Nuclear giant Exelon to buy Washington’s Pepco in $6.8 billion energy deal


Specialist Jason Notter, right, works with traders at the post that handles Pepco Holdings, on the floor of the New York Stock Exchange, Wednesday, April 30, 2014. The stock market is edging lower Wednesday after the U.S. economy slowed more drastically in the first quarter than economists had believed. (AP/AP)

Nuclear-energy giant Exelon launched a $6.8 billion takeover of Washington’s century-old local electric company on Wednesday, promising long-suffering Pepco customers better service and a quicker response when the lights do go out.

Consumer advocates and government officials across Pepco’s service area, which includes the District and much of suburban Maryland, largely welcomed the proposed merger, which would inject fresh resources and personnel into a company whose record for reliability has long ranked among the worst in the nation.

But they also worried that the takeover — if approved by a far-flung army of state and federal regulators — could leave local residents reliant on the distant Chicago owners of one of the nation’s largest utilities.

“Just because Pepco’s bad doesn’t mean these guys are going to be better,” said Maryland state Sen. James C. Rosapepe (D-Prince George’s), an outspoken critic of Exelon’s recent takeover of the Constellation Energy Group, which owns Baltimore Gas and Electric (BGE).

“The question is, will one big utility run out of Chicago be better for the people of Beltsville and Bethesda than Pepco run out of Washington,” Rosapepe said. “That’s what [state regulators] have to figure out.”

Joseph M. Rigby, the chairman, president and chief executive officer of Pepco Holdings — whose subsidiaries include Delmarva Power and Atlantic City Electric as well as Pepco — joined Exelon’s president and chief executive, Christopher Crane, on a conference call with reporters Wednesday morning to announce the merger, which has been approved by both companies’ boards of directors but must be endorsed by Pepco shareholders.

While it would mean the end of independence for one of the city’s oldest institutions, which traces its history to a 19th-century streetcar company, it would deliver an immediate benefit to consumers. Exelon has agreed to provide up to $100 million — about $50 per customer — for rate credits, assistance to low-
income households and energy- efficiency measures.

“This is just a tremendous win for our employees, our shareholders and our customers,” said Rigby, who recently announced his retirement.

The deal is not likely to slow rate hikes and surcharges that Pepco and Exelon have sought to overhaul the aging electricity grid. But Rigby said the new company would make good on a $1 billion public-private partnership with the District to bury many of the city’s most frequently downed power lines. Work on the ambitious project is set to start late this year.

The fate of the “undergrounding” plan was the first question that D.C. Mayor Vincent C. Gray (D) asked when informed of the proposed merger, Rigby said. Gray spokesman Pedro Ribeiro said the mayor is “definitely going to keep a very close eye on this deal to make sure it is in the best interest of District residents.”

Sandra Mattavous-Frye, who as the D.C. people’s counsel represents consumer interests, said legislation binds Pepco or its “successors” to complete the undergrounding arrangement. But she said other aspects of the deal seem less reassuring, including the prospect of trading a homegrown company with deep local roots for an out-of-state parent that already reaches into 38 states and two Canadian provinces.

Paula Carmody, head of the Office of People’s Counsel in Maryland, said she has similar concerns despite Exelon’s relatively smooth acquisition of Constellation Energy, which the state approved in 2012.

Exelon soothed alarm about its takeover of Constellation, Baltimore’s sole Fortune 500 company, by establishing a new regional headquarters on the city’s Inner Harbor, maintaining local philanthropic efforts and dispatching Calvin Butler, an affable lawyer and lobbyist, to serve as the company’s point man in Maryland.

In March, Butler, 44, became BGE’s first African American chief executive. Both in-house and independent customer surveys have shown rising satisfaction with the company.

Approval of that merger came with demands from the state to improve customer service and reliability. After a series of outages left customers in the dark or cold for days after major storms, the Maryland legislature passed a bill in 2011 to raise performance standards on electric companies.

“It’s things like that that drive reliability,” Carmody said. “It’s tough to say what can be attributed solely to the acquisition, positively or negatively.”

Rosapepe, whose state Senate district includes both Pepco and BGE customers, agreed.

“Exelon made a lot of commitments to modernize BGE. And they’re working on them,” he said. “But the jury’s still out on whether they’re on track to meet 21st-century standards.”

Nationally, utilities taken over by Exelon have improved more quickly in customer satisfaction than similarly sized electric companies, said Jeff Conklin, senior director of energy practice for J.D. Power, which surveys residential customers.

Last year, among 17 large utilities surveyed in J.D. Power’s eastern region, BGE ranked 11th in customer satisfaction and Exelon-owned Peco in Philadelphia ranked sixth. Pepco ranked next to last.

Exelon’s oldest service provider, Commonwealth Edison in Chicago, is ranked in a different regional group. But it, too, has improved faster than average, Conklin said.

“Exelon brands have been steady climbers,” he said.

A number of current and former BGE customers contacted Wednesday said they have been satisfied with Exelon’s performance. Baltimore resident Meg Fielding said she has not lost power in recent years, although some of her neighbors did during the destructive derecho storm in 2012.

“It was an unexpected storm with no time to prepare and a lot of damage, so they did as well as they could,” said Fielding, 55, adding: “They did a lot better job than Pepco did.”

Greg Schuckman of Ellicott City said he hasn’t had any service disruptions, a feat he called “impressive given the wide outages that were reported throughout the region during the heavy snowfall this winter.”

Exelon, guided first by longtime chief executive John Rowe and now by Crane, was formed by the 2000 merger of Chicago’s Unicom with Peco, creating a Fortune 100 company with the nation’s largest fleet of nuclear power plants.

Its vast nuclear portfolio — located at 14 facilities in Illinois, Maryland, Nebraska, New Jersey, New York and Pennsylvania — generates 55 percent of the power it sells. It also owns 32 fossil-fuel plants from Utah to Massachusetts. And it owns and operates the nation’s largest urban solar power plant in Chicago. Another solar plant is in development in California.

Pepco Holdings is one-fifth Exelon’s size and has more than 2 million customers in an arc stretching from Washington and its Maryland suburbs east to the Delaware shore and north to New Jersey. The company, which sold its power plants several years ago, no longer generates its own electricity and instead buys it from others.

The acquisition could have a big effect on the Washington area, where Pepco has been a major philanthropic force, employs 3,242 people and has extensive lobbying and political activities. The company has even served as a springboard for politicians such as Sharon Pratt, who was Pepco’s vice president for community relations when she successfully ran for mayor of the District.

In the conference call with reporters, Rigby and Crane said customers would barely notice the transition and that the Pepco name would remain. Union contracts would be honored, they said, although there would be a reduction in the number of employees. They added that “synergies” would produce $80 million a year in savings that would be passed on to customers.

Like the Constellation merger, this one will require approval from the Federal Energy Regulatory Commission, which will weigh Exelon’s potential market power. The takeover also will require an antitrust review by the Justice Department and the Federal Trade Commission, as well as approval by the public service commissions in three states and the District of Columbia.

Crane expressed confidence that the deal would go through.

“We have a skilled regulatory team. We’ll work closely with the regulator,” he said. “We would not do this if we could not see a path toward closure.”

Lori Montgomery and Zach Cohen contributed to this report.

Mary Pat Flaherty works on investigative and long-range stories. Her work has won numerous national awards, including the Pulitzer Prize.
Steven Mufson covers energy and other financial news.
Thomas Heath is a local business reporter and columnist, writing about entrepreneurs and various companies big and small in the Washington Metropolitan area. Previously, he wrote about the business of sports for The Post’s sports section for most of a decade.
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