Wednesday, January 23, 2019

Group Proposes to Buy Pepco’s DC Assets

Exelon Would Keep Md., Del., NJ PHI Units

By Rich Heidorn Jr. and Suzanne Herel

WASHINGTON — A newly formed advocacy group on Friday filed its intent to acquire the district assets of Pepco Holdings Inc. and transform it into a not-for-profit utility that it said will generate about $1 billion in savings over the next 20 years.

Not having to pay federal taxes or dividends to shareholders would “unlock” $150 million a year in savings — or about $60 million after subtracting debt — that could be spent on reliability, improvements and rate reductions, said Michael Siegel one of D.C. Public Power’s four board members, in announcing the proposal Friday morning at the National Press Club.

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Chelen, DC Public Power © RTO Insider

“Additional benefits will accrue by maintaining local ownership and presence as well as additional economic activity,” added board member John Chelen.

In its filing, DCPP also objected to the Public Service Commission reopening the record for Exelon’s proposed $6.8 billion acquisition of PHI and requested late intervenor status because the group was formed April 30, after the filing deadline for joining in the case. Other parties also objected to reopening the record. (See Opposing Parties to DC PSC: Require a New Exelon-Pepco Merger Application.)

‘Strong Interest’ from Lenders

Chelen said the group had received “strong interest” from “recognized investment banks” in financing the deal, which would occur after Exelon consummates the purchase.

The group said the utility’s debt would be “an extremely secure and attractive investment” because of the district’s strong economy and low interest rates for alternative investments.

It said PHI D.C.’s book value was $1.4 billion as of March 2013 — though shareholders would certainly seek a higher price in any sale.

Chelen said the group already had approached Exelon with its interest but was turned down.

Exelon, Pepco: No Deal

In a letter included in the filing, Exelon and PHI attorney Mark Director wrote that the concept “raises many complex legal, financial, regulatory, operational and commercial considerations. It would require substantial time to evaluate those complexities, and that would complicate and delay, rather than simplify and streamline, matters to be considered by the D.C. PSC and would require approvals from other regulatory authorities.

“As Exelon and PHI remain committed to completing their merger as promptly as possible, the companies do not believe it would be productive to have further conversations about your proposal.”

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Left to right at the press conference: John Chelen and Michael Siegel, DC Public Power board members, and Michael Overturf, DC Public Power President & CEO © RTO Insider

Said Chelen, “DCPP had, in fact, structured its proposal to be as uncomplicated as possible with the intent of facilitating Exelon’s and PHI’s ability to complete their merger. Perhaps the real reason is they were able to attract a better deal for them from the mayor and D.C. officials.”

That settlement was presented Oct. 6 to the PSC, which denied the merger as filed on Aug. 25 as not being in the public interest. (See Mayor’s Settlement Puts DC PSC on the Spot in Exelon-Pepco Deal.) The proposal envisions a non-profit board hiring an experienced utility operator to run day-to-day operations, similar to Long Island Power Authority’s contract with Public Service Enterprise Group.

Exelon referred a request for comment to Pepco. A PHI spokeswoman said Thursday that a district-only system would be “expensive and inefficient.”

Myra Oppel, regional communications vice president at PHI, said the group’s proposal “raises many complex legal, financial, regulatory, operational, commercial and customer considerations that the group has not begun to address.”

The group said it had discussed its proposal with numerous city leaders but not directly with Mayor Muriel Bowser. “Some people are wildly enthusiastic,” said Chelen. “Other people are guarded.”

Public Power in Cities

Of the about 2,200 power providers in the U.S., about 2,000 are public power, including Seattle, Los Angeles, Sacramento, Austin, Jacksonville and Cleveland. Only 200 are investor-owned utilities, though they tend to be in bigger cities.

The group said public power agencies similar to that of Chattanooga, Tenn. — a city about 60% the size of the district — have “extremely high capital productivity,” unlike IOUs, whose profits can increase with higher spending.

“From our point of view, the [Exelon-Pepco] deal relies on an extremely complex, vague and opaque non-unanimous settlement agreement [NSA] that will be a nightmare to monitor and enforce,” Chelen said.

“What is most disturbing is it calls upon divestiture that is the severance of Pepco D.C.-based assets as an ultimate means to ensure compliance,” he said. “The inclusion of this provision affirms that divestiture is the best method to secure the public interest. The NSA severance clause amounts to exclusive acknowledgment that the NSA is a risky deal for the district.”

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