5 Reasons Exelon’s Failed Attempt to Take Over Pepco Cannot Be Salvaged:
On Monday, Exelon filed a request for the D.C. Public Service Commission (PSC) to reconsider its denial of the Chicago-based corporation’s bid to take over the District’s utility, Pepco Holdings Inc. At the same time, the mayor’s office issued a brief statement confirming that it is negotiating with Exelon on a new application that purportedly will address the shortcomings of Exelon’s previous proposal.
The PSC likely will dismiss Exelon’s tenuous request for a rehearing, which leads to the next step in the process: Exelon will resubmit the revamped proposal. It is unclear when this will happen, but when it does, we expect it to be wrapped up in a bow and heralded as Christmas comes early for the District. But ultimately – regardless of how much money Exelon offers Pepco shareholders, or how many concessions the company pledges to make – Exelon’s second takeover attempt, like its first, should fail. Here’s why:
1) The whole is greater than the sum of Exelon’s concessions:
Exelon bears the burden not only of proving that the takeover would not harm consumers, but that it would result in clear and tangible benefits to D.C. electricity customers. The PSC found that most of Exelon’s benefit claims were inflated, unsubstantiated or inadequate and that the deal could harm consumers and undermine D.C.’s sustainability goals.
In its second filing, Exelon is likely to promise whatever it thinks is necessary to get the deal done. But any new concessions Exelon offers would still be reviewed in the context of whether the acquisition as a whole is consistent with the public interest. The PSC was clear in its decision that this deal is fundamentally a bad fit for the District. New concessions would likely come in the form of short-term gains that would not mitigate the long-term risk of allowing the largest utility in the county – with its outdated business model – to swallow D.C.’s local utility.
2) Inherent conflicts:
By design, this acquisition cannot be in the public’s interest because Exelon’s business model – which seeks to increase profits and offset the heavy losses being incurred by its unregulated nuclear plants – is in conflict with the best interest of Pepco customers and is misaligned with the District’s clean energy goals.
Exelon CEO Chis Crane frequently alludes to energy efficiency and renewable energy as being counterproductive to Exelon’s bottom line and considers these technologies as incongruous and disruptive to Exelon’s business. As a result, Exelon is notoriously hostile to clean energy at the federal and state level. The PSC was right to illuminate this conflict and the threat to D.C.’s clean energy goals under an Exelon regime in its decision to reject the takeover.
Unless Exelon sells off its toxic generation business, the PSC should reject its revamped proposal on the same grounds.
3) Public opposition:
Thousands of public comments calling on the PSC to reject the deal were submitted into the record and hundreds of people turned out to public hearings to voice their opposition. In fact, in the announcement rejecting Exelon’s bid to acquire Pepco, regulators noted that the merger proceedings generated more interest and more active participation by the public – which largely opposes the merger – than any other proceeding in the commission’s 100-plus years of operations. Those that lined up behind Exelon did so out of financial interest, not public interest.
A number of groups that receive financial contributions from Pepco and have been promised that the money will keep coming in under an Exelon regime have supported the takeover. It is likely that these groups, at Exelon’s urging, will show up at the new rounds of hearings, but as before, the PSC should recognize this conflict of interest and elevate the public’s voice over those with financial ties to Pepco and Exelon.
4) Home ruled:
It’s incredible that a town that has fought so hard for local governance is considering a deal that would give away our decision-making power over our energy future to corporate executives located 700 miles away and make our local utility a second-tier company in a much larger corporation whose primary interest is in selling power, not providing the best value for its customers. Isn’t it bad enough that Congress controls our budget? Like the inherent conflicts of interest, the PSC should not find anything in Exelon’s new proposal to resolve this deal breaker.
5) D.C. doesn’t need Exelon:
The District has had much to complain about with Pepco. That is not disputable, but Pepco has improved reliability in the past few years and is expected to meet advanced reliability standards established by the PSC. Exelon has offered no improvement beyond what Pepco is already on track to achieve. That’s because this deal has never been about making Pepco a better company for D.C. This deal is about Exelon reducing the risk of its failing generation business with a stable revenue stream – provided by Pepco customers.
Pepco was not for sale until Exelon approached the utility with an offer that included a $1.6 billion windfall for its shareholders. D.C. didn’t ask for Exelon and we still don’t need them.
D.C. decision-makers should continue to reject Exelon’s power grab. There is no fix that would make this deal good for D.C., the public opposes it and D.C. doesn’t need the merger to achieve reliable electricity service. Regulators got it right the first time. To continue entertaining this deal is a waste of precious resources and time for those tasked with protecting the public’s interest in this matter. It’s time to let D.C. residents get back to the business of building an affordable, reliable and clean power supply for the District.
Allison Fisher is the outreach director for the Climate and Energy Program