On March 20, 2015, the CEO of Exelon Chris Crane will testify before the DC Public Service Commission about his company’s efforts to buy Pepco Holdings, a company that owns three distribution utilities serving customers in Virginia, New Jersey, Maryland, Delaware, and the District of Columbia. According to Wikipedia, Exelon Corporation produces, trades and distributes energy in 47 states, the District of Columbia and Canada. If the deal goes through, Exelon will become (if it isn’t already) the largest competitive U.S. power generator and the dominant utility in our region. Little wonder that the DC Office of the People’s Counsel (OPC) considers the proposed merger to be “by far the most significant undertaking in the local electric industry since Pepco’s divestiture of its generation plants in 2000.”
The sustainability contingent of DC’s progressive community has come together to oppose this merger under the umbrella organization Power DC. We should know in the next few weeks whether their efforts will prove effective. I for one am on the edge of my seat. Although, I’ve been receiving emails from progressive list serves for months about this issue, I’m still trying to get my head around the deal itself and what it would take to stop it.
Stop it, you ask? We live in a capitalist country where corporations have the same rights, if not responsibilities, as citizens. As long as they have the money, what’s to stop them? Well, some things that we all agree everybody needs in order to promote the general welfare—schools, healthcare for the poor, roads, public utilities, etc—are regulated by the government. So, if the government and presumably its citizens don’t approve, then no merger. Where do things stand now?
The hoops that must be navigated in order for the merger to take place include approval from the Federal Energy Regulatory Commission, which will weigh Exelon’s potential market power, an antitrust review by the Justice Department and the Federal Trade Commission, as well as approval by the public service commissions in the three states where Pepco operates and the District of Columbia. The deal has already been approved by the Federal Energy Regulatory Commission, which seems to suggest that federal regulators consider a lot of market power a good thing, given Exelon’s size that is. The Public Service Commissions of Delaware and New Jersey are also on board. The Maryland Public Service Commission came out against the initial proposal but Exelon has filed an appeal.
The DC Public Service Commission is still considering it but before they can approve the deal, Exelon needs to prove that it will benefit Pepco customers. So, what would we get out of the deal? If you happen to be a Pepco shareholder than the deal is good for you, at least financially. Exelon is offering Pepco $6.8 billion dollars despite the fact that Pepco is only worth $4.3 billion, which sounds hinky to me. So, I turned to the comprehensive reporting on this issue provided by the Grist and Utility Dive. Here’s what I learned that makes this merger more than palatable for Exelon’s shareholders.
Exelon makes the majority of its money via a sizable fleet of nuclear power plants. In 2013, 81 percent of the electricity it produced was nuclear, which accounted for some 60 percent of it’s revenue. Thanks to competitive pressure from cheap natural gas, rising renewables, and stagnant electricity demand, Exelon’s revenues have declined by about 40% in recent years. What’s the fix? Acquire distribution utilities like Pepco with a large customer base (Pepco Holdings, Inc., serves about 2 million customers) and a more stable and predictable revenue stream. If the merger goes through, all of these new customers will help to shore up Exelon and by extension the nuclear power industry. Hey, at least it’s not fossil fuels, right?
What’s most troubling to the sustainable-development contingent of DC’s progressive community is that all the work they’ve put into trying to make DC green may be put at risk by this merger. Thanks to their efforts, the District of Columbia’s official Sustainable D.C. plan calls for 50 percent renewable energy, a 50 percent decline in energy use, and a five-fold expansion of green jobs by 2032. If history is any judge, Excelon will do little to support DC’s efforts to promote sustainable energy and may in fact do what it can to put the kibosh on the whole thing. Evidence of their pro-nuclear, anti-renewable lobbying efforts are pretty numerous, but the Nuclear Information and Resource Service’s report Killing the Competition: The Nuclear Power Agenda to Block Climate Action, Stop Renewable Energy and Subsidize Old Reactors is pretty comprehensive.
Is an unwillingness to support renewable energy necessarily bad? You and I may roll our eyes at this question, but Exelon has only to prove to the District’s Public Service Commission that the merger will benefit Pepco customers, not that it will support renewable energy, especially when doing so will impact negatively on its bottom line. To that end, Exelon has agreed to set up a $100 million customer investment fund which would give Pepco customers benefits such as rate credits, assistance for low income customers and energy efficiency measures. Sounds like a lot but that comes out to $50 per customer and there’s a good chance that would be delivered in the form of a one-time rebate.
But $50 may not be all that customers get out of the deal. Plans for improved service and reliability detailed in Excelon’s proposal, sound great. Certainly, no one denies that Pepco struggles more than other utilities with downed power lines and outages. Not surprisingly, DC’s sustainability activists prefer that we support Pepco in their efforts to improve their service rather than turn over energy distribution to a Chicago-Based firm over which we will have little control.
The Institute for Energy Economics and Financial Analysis, a Cleveland-based think tank that focuses on energy and the environment, whole-heartedly agrees. The executive summary of their report Excelon’s Proposed Acquisition of Pepco: Corporate Strategy at Ratepayer Expense, states…
The proposed Exelon-Pepco merger would:
- Expose residents and businesses to rate increases aimed at supporting Exelon’s struggling business model
- Undermine the District of Columbia’s renewable energy initiatives
- Expose Pepco customers to long-term risks significantly larger than the short-term protections and public benefits claimed by Exelon.
Despite the chorus of opposition, the jury is still out on what the DC Public Service Commission will decide. Activists in opposition are working to get the DC City Council and Mayor Muriel Bowser to officially oppose the merger. It’s possible that Pepco Board members, which include such regional heavy hitters as Lawrence Nussdorf, chief operating officer of the construction giant Clark Enterprises; Terence Golden, founder of Bailey Capital and former chairman of Host Hotels and Resorts; and Barbara Krumsiek, president of Calvert Investments are lobbying in the other direction. Who wins will have implications nationwide for the future of public utilities and attempts to push slow-moving energy policies towards a more sustainable future.