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| Pepco-Exelon merger may be unsalvageable | Pepco-Exelon merger may be unsalvageable |
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| A key party involved in the beleaguered merger of Pepco and Chicago-based Exelon said Tuesday that she can no longer support the plan, leaving the path forward to create the nation’s largest electric utility entirely uncertain. | |
| Sandra Mattavous-Frye, the chief advocate for District ratepayers, and one of nine people who must sign off on an agreement for the $6.8 billion merger to clear its last regulatory hurdle, said she cannot support the plan because it “eviscerates” benefits to D.C. residents. | |
| District regulators on Friday rejected a proposal that Mattavous-Frye had agreed to, saying it was not in the public interest. | District regulators on Friday rejected a proposal that Mattavous-Frye had agreed to, saying it was not in the public interest. |
| The plan was negotiated chiefly by D.C. Mayor Muriel E. Bowser’s office. It called for the utilities to pay the District $78 million for its support, including $26 million that would have gone to offset rate increases for residents over the next four years. | The plan was negotiated chiefly by D.C. Mayor Muriel E. Bowser’s office. It called for the utilities to pay the District $78 million for its support, including $26 million that would have gone to offset rate increases for residents over the next four years. |
| The D.C. Public Service Commission found myriad faults with that proposal and made a counteroffer that included no guarantee that residential rates would not soon increase. | |
| For the merger to go forward, the commission said all nine parties involved in the talks needed to either agree to its terms or unite around a new proposal within 14 days. | For the merger to go forward, the commission said all nine parties involved in the talks needed to either agree to its terms or unite around a new proposal within 14 days. |
| A spokeswoman for Mattavous-Frye said the People’s Counsel had no counteroffer and wanted the parties to return to the agreement that the regulators found untenable. | A spokeswoman for Mattavous-Frye said the People’s Counsel had no counteroffer and wanted the parties to return to the agreement that the regulators found untenable. |
| “The Commission’s order eviscerates the benefits and protections essential to render the proposed merger in the public interest,” Mattavous-Frye said in a statement. Without a guarantee to hold down rates, the merger could disproportionately affect the city’s poor, she said. | “The Commission’s order eviscerates the benefits and protections essential to render the proposed merger in the public interest,” Mattavous-Frye said in a statement. Without a guarantee to hold down rates, the merger could disproportionately affect the city’s poor, she said. |
| “The inability to afford to pay their bills is a reality for many of our residents and cannot be trivialized and dismissed,” Mattavous-Frye said. “Affordable rates and affordable housing are inextricably linked.” | “The inability to afford to pay their bills is a reality for many of our residents and cannot be trivialized and dismissed,” Mattavous-Frye said. “Affordable rates and affordable housing are inextricably linked.” |
| Anya Schoolman, head of DC Solar United Neighborhoods, which opposes the merger, said Mattavous-Frye’s decision to walk away sends the talks into uncharted territory. | Anya Schoolman, head of DC Solar United Neighborhoods, which opposes the merger, said Mattavous-Frye’s decision to walk away sends the talks into uncharted territory. |
| “The discussions that are happening now are what usually happen before the commission is asked to approve a deal, not after,” she said. Schoolman and other opponents were cautiously celebrating Tuesday, saying the possibility seemed increasingly dim that the merger could hold together. | “The discussions that are happening now are what usually happen before the commission is asked to approve a deal, not after,” she said. Schoolman and other opponents were cautiously celebrating Tuesday, saying the possibility seemed increasingly dim that the merger could hold together. |
| A spokesman for Pepco said he would soon return an email from The Washington Post Tuesday morning but had not done so before this article was published. | |
| Last month, Exelon chief executive Christopher M. Crane told analysts on an earnings call that if the proposed merger with Pepco was not completed by Friday, March 4, the company would walk away and issue bonds to cover the quarter-billion dollars it has spent so far for the merger. | |
| Because of its size, the proposed merger could change the national utility landscape. The deal’s ups and downs during a nearly two-year approval process had been closely watched by environmentalists, utility and public-service attorneys, and financial analysts across the country. | Because of its size, the proposed merger could change the national utility landscape. The deal’s ups and downs during a nearly two-year approval process had been closely watched by environmentalists, utility and public-service attorneys, and financial analysts across the country. |
| The debate over the merger centered on the role of renewable energy sources like wind and solar against legacy technologies, such as nuclear power and natural gas. Many environmental groups opposed the deal because they believed it would hinder the migration toward renewable energies. | The debate over the merger centered on the role of renewable energy sources like wind and solar against legacy technologies, such as nuclear power and natural gas. Many environmental groups opposed the deal because they believed it would hinder the migration toward renewable energies. |
| Exelon’s acquisition of Pepco would create the largest publicly held utility company in the country, as measured by number of customers served. | Exelon’s acquisition of Pepco would create the largest publicly held utility company in the country, as measured by number of customers served. |
