More woes for Exelon as DC PSC rejects its takeover of Pepco

It hasn’t been a very good week at Exelon headquarters near Chicago. First, four of its reactors–from New Jersey to Illinois, couldn’t clear the PJM capacity auction, putting their future in jeopardy. And this morning came the worst news of all for the company: The Washington DC Public Service Commission unanimously rejected its attempt to take over the local utility Pepco.

Even though four states and FERC (Federal Energy Regulatory Commission) had already approved the deal, approval from all jurisdictions involved is essential to allowing the deal to go through, so DC’s action–if it stands–will kill the deal entirely.

In Maryland, where the PSC voted 3-2 to approve the deal, with conditions, a few months ago, Attorney General Brian Frosh is continuing a legal case to attempt to force the PSC to reconsider its decision. The DC decision may give new impetus to that case, and may give grounds for the Maryland PSC to do exactly that: reconsider its narrow decision.

Exelon officials initially had thought the Maryland PSC would be its biggest obstacle, so breathed a sigh of relief when the deal squeaked through there. But grassroots activism is alive and well in DC, and a strong coalition under the banner PowerDC was formed to educate, organize and mobilize the public. And they did just that. Full disclosure: NIRS was part of PowerDC.

While the DC vote was 3-0 against the decision, one commissioner dissented from the actual order the commission released (a summary of the order is here). He said he would have offered Exelon some possible conditions it would have to meet if it wanted to submit a revised application. As the order stands, however, the majority did not offer any conditions or possibilities in which it might accept the deal–making a reversal of its decision highly unlikely.

That, however, is just about Exelon’s only course of action if it wants to try to salvage the deal. Exelon and Pepco can, and likely will, ask the PSC to reconsider its decision based on the current application. That is surely a losing road, given the PSC’s complete rejection of it. Then, Exelon can either try going to court, and/or can submit a revised application.

But since the PSC’s grounds for rejecting the deal are so fundamental–the two main reasons are that Pepco would become just a cog in Exelon’s much larger machine and thus would become impossible for the PSC to regulate, and that an Exelon takeover would stymie renewable energy development in the city–that it is difficult to imagine what Exelon could do differently to appease the PSC.

As PSC Chair Betty Ann Kane, a former DC councilmember, wrote, “Unlike a rate case, this decision will effect a permanent change in the ownership and control of the District’s local electric distribution company. A rate case decision lasts only until the next rate case. This decision is forever.”

That doesn’t sound like a PSC ready to reconsider its decision.

It probably didn’t help Exelon’s case that the company has been overtly hostile to renewables, especially since former CEO John Rowe was replaced by current CEO Chris Crane a couple years back, to the point that it is the only utility ever kicked out of the American Wind Energy Association. As we reported back in January, Exelon’s war on renewables was playing poorly in DC, which has the ambition of becoming the greenest city in the U.S.

In other words, the DC PSC listened to the public. And the public, as evidenced by thousands of public comments and opposition to the merger from more than half of the city’s Advisory Neighborhood Commissions from throughout the city, spoke loudly that they don’t want Exelon in Washington, DC.

The fear–completely justified–that Exelon only wanted to take Pepco over in order to obtain a reliable cash flow to cover expenses, and losses, from its aging and uneconomic fleet of nuclear reactors–was also explicit in the public opposition to the takeover and the PSC’s rejection of the proposal.

That fear received a boost from Exelon itself, which, when the Baltimore Sun accidentally ran the wrong Exelon ad supporting the merger in a print edition, corrected the mistake but in the online version inadvertently revealed some vital information unknown to print readers: Exelon’s nuclear front group Nuclear Matters, whose only goal is to keep existing reactors running until they fall apart before our eyes, had paid for the ad.

There wasn’t much either Exelon or Pepco executives–who would have received a windfall from the deal–could say afterwards, their public statement says only that they are predictably “disappointed” in the decision. but it doesn’t take too vivid an imagination to picture the kind of language being used privately in the corporate suites.

For Pepco, disappointment is about as far as it will go. The company will remain what it is: a mid-size utility that has been making commendable strides in renewable energy and energy efficiency in recent years, but still needs to fix some long-standing reliability issues.

For Exelon, it’s a different story. Wall Street has been eyeing Exelon’s overreliance on a failing, merchant nuclear fleet and urging the company to move in a different direction. Taking over Pepco was the company’s response to that pressure. Now, Exelon would seem to have few options–and a lot less cash coming in to cover those nuclear-related losses, than it was hoping for.

And Wall Street reacted the way only Wall Street can: within an hour of the decision, CNBC was reporting on Twitter that trading in Exelon/Pepco shares had been briefly suspended, then resumed with a surely terrifying 15% drop in its share price.

While Exelon may recover from that, the odds that its nuclear fleet won’t recover continue to grow. Yesterday, we headlined our story “….bye, bye, Quad Cities.” Today, you can add with greater assurance, bye bye Clinton as well. And that won’t be the end of it.

Michael Mariotte

August 25, 2015

Permalink: https://www.nirs.org/more-woes-for-exelon/

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