D.C. mayor rejects Pepco-Exelon plan; $6.8-billion merger appears dead
D.C. mayor rejects Pepco-Exelon plan; $6.8-billion merger appears dead
(35 minutes later)
D.C. Mayor Muriel E. Bowser and two other key parties involved in the beleaguered merger of Pepco and Chicago-based Exelon said Tuesday that they can no longer support the plan, all but dooming a deal that would have created the nation’s largest electric utility.
D.C. Mayor Muriel E. Bowser and two other key parties involved in the beleaguered proposed merger of Pepco and Chicago-based Exelon said Tuesday that they can no longer support the plan, all but dooming a deal to create the nation’s largest electric utility.
Bowser’s team had negotiated for the utility companies to pay the District $78 million dollars in exchange for D.C.’s support for the $6.8 billion merger, which already had approval from New Jersey, Delaware, Maryland and federal regulators.
Bowser’s team had negotiated for the utility companies to pay the District $78 million in exchange for the city’s support for the $6.8 billion merger, which already had approval from New Jersey, Delaware, Maryland, Virginia and federal regulators.
The mayor’s plan would have cushioned rate increases for D.C. residents for four years, but it was rejected last week by District regulators who said it was “not in the public interest” and would exacerbate an existing imbalance in which federal taxpayers and businessess subsidize residential rates in D.C.
The mayor’s plan would have cushioned rate increases for D.C. residents for four years, but it was rejected last week by District regulators, who said it was “not in the public interest” and would exacerbate an existing imbalance in which federal taxpayers and businesses subsidize D.C. residential rates.
The D.C. Public Service Commission said it would reconsider the deal under new terms, which removed any guarantee to hold down residential rates.
The D.C. Public Service Commission said it would reconsider the deal under new terms, which removed any guarantee to hold down residential rates.
Support for that arrangement quickly fractured.
Support for that arrangement quickly fractured.
First, the District’s attorney general said the new terms jeopardized benefits for D.C. ratepayers. Then, Sandra Mattavous-Frye, the District’s chief advocate for ratepayers joined in, saying the path forward “eviscerates” assistance to D.C. residents.
District Attorney General Karl A. Racine was first to cast doubts on the deal, followed by Sandra Mattavous-Frye, the District’s chief advocate for ratepayers, whose opposition marked an about-face on the matter.
In a statement Tuesday, Bowser said she could not agree to the new terms set by the commission.
Bowser was the last to weigh in, when she said Tuesday that she could not agree to the commission’s latest proposal.
“From the start, we focused on affordability, reliability and sustainability. We pulled everyone together to negotiate an agreement that was a great deal for DC residents,” Bowser said. “The PSC’s counterproposal guts much needed protections against rate increases for DC residents and assistance for low-income DC rate payers. That is not a deal that I can support.”
“From the start, we focused on affordability, reliability and sustainability,” Bowser said. “We pulled everyone together to negotiate an agreement that was a great deal for D.C. residents. The PSC’s counterproposal guts much-needed protections against rate increases for D.C. residents and assistance for low-income D.C. rate payers. That is not a deal that I can support.”
For the merger to go forward, the commission said Bowser and eight other parties involved in the talks needed to either agree to its terms or unite around a new proposal by March 11.
Pepco spokesman Vincent Morris and Exelon spokesman Paul Elsberg issued identical statements, saying the companies continue to talk with D.C. officials and other parties. “The discussions are ongoing, and we will provide an update at the appropriate time,” the two wrote.
Pepco spokesman Vincent Morris said in an email that the company continues to talk with D.C. officials and other parties. “The discussions are ongoing, and we will provide an update at the appropriate time,” he wrote.
Exelon, which has already spent about a quarter-billion dollars over two years on the proposed merger, should not be counted out and could still muster up more money for a final offer to close the deal, industry analysts said.
A D.C. official with direct knowledge of the negotiations said there appeared to be no room for further negotiations.
