Wringing Benefits From A Merger: Exelon-Pepco Merger Process Shows How It’s Done

Art Malatzky

Most people don’t think of corporate mergers as vehicles to provide immediate customer benefits, but the world of utility mergers can be different due to the regulatory approval process required. The 2014 announced merger of Exelon Corporation and Pepco Holdings Inc. provides an interesting example of how that process can be used to the advantage of customers.

In a deal announced April 30, 2014, Exelon agreed to pay $6.8 billion in cash to acquire Pepco. Along with the promise of enhanced reliability in the Pepco service territories, which has been long subject to above average outages, the deal offered a “customer investment fund” of $100 million for the various utilities’ customers. Due to the multi-state nature of Pepco’s regulated utilities, the deal required approvals from various regulators including the Federal Energy Regulatory Commission (FERC), the District of Columbia Public Service Commission, as well as the states of Virginia, New Jersey, Maryland, Delaware and New Jersey. As expected, FERC granted its approval fairly quickly; the state regulators and a number of intervening parties however had other ideas in mind.

In opposition to the merger, various parties in New Jersey and Delaware have already forced additional customer benefits out of the merger approval process. In New Jersey, Pepco subsidiary Atlantic City Electric will provide an additional $62 million in direct rate credits to customers within 60 days of the deal closing. In Delaware, Delmarva customers will receive an additional $49 million in rate credits over a 10 year period and $2 million will be allocated for energy efficiency improvements for low income residents. This is in addition to a projected $61.5 million in merger savings promised by the utility. In Washington, DC, home of Pepco and home to the largest public opposition to the merger, Exelon and Pepco have now more than doubled their proposed benefits, increasing the package from $14 million to almost $34 million through bill credits, energy efficiency and low income supports. This is in addition to promised long term merger savings that will flow back to customers through their rates. Still, regulatory approval is not certain.

The Exelon-Pepco merger process is just one recent example of how the regulatory process for merger approval can be used to benefit customer groups. In more heavily industrial areas, utility mergers have been used by larger industrials to gain special deals and other significant monetary benefits that can total in the multi-million dollar range per customer. The money given to customers to settle the merger approval process may seem like a lot, but keep in mind that in a world of multi-billion dollar mergers, a few hundred million dollars is a drop in the bucket.

Related resources:


The information in this page is offered only for general informational and educational purposes. It is not offered as and does not constitute legal advice.

No comments yet.

Comment on this post