By Ted Caddell

The New Jersey Board of Public Utilities staff has recommended approval of Exelon’s $6.8 billion acquisition of Pepco Holdings Inc. in a settlement that would give Atlantic City Electric customers $62 million in rate credits.

The settlement, announced yesterday, came as the board was holding public hearings on the merger. If approved by the BPU, Exelon would need only approval from regulators in Delaware, Maryland and D.C. for a deal that would result in a company with more than 8 million customers from Illinois to the Atlantic.

Pepco Holdings, headquartered in D.C., includes Atlantic City Electric, the Pepco utility serving the District, and Delmarva Power & Light, with customers in Delaware and Maryland.

The $62 million in rate credits amounts to $114 for each of Atlantic City Electric’s 544,000 customers. The settlement also includes:

• An energy-efficiency program that would provide $15 million in energy savings over five years;
• Reliability commitments exceeding BPU requirements;
• Promises to hire 60 union employees, protect wages and benefits and keep a headquarters at Mays Landing, N.J.; and
• Charitable contributions equal to Atlantic City Electric’s $709,000 annual giving for 10 years.

Rate Counsel Rejects Settlement

While the settlement with the BPU staff is a major step toward final approval in New Jersey, it was not signed by New Jersey’s consumer advocate, the Division of Rate Counsel.

Rate Counsel Stefanie Brand told a BPU evidentiary hearing yesterday that she did not sign the settlement because it includes no limit on the post-merger transition costs Atlantic City Electric can seek or any “stay out” — a period of time when the company is prevented from seeking a rate increase.

“Without express limitation on the level of post-merger transition costs recoverable by Atlantic in a future proceeding, costs associated with the merger — such as installing new computer systems or severance payments that would not have been incurred by Atlantic but for the merger — may be sought by the company in Atlantic’s next base rate case without limitation,” Brand said. “In other words, the $62 million of benefits to Atlantic’s customers may be offset or totally wiped out.”

Brand also criticized the settlement’s claims that it would require Exelon to improve Atlantic City Electric’s reliability performance.

The settlement says the company would forfeit 50 basis points in the next electric distribution base rate case filed after January 2021 if it fails to meet a System Average Interruption Frequency Index (SAIFI) of 1.05 interruptions per customer per year or a Customer Average Interruption Duration Index (CAIDI) not to exceed 100 minutes.

Brand said the thresholds represent no improvement over the commitments the company made in the Reliability Investment Program as part of its 2009 base rate case. Brand said the company already has met the 100-minute target and would likely meet the SAIFI goal before the program’s expiration in 2016.

Brand also said the “most favored nation” clause in the settlement — an assurance that New Jersey will benefit from any additional concessions achieved by states yet to approve the merger — was too narrow.

“The decision to approve the merger in New Jersey is not a slam dunk,” Bruce Burcat, executive director of the Mid Atlantic Renewable Energy Coalition (MAREC), said in an interview. “The board will now have to consider the concerns of the non-signing parties and decide whether to approve the joint stipulation.”

Burcat’s group didn’t oppose the settlement. In return, Burcat said, Exelon has agreed not to oppose MAREC’s request that the BPU open a docket to order Atlantic City Electric to use a competitive process for the procurement of a portion of its obligations under New Jersey’s Renewable Portfolio Standards.

Public Hearings Begin in Maryland

The announcement of the New Jersey settlement came the day after a public hearing on the merger in Maryland.

About 100 people attended a Public Service Commission hearing on the merger in Rockville Tuesday night, the first in a series of public-comment hearings before evidentiary hearings begin in late January.

The majority of the crowd either belonged to or were supportive of environmental groups Chesapeake Climate Action Network (CCAN) and 350 Montgomery County, and they cautioned the commission on Exelon’s record on renewable energy.

Many of the speakers said Exelon’s goal was to use Pepco’s ratepayers to subsidize its nuclear fleet, which has become unprofitable.

Others, including County Councilmember Roger Berliner, did not take a position on the merger at the hearing. Instead they urged the commission to make Pepco open up its transmission line right-of-ways for recreational use, if it approved the deal. Some speakers were hiking and mountain biking enthusiasts who enjoyed open right-of-ways in the territory of Exelon subsidiary Baltimore Gas and Electric but lamented that their trails were interrupted in Pepco’s territory.