But for the merger to go forward, Bowser, Racine, Mattavous-Fry and six other parties involved in the talks need to agree on the contours of a new proposal by March 11.
A spokeswoman for Sandra Mattavous-Frye said the People’s Counsel had no counteroffer and wanted the parties to return to the agreement that the regulators found untenable.
Two D.C. official with direct knowledge of the negotiations said that with the Public Service Commission seemingly intent on deciding how money from the utilities set aside for the District is spent, there is little room for further discussions.
“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 apparent collapse of the merger is a major victory for environmentalists and a defeat for the District’s business community, which feared a rejection would solidify the city’s image as unfriendly to major corporations.
“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 developments also hit Pepco investors. Shares of one of Washington’s oldest institutions tumbled 13 percent, the lowest level since the merger was announced two years ago. At the time, Exelon said it would pay a premium of almost 25 percent for each Pepco share.
D.C. Attorney General Karl A. Racine on Tuesday told The Washington Post that he does not believe the commission’s plan is viable.
For Bowser, the day brought to an end her mission to appease both the city’s business community while assuring constituents and environmentalists that she had done her best to improve the deal.
“As I indicated soon after the PSC rendered its decision, the provision that insulated residential rate payers from increases through April 2019 was critical to the office of the attorney general’s willingness to sign onto the deal,” Racine said. “Without a guarantee that residential rate payers will not be impacted … the proposed settlement is not in the public interest.”
Under Bowser’s original plan, D.C. residents would not have faced another electricity rate hike until after the next mayoral race. And Bowser had secured $29 million for environmental projects, low-income credits and other popular programs.
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, on Tuesday praised the decisions by the mayor, Mattavous-Frye and Racine.
“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.
“We’re delighted,”said Schoolman, whose group objected to the deal because it believed the merger would hinder the city’s migration toward renewable energies such as wind and solar. “We hope that we can all jointly move forward past the merger to get a sustainable, reliable energy system that we all deserve.”
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.
Bowser had repeatedly justified supporting the merger by saying that amid an industry shake-up, if it wasn’t Exelon, then another company — and perhaps a less scrupulous one — would come after Pepco.
Because of its size, the proposed merger would have changed 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.
But the Public Service Commission dismissed that claim, saying there was no evidence that Pepco could not continue to function as an independent company.
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.
That was also a view on Wall Street, even as many had banked on the merger.
Exelon’s acquisition of Pepco would create the largest publicly held utility company in the country, as measured by number of customers served.
“Certainly, we’ve seen that the share price will suffer, but I’m not sure ratepayers will notice . . . there are plenty of utilities this size that seem to be able to operate perfectly fine and efficiently,” said Paul Patterson, a utility analyst with Glenrock Associates. “I understand there have been reliability issues, but the idea that this is a fundamentally defective utility is not the case.”
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.
A spokeswoman for Mattavous-Frye said Tuesday that the People’s Counsel wants the parties to return to the previous agreement that Bowser had negotiated, a deal which regulators found untenable.
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.
Without a guarantee to hold down rates, the merger could disproportionately affect the city’s poor, Mattavous-Frye said. “The inability to afford to pay their bills is a reality for many of our residents and cannot be trivialized and dismissed,” she said.
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.
For most of the past two years, Mattavous-Frye forcefully opposed the merger. Then, in the fall, she signed on to the agreement negotiated by Bowser in what critics saw as a capitulation. Days later, Bowser renominated Mattavous-Frye to a new term.
“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.”
That breathed new life into the agreement but put Mattavous-Frye on the defensive during her D.C. Council confirmation, with some members questioning whether her support was authentic.
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.
Exelon’s next move could come as early as Friday.
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 month, Exelon chief executive Christopher M. Crane told analysts on an earnings call that if the proposed merger with Pepco was not completed by March 4, the company would walk away.
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.
That created a politically perilous path for Bowser, Mattavous-Frye and Racine because they wanted residents to be insulated from rate hikes for at least four years.
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 in order to keep her job.
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.
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.
