Exelon Corp.'s $6.8 billion takeover of Pepco Holdings Inc. has
been conditionally approved by the Maryland Public Service
Commission, bringing the two electric utilities closer to
completing a deal struck a year ago.
Shares in Pepco rallied 8.8% to $27 on the news Friday. Exelon
shares gained 2.9% to close at $34.50.
The takeover has passed muster with regulators in New Jersey and
Virginia, in addition to the Federal Energy Regulatory Commission,
but still needs to be cleared by Washington, D.C., where Pepco is
based.
The companies have said they expect to close the transaction by
the third quarter.
The Maryland commission set as conditions higher reliability
standards, $66 million in rate credits, $43.2 million for
energy-efficiency programs and another $18.4 million for other
programs. The deal has faced opposition in Maryland and in the
District of Columbia over concerns that long-distance ownership of
the Pepco utility could lead to rate increases and job losses.
In an effort to win clearance in Maryland, Chicago-based Exelon
said in March that it would more than double the value of a fund to
benefit customers there. The merger would boost Exelon's base by
two million accounts to 10 million in five states and Washington,
D.C. The company owns three utilities and a large fleet of nuclear,
natural-gas and other power plants.
Utilities and power companies have been pairing up over the past
few years to combat low power prices and rising costs. Regulated
utilities are particularly prized for their ability to pass on
costs to customers in monthly bills and provide investment returns
that often are virtually guaranteed.
Pairings in recent years include NextEra Energy Inc.'s $2.6
billion deal for Hawaiian Electric Industries Inc., Wisconsin
Energy Corp.'s move to buy Integrys Energy Group Inc. for about $9
billion, and Berkshire Hathaway Inc.'s $5.6 billion purchase of NV
Energy Inc. Exelon acquired Baltimore-based Constellation Energy in
2012 for about $8 billion, which added two
utilities—Baltimore Gas & Electric Co. and
PECO—to its single Chicago-based Commonwealth Edison
utility. The Pepco deal would bring in three utilities: Pepco,
Atlantic City Electric and Delmarva Power.
The Maryland commission found that the proposed merger is
"consistent with the broader public interest" and "will bring
specific and measurable benefits and no harm to rate payers." It
also said the merger will bolster Pepco's efforts to improve its
reliability.
"We find that their day-to-day normal weather outages will be
reduced, their distribution infrastructure will be improved more
quickly and at lower cost, and their ability to recover from
outages following major storms will be improved, all because of the
merger," the commission said.
Exelon spokesman Paul Elsberg said Friday that company officials
were pleased with Maryland's approval but were still reading it "to
make sure we understand the conditions.
Other conditions set by the commission include ensuring the
utilities are protected against any financial difficulties at the
parent company and establishing a $14.4 million fund that would
help finance rooftop solar and energy storage projects on customer
properties.
Cassandra Sweet contributed to this article.
Write to Lisa Beilfuss at lisa.beilfuss @wsj.com
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