D.C. Commission Rejects Proposed Merger Settlement, Offers Revised Plan

March 4, 2016–Last week, the Public Service Commission of Washington D.C. (PSC) rejected by a 2 to 1 vote a settlement agreement facilitating the merger of the Exelon Corporation and Pepco Holdings that would have created the nation's largest electric utility. The D.C. PSC is the last regulatory body to consider the merger, which has already been approved in Delaware, Maryland, New Jersey, and Virginia. The vote last week was the latest development in the PSC's extensive consideration of the merger. Without the support of the D.C. PSC, the merger falls apart.

The majority of the PSC found that the settlement agreement was "not in the public interest." The commissioners opposed to the settlement said the merger would not enhance the reliability of Pepco's distribution system, and the companies' roles in developing solar and renewable energy projects could "undermine competition and grid neutrality." Commissioners also cited the failure of the settlement to "provide a persuasive rationale" for excluding commercial ratepayers from $25.6 million in rate credits to customers from the proposed Customer Investment Fund (CIF).

The settlement agreement included providing $9 million to Washington D.C. LIHEAP. However, the PSC order stated this funding did not address the underlying issues of high electric bills in the long term, nor did it help the low-income households receiving the Residential Aid Discount to access lower energy costs in the short term. The PSC said the settlement lacked "specific details" about how the agreement would impact existing low-income programs, which caused the Commission to question the agreement's "appropriateness."

While rejecting the proposed settlement, the PSC did offer a roadmap for approving the merger. In a separate 2 to 1 vote, the PSC suggested some fixes to the settlement agreement that, if approved by the involved parties, would result in the regulators approving the merger. These included:

  • Postponing the determination of how the $25.6 million in rate credits would be used until the utility's next rate case.
  • Transferring $11.25 million from the CIF into an account for Energy Efficiency and Energy Conservation Initiatives primarily focused on low-income households. The PSC said this would be an "ongoing and systemic solution" to helping lower energy usage by vulnerable households.
  • Requiring the utility to commit charitable contributions equal to $1.9 million annually for 10 years in the D.C. area.

The nine parties involved in the settlement have until March 11 to decide if they will agree to the new terms. However, some of the parties involved have already spoken out against the PSC's revised proposal. D.C. Attorney General Karl Racine said the credits for ratepayers that would have insulated them from increased prices through 2019 were an "essential protection" that the PSC removed. Mayor Muriel Bowser, a lead architect of the settlement, could not support the PSC's revised plan, which she said "guts much needed protections against rate increases for D.C. residents and assistance for low-income D.C. ratepayers." Similarly, the Office of People's Counsel, the District's ratepayer advocate, said the PSC's plan "eviscerates" assistance for D.C. residents. Spokespeople for Pepco and Exelon have said they are talking with parties involved with the settlement and are trying to figure how to move forward.

To read more about how the Exelon-Pepco merger fared in other states, please see this article in the Clearinghouse's June 2015 newsletter.

Sources: Public Service Commission of Washington D.C., media reports, LIHEAP Clearinghouse