Thursday, February 21, 2019

Reports: Exelon Considering DC HQ to Win Pepco Deal

By Suzanne Herel

Chicago-based Exelon would open a headquarters in the district and offer more customer credits under a tentative agreement D.C. Mayor Muriel Bowser’s office has reportedly struck to support the company’s purchase of D.C.-based Pepco Holdings Inc.

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Bowser

While neither Bowser’s office nor the companies would confirm the draft settlement, several intervenors in the merger process told Bloomberg and the Washington City Paper that the document was being shared among interested parties on Friday.

The move comes as the D.C. Public Service Commission is scheduled to decide Wednesday whether to grant a joint request by the district’s attorney general and the companies to stay proceedings in the matter until Nov. 4. The request is an attempt to buy time to strike a deal that might be acceptable to the D.C. PSC, which unanimously rejected the acquisition in August. (See DC Halts Exelon’s Acquisition of Pepco Holdings; Pepco Stock Tumbles.)

Wall Street remains skeptical that Exelon will consummate the deal.

Exelon shares closed Monday at $30.30, up 1.6% for the day, while Pepco rose 0.4% to $25.41. But both remain about $2 below their prices on Aug. 24, before the PSC’s rejection.

Exelon Appeal

Last week, Exelon asked the agency to reconsider its decision, taking issue in a 43-page filing with the PSC’s findings that the deal would not be in the public interest and it would not be in the public interest to identify additional conditions that could make it so. (See Exelon Appeals DC PSC Decision; DC Mayor Confirms Negotiations.)

The filing came at the same time the mayor confirmed her office was discussing a settlement agreement with the companies that would constitute a new filing to the commission. Previously, Bowser’s office had said it agreed with a letter of opposition filed by Attorney General Karl Racine’s office listing 40 conditions that should be met for the deal to be accepted.

Negotiations Continuing

On Monday, Racine spokesman Rob Marus said it was premature to say whether the attorney general would support the outcome of negotiations, which he said were continuing.

“The settlement to be weighed in on is a different settlement,” he said. “The Office of the Attorney General has a role to weigh in early on in the process; now we’re in a different place in the process.”

Marus said Racine, whose former law firm did work for Pepco, had recused himself from the issue.

According to the City Paper, Robert Robinson, president of the Grid 2.0 Working Group, was among the intervenors who viewed the working settlement.

He said the district government won more concessions because of its initial opposition, but the agreement still represents an “about face” that doesn’t address all the issues. “We’re going to get locked into a deal of economic slavery, of continuing to pay higher and higher prices,” he said.

Unique Concessions

D.C. is the last holdout to the $6.8 billion deal, which already has been approved by FERC and regulators in New Jersey, Virginia, Maryland and Delaware. The states negotiated their agreements on a “most favored nation” status, meaning that if any subsequent agreement were more beneficial, it would have to be bestowed in kind on them.

In making its decision, the D.C. PSC said it weighed seven factors of public interest, among them the effects on ratepayers and shareholders, market competition and preservation of natural resources and the environment.

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Berliner

Roger Berliner, a regulatory attorney and Montgomery County councilman who led opposition to the merger in Maryland, said he suspects the settlement will be largely unique to D.C. and not invoke changes to the other states’ agreements.

For example, he said, Pepco is headquartered in D.C. If Exelon agrees to open another headquarters, it wouldn’t have to provide the same concession elsewhere.

“It’s hard for me to imagine how they would strike a deal that would trigger the most favored nations clause,” Berliner said.

He also was skeptical about Exelon being able to offer a commitment to renewable energy that would overcome the commissioners’ concerns.

“We had settlement negotiations with [Exelon] and said, ‘If you are prepared to be the best in the country when it comes to renewables, we can have this conversation,’” he said. “Clearly that was something they were not prepared to do.”

That, Berliner said, underscored the concern — also perceived by some in D.C. — that Exelon’s nuclear portfolio presents an insurmountable conflict of interest with a commitment to renewable energy.

Sides Mobilize

In D.C., the most vocal support for the deal has come from the business community and dozens of charitable groups who receive funding from Pepco.

In a media blitz that included churches, minority groups and former D.C. Mayor Anthony Williams, supporters urged reconsideration of the merger, saying it would bring increased grid reliability, jobs and opportunities for minority businesses.

exelon

Dinegar in an Exelon video with other D.C. business and civic leaders supporting the merger.

“We know that reliability will be enhanced,” James Dinegar, president of the Greater Washington Board of Trade, said in a video posted on the merger partners’ website. “It’s the right move for strengthening this region and then positioning us as we continue to grow to be the strongest region in the country.”

Pepco Chairman Joseph M. Rigby is a former chairman of the Board of Trade and currently serves on its senior council.

Opposition to Stay

Opposing the acquisition are more than half of the district’s Advisory Neighborhood Commissions and nearly half of the 12-member City Council. The Office of People’s Counsel, which also has advised against approval without significant concessions, could not be reached for comment on Monday.

Meanwhile, the Grid 2.0 Working Group and D.C. Public Power filed their opposition to the request for a stay.

If the settlement constitutes a new filing, Grid 2.0 argued, it and Exelon’s request for a reconsideration should be considered independently on parallel tracks.

In its filing, D.C. Public Power also offered an alternate solution: “There are, in fact, merger arrangements that can be practically implemented that fully satisfy public interest concerns [such as] DCPP’s proposal to buy Pepco’s D.C. assets in a divestiture from Exelon/PHI. The result would be an independent, D.C.-based not-for-profit electric power utility serving the interests of the citizens of the District of Columbia.”

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