| The merger is part of a larger trend of utilities undertaking strategies that lower their exposure in competitive power markets in favor of owning regulated utilities that have more predictable, if lower, revenue streams. | The merger is part of a larger trend of utilities undertaking strategies that lower their exposure in competitive power markets in favor of owning regulated utilities that have more predictable, if lower, revenue streams. |
| The D.C. Public Service Commission at first had dealt a major setback to the giant utility marriage last August when it denied Chicago-based Exelon’s proposed $6.4 billion takeover of Pepco Holdings. | The D.C. Public Service Commission at first had dealt a major setback to the giant utility marriage last August when it denied Chicago-based Exelon’s proposed $6.4 billion takeover of Pepco Holdings. |
| In its rejection last summer, the PSC issued a broad ruling that simply stated that the deal was not in the best interests of ratepayers and could inhibit the District’s progress toward alternative energy. | In its rejection last summer, the PSC issued a broad ruling that simply stated that the deal was not in the best interests of ratepayers and could inhibit the District’s progress toward alternative energy. |
| “Pepco will become a second tier company in a much larger corporation whose primary interest is not in distribution, but in generation,” the PSC said in its rejection. “At a time of change in the energy field, Pepco’s ability to adapt will be constrained by an increased management bureaucracy. We are also concerned about the inherent conflict of interest that might inhibit our local distribution company from moving forward to embrace a cleaner and greener environment.” | “Pepco will become a second tier company in a much larger corporation whose primary interest is not in distribution, but in generation,” the PSC said in its rejection. “At a time of change in the energy field, Pepco’s ability to adapt will be constrained by an increased management bureaucracy. We are also concerned about the inherent conflict of interest that might inhibit our local distribution company from moving forward to embrace a cleaner and greener environment.” |
| Two months later, the PSC seemed to breath new life into the merger when it voted unanimously to consider a settlement that Bowser reached with Exelon, which included $78 million in benefits to users, including ratepayer assistance, solar-energy subsidies and job guarantees. | Two months later, the PSC seemed to breath new life into the merger when it voted unanimously to consider a settlement that Bowser reached with Exelon, which included $78 million in benefits to users, including ratepayer assistance, solar-energy subsidies and job guarantees. |
| Last week, however, the commission voted 2 to 1 against the plan, saying the way Bowser (D) intended to spend the money that utilities were willing to pay the city in exchange for support was “not in the public interest.” | Last week, however, the commission voted 2 to 1 against the plan, saying the way Bowser (D) intended to spend the money that utilities were willing to pay the city in exchange for support was “not in the public interest.” |
| A majority of the commission found there was no “persuasive rationale” for giving residents almost $26 million to cushion expected rate increases through 2019. That would exacerbate an imbalance in which businesses and the federal government subsidize residential rates in the nation’s capital, the PSC said. | A majority of the commission found there was no “persuasive rationale” for giving residents almost $26 million to cushion expected rate increases through 2019. That would exacerbate an imbalance in which businesses and the federal government subsidize residential rates in the nation’s capital, the PSC said. |
| But the commission offered a narrow path forward to keep the $6.8 billion merger on track. It said Pepco and Exelon could be approved with new terms, under which the PSC would decide how the $26 million is allocated. That would potentially send millions of dollars in credits to businesses or the federal government — not residents — to equalize rates. | But the commission offered a narrow path forward to keep the $6.8 billion merger on track. It said Pepco and Exelon could be approved with new terms, under which the PSC would decide how the $26 million is allocated. That would potentially send millions of dollars in credits to businesses or the federal government — not residents — to equalize rates. |
| That created a politically perilous path for Bowser, Mattavous-Frye and D.C. Attorney General Karl A. Racine because residents would be insulated from rate hikes for at least four years. | |
| Racine said Friday that the credits to insulate residents from increases through 2019 were an “essential protection” in the deal and “given that that provision is now in doubt, the benefit to residential ratepayers also now is in doubt.” | |
| For Mattavous-Frye, her opposition completes a 360 on the merger. For most of the last two years, she forcefully opposed the merger. | For Mattavous-Frye, her opposition completes a 360 on the merger. For most of the last two years, she forcefully opposed the merger. |
| In the fall, she signed on to the agreement negotiated by Bowser in what critics saw as a capitulation to keep her job. | In the fall, she signed on to the agreement negotiated by Bowser in what critics saw as a capitulation to keep her job. |
| Bowser renominated Mattavous-Frye to a new term days after she said Bowser’s agreement would help residents. | Bowser renominated Mattavous-Frye to a new term days after she said Bowser’s agreement would help residents. |
| That breathed new life into the agreement but put Mattavous-Frye on the defensive during her council confirmation with some members openly questioning if her support had been bought. | That breathed new life into the agreement but put Mattavous-Frye on the defensive during her council confirmation with some members openly questioning if her support had been bought. |
| Others saw Mattavous-Frye as pragmatic to a point, and without the benefits she agreed to last week, speculation began building over the weekend that she could defect. | Others saw Mattavous-Frye as pragmatic to a point, and without the benefits she agreed to last week, speculation began building over the weekend that she could defect. |
| Thomas Heath contributed to this report. | Thomas Heath contributed to this report. |