If Maryland’s two largest electric companies are allowed to merge, proponents say, customers will get rebates, reliable service and renewable energy. But a closer look shows that the promises are dubious while the risks to our energy future, our environment and our families’ pocketbooks are real.
Exelon, the parent company of Baltimore Gas and Electric, has offered $6.8 billion to buy Pepco Holdings Inc., which owns not only the Washington-area’s service provider but also Delmarva Power on the Eastern Shore. To earn the approval of the Maryland Public Service Commission, the companies must show that the deal provides benefits to Maryland customers, does no harm and is in the public interest. It fails badly on all counts.
The combined company would manage 80 percent of residential and commercial customers in Maryland, from the banks of the Potomac River to the shores of Ocean City, creating a near-monopoly in utility service with potentially serious negative consequences.
While each company has a unique footprint, regulators and customers now look “across the fence” to compare prices, service, performance and policies. Independent local utilities provide regulators with diverse data and perspectives, used to ensure optimal service for Maryland consumers. The Exelon-Pepco Holdings merger would tear down the fence, eliminating an important point of comparison, competition and innovation.
Furthermore, Exelon and Pepco Holdings have very different business models. Pepco and Delmarva are “wires-only” companies. Pepco Holdings owns no significant power plants and is under no pressure to protect the profitability of such plants. Exelon, on the other hand, owns and operates large power plants that depend on selling their electricity to Marylanders and others in the mid-Atlantic region to remain profitable. Changes in the electric industry, including gains in energy efficiency, increased use of renewable energy and lower natural gas prices, are making it harder for Exelon to profit from its power plant fleet, which includes a significant amount of nuclear power.
Exelon has made many positive contributions to Maryland since its purchase of BGE, but the prospect of a future with more local options for meeting customers’ electricity needs threatens its large power plant business.
This conflict is at the core of the proposed merger: Exelon is looking for a hedge against assets that are losing money. By acquiring a regulated distribution utility, Exelon gets a steady source of cash and customers but will still have an incentive to block competition from smaller, cleaner providers that could soon emerge everywhere. The companies’ recent pledge to support some solar projects in Montgomery and Prince George’s counties in order to gain approval of the merger does nothing to resolve the larger, inherent conflicts presented by the deal.
Exelon and Pepco Holdings claim the merger will generate savings that they are willing to pass on to customers. But the companies have offered no firm pledge that this will happen. Moreover, the financial commitment they offered to Maryland customers pales in comparison with the size of the deal. The companies initially proposed the equivalent of a $50 credit to every Pepco and Delmarva customer. After criticism, they increased their so-called community investment fund to a total of about $94 million. Still, it’s a trivial amount compared with the $1.6 billion premium that Pepco Holdings shareholders would get.
In short, most of the value created by this deal is going to shareholders — not customers. This is exactly the wrong direction for Maryland.
The world of energy delivery is changing fast. Technology advances and economic changes, if allowed to develop through healthy competition, offer a future of greater choices for affordable, clean and reliable power. For Maryland consumers, the proposed merger pushes that future further out of reach, and that’s why the deal must be rejected.
The writer, a Democrat, is attorney general of Maryland.
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