable giving commitments; solicitations for up to 200 megawatts of renewable energy by 2020; curbs on capital spending for service reliability; and a $1 million commitment to a University of Delaware study of offshore wind development.

Connie S. McDowell, PSC senior regulatory policy administrator, said in a public filing that the requirements were intended “to ensure that the proposed transaction is consistent with the public interest.” She said the staff said the commission should view the requirements as “an essential ingredient” of any commission approval if not already part of a settlement agreement.

“Without such inclusion, staff would again urge the commission to deny the application,” McDowell said.

A Pepco Holdings official, however, called Delaware’s requirements “unreasonable and unrealistic,” according to a PSC filing, and said the companies had estimated the combined cost at $458 million to $715 million. That level would equate to a system-wide total of $2.7 billion to $4.2 billion in concessions if applied equally in PHI’s other jurisdictions, Kevin M. McGowan, a Pepco vice president, testified.

In a statement late Monday, Exelon said the merger would produce significant benefits for Delaware and Delmarva customers, increasing reliability and jobs and leading to cost-savings.

“We have worked closely with all parties involved and have offered a generous package that addresses all issues raised, and satisfies the state merger-review standard,” said Exelon spokeswoman Catherine Engel-Mendez.

Delmarva has 305,000 Delaware customers and 201,000 on Maryland’s Eastern Shore, and 126,000 natural gas customers in New Castle county. System-wide, Pepco has 2 million customers and Exelon 2.5 million.

Exelon committed to keep Delmarva’s headquarters in Newark and PHI’s in the District of Columbia as part of its initial proposal in Delaware.

A federal anti-trust review is under way as well. PJM, the multi-state power grid operator, raised concerns that the merger would create a company that controls nearly a quarter of the region’s transmission service, possibly blunting investments that encourage competition.

If the merger goes through, Delmarva and PHI would become part of a system that includes Baltimore Gas & Electric, Commonwealth Edison and PECO Energy.

Contact Jeff Montgomery at 463-3344 or jmontgomery@delawareonline.com.