Those who spoke in support of the merger included the Montgomery County Chamber of Commerce, the Maryland Chamber of Commerce, the Hispanic Chamber of Commerce and the Salvation Army.

Exelon has offered $100 million in credits for customers in Maryland and other states, but the PSC’s staff has said it thinks $167 million would be a more appropriate offer. (See Exelon-Pepco Merger Faces Headwinds in Maryland.)

The state Office of People’s Counsel has already urged rejection of the deal, calling Exelon’s “purported benefits … either non-existent or woefully deficient.”

PJM’s Independent Market Monitor Joe Bowring told the PSC in a letter that the merger “raises potential vertical and horizontal market power issues,” repeating concerns he expressed to the Federal Energy Regulatory Commission.

Bowring recommended that FERC require the companies agree to remain in PJM and permit independent third-party interconnection studies. He said Exelon should agree to a review of ratings of all elements of the combined transmission systems and a regular process for reviewing and updating transmission limits. Despite Bowring’s comments, FERC approved the merger without conditions in November.

Hard Sell in D.C.

In D.C., where some public hearings have already been held, Exelon faces a hard sell.

People’s Counsel Sandra Mattavous-Frye urged the D.C. Public Service Commission to reject the merger. “The office’s painstaking, comprehensive review and analysis details how the Pepco/Exelon application fails to meet each of the commission’s seven public interest factors,” she said in a statement last month. “Overall, there are far too many risks for consumers and nothing but benefits for Pepco and Exelon.”

A coalition calling itself Power D.C. is also opposing the merger. Although Exelon has promised $14 million in incentives for the District, the coalition, which includes the Sierra Club, CCAN, D.C. Working Families and the D.C. Environmental Network, said the merger wouldn’t benefit ratepayers or businesses.

Delaware PSC Wants $63M

Exelon has offered $17 million in customer credits in Delaware, but a Delaware Public Service Commission consultant has said $62.9 million, or $100 per customer, would be a proper offer. Public hearings are scheduled for February there.

Delaware Public Advocate David L. Bonar said he didn’t expect a settlement in New Jersey so soon.

“I was somewhat surprised the BPU signed off on the agreement as quickly as they did, but not surprised that the New Jersey Rate Counsel declined,” he said.

Bonar said all parties are continuing to work toward a settlement in Delaware, but added, “We are not quite there yet. A merger worth billions of dollars can’t be taken lightly.”

He said his office is “not ready, at this time, to say it’s in the best interest of Delaware as presently constructed.”

Burcat said he didn’t think what happened in New Jersey, where ACE serves a minority of the state, will have an impact on the question in Delaware, Maryland or D.C.

“In the other jurisdictions, Exelon will end up controlling the vast majority of the service territories and will also end up serving most of the electricity load,” Burcat said. “Consequently, the ramifications of the merger in these jurisdictions are substantially higher.”

Exelon has repeatedly said the merger would be a good thing for all concerned. “We believe that the facts — which are available in the testimony we’ve filed with the commission and other information we have provided to the parties through the regulatory process — will show that this merger is in the public interest and will benefit customers and the community,” spokesman Paul Adams said last month.

Justice Department Review

RTO Insider reported last month that the U.S. Department of Justice is investigating the interconnection process in PJM’s MAAC sub-region as part of its anti-trust review of the merger. (See DOJ Probing Interconnection Process in Exelon-Pepco Merger.)

Exelon said yesterday that the Justice Department’s review period expired Dec. 22, meaning the Hart-Scott-Rodino Antitrust Improvements Act no longer precludes completion of the merger.

“Exelon and PHI will continue to work cooperatively with the DOJ until it advises them that it has concluded its evaluation of the merger,” Exelon said.

Michael Brooks contributed to this article.

[Editor’s Note: An earlier version of this article incorrectly said the Maryland Public Service Commission had sought $167 million in concessions from Exelon. That recommendation was by the PSC’s staff.]