By Suzanne Herel
Exelon’s proposed acquisition of Pepco Holdings Inc. looked in doubt Tuesday as D.C. Mayor Muriel Bowser and the Office of the People’s Counsel announced their opposition to revised terms set out by the Public Service Commission last week.
The two are among nine settling parties that must agree to the new deal in order for it to be approved without further commission action. At issue for both was the reallocation of $25.6 million from a customer investment fund that would have shielded residential customers from rate hikes until 2019. The PSC wants to defer a decision on how to spend the funds until the next Pepco rate case, signaling that it would distribute the money to non-residential customers as well. (See DC PSC: Will OK Exelon-Pepco Deal for Additional Concessions.)
“The PSC’s counterproposal guts much-needed protections against rate increases for D.C. residents and assistance for low-income D.C. ratepayers. That is not a deal that I can support,” said Bowser, who was instrumental in bringing the parties back to the board to negotiate a new settlement after the commission rejected the merger in August. The PSC agreed to reopen the matter in October. (See DC PSC’s Counteroffer below.)
People’s Counsel Sandra Mattavous-Frye echoed Bowser’s concern. “The commission’s order eviscerates the benefits and protections essential to render the proposed merger in the public interest by making changes to the $25.6 million rate offset provision for residential customers, which was the single most critical provision I supported,” she said.
“I am hopeful all parties and consumer participants to this case will not lose sight of the real issue in this case — the protection of our most vulnerable residents. Going forward, we will need to work cooperatively to ensure that all consumers in all eight wards of our city are guaranteed affordable rates and reliable service, and that once the fanfare dies down, our most vulnerable residents are not forgotten.”
Pepco’s stock price dipped on news of Mattavous-Frye’s dissent before nosediving when Bowser’s statement was released, dropping by more than $3, a decrease of 13% from Monday’s close, to $22.81/share. Exelon was down only marginally after news broke but quickly rebounded to near its opening price of $31.80/share.
Both Bowser and Mattavous-Frye, along with Attorney General Karl Racine, opposed the initial merger offer but signed on to the revised settlement. Racine’s office also expressed his opposition to the revisions. “With the guarantee that residential ratepayers won’t be impacted until April 2019 no longer part of the deal, he determined that the settlement as revised was no longer in the public interest,” Racine spokesman Robert Marus said.
In an earnings call last month, Exelon CEO Christopher Crane said the company would abandon the $6.8 billion deal if it didn’t have PSC approval by March 4.
Asked Tuesday whether Exelon planned to walk away if a deal can’t be struck in the 14 days given the settling parties, spokesman Paul Elsberg said, “We continue to have conversations with the D.C. government and other settling parties about the commission’s order and the new provisions. The discussions are ongoing, and we will provide an update at the appropriate time.”
Meanwhile, opponents planned a press conference for noon Wednesday across from D.C. government headquarters to urge the settling parties to reject the deal. That press conference will still occur as planned.
D.C. Solar United Neighborhoods.
Kellie Armstead Didigu, a spokeswoman for the PSC, confirmed that the order requires all settling parties to agree on the revised terms for the deal to be approved outright, quoting from the order: “All of the settling parties are directed to review the alternative terms in the revised [nonunanimous settlement agreement] and file a notice with the commission secretary no later than 14 days from the date of this order, either accepting the revised NSA, or requesting other relief. … If all the settling parties accept the revised NSA … then the joint application for approval of a change of control of Pepco as amended by the revised nonunanimous settlement agreement … is deemed approved as being in the public interest.
“If the settling parties request other relief … then the nonsettling parties may file comments on the settling parties’ filing or make a filing requesting other relief with the commission secretary, within seven days of the date of the settling parties’ filing of requesting alternative relief.”
Said Didigu, “Because nothing has been filed yet by the settling parties in response to paragraphs 206 or 208 of our order, and the commission does not want to anticipate what will be filed by the settling parties, the commission cannot address what the next steps are at this time.”
If Exelon does decide to sweeten the deal with D.C., it likely will have to return to the other states where the merger had been approved under a “most favored nation” status — Virginia, New Jersey, Maryland and Delaware.
The PSC on Friday took two 2-1 votes on the settlement brokered by Bowser’s office. The first rejected the settlement as filed, with Commissioner Willie Phillips dissenting. The second offered four concessions that, if agreed to by the settling parties, would mark the deal approved. Commission Chairwoman Betty Ann Kane was the dissenting vote.
DC PSC’s Counteroffer
In a 2-1 vote, the D.C. Public Service Commission on Friday rejected the Exelon-Pepco merger as proposed, citing four reasons why Chairwoman Betty Ann Kane and Commissioner Joanne Doddy Fort deemed it not in the public interest.
But Fort then departed from Kane, saying the settlement negotiated by Mayor Muriel Bowser’s administration was “not fatally flawed” and could be fixed with additional concessions.
In a second 2-1 vote, Commissioner Willie Phillips joined Fort in offering a revised settlement including four changes that they said would make the deal acceptable without further commission action.
The order requires all of the settling parties to agree to accept the revised settlement within 14 days. In addition to Exelon and Pepco, that includes the Office of People’s Counsel; the District of Columbia Government; the D.C. Water and Sewer Authority; the Consumer Law Center; the National Housing Trust; the National Housing Trust-Enterprise Preservation Corp. and the Apartment and Office Building Association of Metropolitan Washington.
The proposed changes address the allocation of the $72.8 million customer investment fund (CIF) and Exelon and Pepco’s role in development of a solar generation facility and four microgrids. Below is a summary of the issues and the proposed changes.
ISSUE 1: A $25.6 million allocation from the proposed CIF for base rate credit relief excludes non-residential ratepayers. The commission also worried that the allocation could undermine its ability to address the current negative rate of return for residential ratepayers and the resulting subsidies placed on non-residential consumers.
Proposed Change: Strike “residential” from the name of the credit. Defer a decision on allocating the relief until the next Pepco rate case. At that time, the parties in the base rate case would have a chance to recommend to the PSC how the credit should be distributed and over what period of time.
ISSUE 2: Exelon’s designation as developer of a solar generation facility at the D.C. Water and Sewer Authority’s Blue Plains Advanced Wastewater Treatment Plant and Pepco as developer of four microgrids undermines competition and grid neutrality.
Proposed Changes: Remove provision naming Exelon the developer of a proposed 5-MW facility. Require Pepco to facilitate the project’s interconnection for a vendor to be chosen by D.C. Water. Strike Pepco’s role as developer of public-purpose microgrids; require it to facilitate pilot projects to modernize D.C.’s energy system.
ISSUES 3 and 4: The proposed uses for the CIF for sustainability projects and low-income assistance do not improve Pepco’s distribution system, nor advance the modernization of the district’s energy systems or distribution grid. The proposed allocation method for the CIF deprives the commission of the ability to ensure all money is being used to enhance the distribution system and benefit district ratepayers.
Proposed Change: Create an escrow fund with two subaccounts to hold $32.8 million of the CIF: $21.55 million for pilot projects to modernize the energy system and $11.25 million for energy efficiency and energy conservation programs focusing on housing for low- and limited-income residents. The commission would decide how the funds would be released.