Exelon's Takeover of Pepco: Setting the Record Straight

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On Wednesday, the Kojo Nnamdi Show focused on the controversial takeover of local utility, Pepco, by Chicago-based mega-utility Exelon. The show featured critics of the deal – Abbe Milstein, founder of Powerupmontco, and Tyson Slocum, director of Public Citizen’s Energy Program – who debated proponents of the merger – Jim Dinegar, president and CEO of the Greater Washington Board of Trade, and Wendy Stark, deputy general counsel for Pepco Holdings Inc.

Listen to the debate here.

With an assist by Maryland Attorney General, Brian Frosh, who called into the show to highlight the fundamental issues informing the state’s staunch opposition to the deal, critics made it clear that this deal is not in the public interest, but rather designed as a windfall for Exelon and Pepco shareholders and a safety net for a company plagued by a fleet of uneconomic nuclear reactors.

However, proponents were able to slip in some erroneous claims about the effects of the proposed takeover on area ratepayers. Let’s set the record straight.

Electricity will NOT be More Reliable Under Exelon

Proponents of Exelon’s takeover of Pepco maintain that having the “biggest kid on the block” control your local utility means more resources to address outrages and reliability. In fact, this deal, if approved, would give the biggest kid on the block a near monopoly in the Mid-Atlantic region and limit the ability of customers and regulators to compare, for instance, several area utilities reliability targets. In a brief filed with the Maryland Public Service Commission, Maryland Energy Administration’s expert put it this way:

“Comparing one utility against another helps the Commission to identify the full range of viable options and judge whether the option the utility selected or proposed was reasonable. Indeed, differences in position can help the Commission identify and understand the different approaches that are available … competition is critical as a means of seeing and comparing the technical, economic and regulatory alternatives within the context of a specific regulatory issue.”

Exelon’s takeover of Pepco would mean the dominance of one perspective and one way of doing things: Exelon’s way.

And far from improving reliable, the Maryland Attorney General reports that Exelon’s reliability commitments are in some cases less stringent than the annual standards already proposed by Pepco. Exelon has no engineering plan supporting its reliability targets and Exelon will likely seek rate increases to cover the cost of its plan – a scenario BGE customers are all too familiar with. After being acquired by Exelon in 2012, BGE customers have had their rates hiked four times at Exelon’s request for “reliability improvements.”

Exelon’s Nuclear Generation DOES Puts Ratepayers at Risk

Stark, representing Pepco, insisted that Pepco ratepayers will be insulated from Exelon’s risky fleet of nuclear reactors.

And when questioned about a bill Exelon is pushing in the Illinois Legislature that would help prop up the corporation’s uneconomical nuclear plants, she said that in fact, that bill was about leveling the playing field for all alternative generation. It’s not. The bill, which Chicago Business reporters call the “Exelon-only” bill, would cost customers an additional $300 million a year to pay for nuclear plants that otherwise can’t compete in the market – and it’s a preview of how Exelon wields its influence on state lawmakers.

Not only does Exelon seek direct ratepayer subsidies for its nuclear generation, but we also expect it to try to limit customer access to energy saving programs and more affordable generation that compete with nuclear power. In hearings before the Maryland Public Service Commission, the commission staff’s own witness stated that Exelon CEO Chis Crane:

“consistently alludes to energy efficiency, demand response, distributed generation, renewable energy and net-metering as being counterproductive to Exelon’s bottom line … Considering that Exelon believes these technologies are incongruous and disruptive to its business, it is my interpretation that encouraging the growth of such programs would be fraught with constant battles both with the implementation of EmPOWER Maryland, but also in maximizing the bidding of these resources into the capacity markets to offset costs to ratepayers. “

The bottom line is that Exelon’s nuclear fleet is in financial turmoil. To address the failing economics of nuclear power, Exelon is pursuing schemes to prop up these plants, maximize their returns and shield shareholders from the risks associated with their continued operation – all of which is in conflict with the best interest of electricity customers.

Asking for a Higher Customer Investment Fund is Extortion?

Approval of the takeover is contingent on Exelon meeting each state’s merger criteria, which, in the case of Washington, D.C., and Maryland, include a demonstration that the proposed deal will benefit consumers. As a way to clear this hurdle, Exelon has offered each affected territory a Customer Investment Fund (CIF). This money is used to provide one-time direct rebates to customers and in some cases a portion can be earmarked for investment in low-income and energy efficiency programs.

Exelon’s initial offering amounted to a one-time rebate of approximately $50 a household. This month, Exelon raised the CIF to a one-time credit of approximately $100 per customer. The CIF across all three affected states – Delaware, Maryland and New Jersey – and the District of Columbia now totals about $247 million. The Maryland Attorney General believes that the CIF is inadequate and does not constitute a fair benefit to customers.

Consider this: Exelon is attempting to buy Pepco for $6.9 billion, with Exelon paying every Pepco shareholder $27.25 per share, which will result into a $1.842 billion windfall for Pepco shareholders.

What Exelon is offering Pepco customers is a fraction of the $1.842 billion windfall for Pepco shareholders under the proposed acquisition. If the CIF for Maryland customers were equal to the windfall for Pepco shareholders, the CIF would be $731 million – though no one is advocating for that amount. Even so, considering Pepco ratepayers paid for Pepco’s transmission and distribution assets, Pepco’s customers are clearly ill-served by Exelon’s proposed paltry CIF.

Yet Dinegar of the Greater Washington Board of Trade called the request by advocates for a strong Customer Investment Fund, akin to “extortion.” I guess we know whose interest Mr. Dinegar is looking out for. I couldn’t help but be reminded by another corporate apologist that came to the defense of BP in the wake of the Gulf oil disaster. After the Obama administration secured a $20 billion fund to pay for damages from the catastrophic oil spill, U.S. Rep. Joe Barton (R-Texas) apologized to then-CEO, Tony Hayward, saying “I think it is a tragedy of the first proportion that a private corporation can be subjected to what I would characterize as a shakedown.”

That said, even a $731 million fund would be unlikely to lessen the long-term effects of Exelon’s undue influence and control over the region’s energy sector.

Learn more and take action on the proposed takeover.