By Lisa Beilfuss
Pepco Energy Services Inc.'s $6.8 billion takeover by Exelon
Corp. has been conditionally approved by the Maryland Public
Service Commission, bringing the companies a step closer to merging
a year after agreeing to do so.
Shares in Pepco rallied 8% on the news Friday. Exelon shares
gained about 3%.
The deal has also been approved by regulators in New Jersey and
Virginia, in addition to the Federal Energy Regulatory Commission,
but still needs to be cleared by regulators in Washington, D.C. The
companies have said they expect to close the transaction in the
third quarter.
Conditions for approval in Maryland include what the commission
calls higher reliability standards, $66 million in rate credits and
$43.2 million for energy-efficiency programs.
In an effort to win clearance in the state, Exelon said in March
that it would more than double the value of a fund to benefit
customers there.
The commission said it 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 enable Pepco in Maryland to improve
reliability performance more quickly.
"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.
The planned acquisition would boost Exelon's base by two million
accounts to 10 million in five states and Washington, as electric
utilities generally are attempting to adjust to lethargic
sales.
Pepco and Exelon officials said the companies were pleased with
the approval but still reading it "to make sure we understand the
conditions, " Exelon spokesman Paul Elsberg said.
The deal has faced local opposition in Maryland and in the
District of Columbia over concerns that long-distance ownership of
the utility could lead to rate increases and job losses.
Utilities and power companies have been pairing up and bulking
up over the past few years to combat low power prices, tepid demand
for electricity and rising costs. Regulated utilities are
particularly prized for their ability to pass on costs to customers
in monthly bills, provide investment returns that often are
virtually guaranteed, and shield companies from having to compete
in cutthroat commodity power markets.
Recent mergers include NextEra Energy Inc.'s agreement last
December to buy most of Hawaiian Electric Industries Inc. for $2.6
billion; Wisconsin Energy Corp.'s move last June to buy Integrys
Energy Group Inc. for about $9 billion; and the December 2013
purchase of NV Energy Inc. by Berkshire Hathaway Inc.'s energy unit
for about $5.6 billion.
Exelon acquired Baltimore-based Constellation Energy in March
2012 for about $8 billion, which added two utilities--Baltimore Gas
& Electric Co. and PECO--to its single Chicago-based
Commonwealth Edison utility. Pepco would bring in three utilities:
Pepco, Atlantic City Electric and Delmarva Power.
Cassandra Sweet contributed to this article.
Write to Lisa Beilfuss at lisa.beilfuss @wsj.com
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