D.C. Mayor Muriel E. Bowser and two other key parties involved in the beleaguered proposed merger of Pepco and Chicago-based Exelon said Tuesday that they can no longer support the plan, all but dooming a deal to create the nation’s largest electric utility.
Bowser’s team had negotiated for the utility companies to pay the District $78 million in exchange for the city’s support for the $6.8 billion merger, which already had approval from New Jersey, Delaware, Maryland, Virginia and federal regulators.
The mayor’s plan would have cushioned rate increases for D.C. residents for four years, but it was rejected last week by District regulators, who said it was “not in the public interest” and would exacerbate an existing imbalance in which federal taxpayers and businesses subsidize D.C. residential rates.
The D.C. Public Service Commission said it would reconsider the deal under new terms, which removed any guarantee to hold down residential rates.
Support for that arrangement quickly fractured.
District Attorney General Karl A. Racine was first to cast doubts on the deal, followed by Sandra Mattavous-Frye, the District’s chief advocate for ratepayers, whose opposition marked an about-face on the matter.
Bowser was the last to weigh in when she said Tuesday that she could not agree to the commission’s latest proposal.
“From the start, we focused on affordability, reliability and sustainability,” Bowser said. “We pulled everyone together to negotiate an agreement that was a great deal for D.C. residents. The PSC’s counterproposal guts much-needed protections against rate increases for D.C. residents and assistance for low-income D.C. rate payers. That is not a deal that I can support.”
Pepco spokesman Vincent Morris and Exelon spokesman Paul Elsberg issued identical statements, saying the companies continue to talk with D.C. officials and other parties. “The discussions are ongoing, and we will provide an update at the appropriate time,” the two wrote.
Exelon, which has already spent about a quarter-billion dollars over two years on the proposed merger, should not be counted out and could still muster up more money for a final offer to close the deal, industry analysts said.
But for the merger to go forward, Bowser, Racine, Mattavous-Fry and six other parties involved in the talks need to agree on the contours of a new proposal by March 11.
Two D.C. official with direct knowledge of the negotiations said that with the Public Service Commission seemingly intent on deciding how money from the utilities set aside for the District is spent, there is little room for further discussions.
The apparent collapse of the merger is a major victory for environmentalists and a defeat for the District’s business community, which feared a rejection would solidify the city’s image as unfriendly to major corporations.
The developments also hit Pepco investors. Shares of one of Washington’s oldest institutions tumbled 13 percent, hitting the lowest level since the merger was announced two years ago. At the time, Exelon said it would pay a premium of almost 25 percent for each Pepco share.
For Bowser, the day brought to an end her mission to appease both the city’s business community while assuring constituents and environmentalists that she had done her best to improve the deal.
Under Bowser’s original plan, D.C. residents would not have faced another electricity rate hike until after the next mayoral race. And Bowser had secured $29 million for environmental projects, low-income credits and other popular programs.
Anya Schoolman, head of DC Solar United Neighborhoods, on Tuesday praised the decisions by the mayor, Mattavous-Frye and Racine.
“We’re delighted,” said Schoolman, whose group objected to the deal because it believed the merger would hinder the city’s migration toward renewable energies such as wind and solar. “We hope that we can all jointly move forward past the merger to get a sustainable, reliable energy system that we all deserve.”
Bowser had repeatedly justified supporting the merger by saying that amid an industry shake-up, if it wasn’t Exelon, then another company — and perhaps a less scrupulous one — would come after Pepco.
But the Public Service Commission dismissed that claim, saying there was no evidence that Pepco could not continue to function as an independent company.
That was also a view on Wall Street, even as many had banked on the merger.
“Certainly, we’ve seen that the share price will suffer, but I’m not sure ratepayers will notice . . . there are plenty of utilities this size that seem to be able to operate perfectly fine and efficiently,” said Paul Patterson, a utility analyst with Glenrock Associates. “I understand there have been reliability issues, but the idea that this is a fundamentally defective utility is not the case.”
A spokeswoman for Mattavous-Frye said Tuesday that the People’s Counsel wants the parties to return to the previous agreement that Bowser had negotiated, a deal which regulators found untenable.
Without a guarantee to hold down rates, the merger could disproportionately affect the city’s poor, Mattavous-Frye said. “The inability to afford to pay their bills is a reality for many of our residents and cannot be trivialized and dismissed,” she said.
For most of the past two years, Mattavous-Frye forcefully opposed the merger. Then, in the fall, she signed on to the agreement negotiated by Bowser in what critics saw as a capitulation. Days later, Bowser renominated Mattavous-Frye to a new term.
That breathed new life into the agreement but put Mattavous-Frye on the defensive during her D.C. Council confirmation, with some members questioning whether her support was authentic.
Exelon’s next move could come as early as Friday.
Last month, Exelon chief executive Christopher M. Crane told analysts on an earnings call that if the proposed merger with Pepco was not completed by March 4, the company would walk away.
Thomas Heath contributed to this report.