By Michael Brooks

WASHINGTON — Having achieved a settlement with Mayor Muriel Bowser’s administration, Exelon and Pepco Holdings Inc. tried to persuade the D.C. Public Service Commission over the course of three days of hearings last week that their nearly $7 billion merger is now in the public interest.

Carim Khouzami, chief integration officer for Exelon, and David Velazquez, Pepco’s executive vice president for power delivery, were among those whom Chairman Betty Ann Kane and Commissioner Joanne Doddy Fort questioned on the details of the settlement. Commissioner Willie Phillips did not ask any questions.

Regulators unanimously rejected the deal in August, finding that it was not in the public interest. The Bowser administration brokered the settlement, which was filed in October. D.C. is the last jurisdiction needed to close the deal, with New Jersey, Maryland, Virginia, Delaware and FERC all having given their approval. (See Mayor’s Settlement Puts DC PSC on the Spot in Exelon-Pepco Deal.)

“In retrospect, we realize that our failure to present a settlement agreement made it a very difficult task for this commission to find the merger was in the public interest,” Peter Meier, vice president of legal services for Pepco, said in an opening statement. “We’re here today because a settlement was agreed to.”

Rate Impact

The D.C. commissioners questioned the officials about the logistics of the settlement: how rate credits would appear on customers’ bills, what the structure of the new company would look like and whose overdue bills would be forgiven.

Kane was interested in how the promised credits would protect against rate shock. Exelon promised $14 million in direct credits to residential customers and $25.6 million in credits to offset future rate increases the company expects to file. Kane estimated that the distribution portion of customers’ bills would jump 20 to 30% in 2019 after the $25.6 million ran out.

“Ultimately the rate cases are the determination of the commission [and] what they see as reasonable and prudent,” Khouzami said. But “with this commitment, $25.6 million worth of rates will never be paid by customers.” Without the merger, Pepco would still seek similar levels of rate increases and “customers would still be subject to that without an offset,” he said.

Fort asked how $5.2 million in contributions to district workforce development programs constituted a “direct and tangible benefit” to ratepayers, required to prove the merger is in the public interest.

In a pre-hearing brief, Velazquez said the contribution will provide training to district residents in “sustainable jobs.”

At the hearing, however, the executives were vague about the types of jobs residents would be trained for in the workforce development programs, and what exactly was meant by “sustainable.”

Residents would get “a skill set needed to get a good-paying, secure, sustainable job in the district that will help benefit them for years to come, so I think there’s a true benefit here,” Khouzami said. The companies have not made a firm commitment to hiring residents who participate in the programs, he said in response to a question from Fort. The funds are “really intended to provide the job training needed so that individuals can actually select the job that they want, whether it’s at Pepco or somewhere else in the district.”

“It is my hope that through this program, we’ll also be working with the district and having a discussion about the type of jobs that Pepco will need as we move forward with the grid of the future,” Velazquez said. “These are jobs that are related to helping drive renewable energy, driving energy efficiency, driving microgrids, driving the smart grid. All those things are going to help create a more sustainable electric grid and a more sustainable use of electric energy.”

District Official also Questioned

The director of the district’s Department of Energy and Environment, Tommy Wells, was the first witness questioned by the commission on Wednesday.

The commissioners peppered Wells with questions about how money in the district’s Renewable Energy Development Fund and the Sustainable Energy Trust Fund has been used to make up for shortfalls in the district’s general fund. Under the settlement, Exelon will contribute $3.5 million to each fund.

Wells admitted that transfers from the energy funds, which must be approved by the D.C. Council, are not prohibited under the settlement. But, Wells said, “it is completely in alignment with the plans and vision for this administration to expend those funds exactly as they’ve been negotiated.

“I can’t speak to the whims of the council, but I believe the council” will respect the intent of the administration, Wells said.

Wells, like Khouzami and Velazquez, was also vague about the workforce development funds. Fort asked what agency would receive them.

“That’s a great question because we’re working on that now,” Wells answered. He mentioned the University of the District of Columbia and the Department of Employment Services as possible candidates, but it’s not clear yet if the money would even go to the government, he said. If it does, City Administrator Rashad Young would ultimately decide which agency receives the funds, he said.

Wells also said “sustainable” jobs was meant to refer to both green and long-lasting jobs.

Wells was questioned first at the request of the D.C. government, as he had to catch an afternoon flight to Paris, where he accepted an award for green energy on behalf of the district from the C40 Cities Climate Leadership Group. The group, comprising 78 cities around the world, honored the district for its 20-year power purchase agreement with Iberdrola Renewables that will supply 30% of the government’s electricity through wind power.

The announcement of the award — which was followed by applause in the room — came during the hearing on Thursday, as Pepco cross examined Bruce Burcat, executive director of the Mid-Atlantic Renewable Energy Coalition. Iberdrola is a member of MAREC, which opposes the merger.

Looking Ahead

With the administration and the district’s public advocate on its side, Exelon’s chances appear to hinge on winning over Kane or Fort.

Phillips had issued a partial dissent in August, saying that he would have supported a merger that would have brought “benefits for ratepayers, the local economy and the environment.”

The settlement brokered by the Bowser administration includes $78 million in customer benefits, up from $14 million in the company’s original offer.

Post-hearing briefs are due Dec. 16, with reply briefs due Dec. 23. The record will then close, starting the countdown to a commission decision.

On Monday, four councilmembers sent an 11-page letter to the PSC urging it to reject the deal, saying it offers “short-term benefits that in the long-term have detrimental costs.”