Aug. 26--Nuclear power giant Exelon suffered an unexpected blow Tuesday when regulators in the nation's capital blocked its merger with East Coast utility Pepco Holdings.
Though five other regulatory agencies had already OK'd the proposed $6.9 billion deal, the Washington, D.C., Public Service Commission ruled the merger was "not in the public interest."
Chicago-based Exelon, the parent company of Commonwealth Edison, is expected to appeal.
Exelon stock fell 7 percent Tuesday to $30.40 a share. The firm said in a written statement that it still believes the deal -- which would make Exelon a major player in the mid-Atlantic region -- is a good one for customers and that it will "review our options with respect to this decision."
The proposed Pepco deal is significant for Exelon because some of its nuclear-generating plants in Illinois are unprofitable, and merging with Pepco, which supplies 2 million customers in Washington and its Maryland suburbs, would provide more predictable revenues.
Morningstar analyst Andrew Bischof said that Exelon has 30 days to appeal and can enter into settlement talks in an attempt to find a deal the commission will accept. The block on the deal "hinders their plan to de-risk their business by focusing more on regulated operations and less on generation," he said.
Shahriar Pourreza, an analyst with Guggenheim Partners, said Exelon has a very high bar to clear to win any appeal. "It's not a great time to be a de-regulated operator," he said, adding that Pepco's revenues were central to Exelon's plans.
David Kraft, an activist with the anti-nuclear power Nuclear Energy Information Service, said East Coast opponents presented evidence of how Exelon operated in Illinois and that the commission's ruling made sense "given the track record of what they've seen in Illinois." Opponents packed public meetings in D.C. and Maryland, ensuring that the case had "more interest and more active participation" than any other case in the commission's century-plus history, the commission said.
Pepco Holdings had revenues of $1.14 billion in the last quarter, up from $1.12 billion in the same quarter last year. Its earnings of $53 million, or 21 cents a share, held steady. Its stock fell 16 percent to $22.51 Tuesday.
While the commission's ruling did not mention Illinois specifically, commission chairwoman Betty Ann Kane wrote in her opinion, "The public policy of the District is that the local electric company should focus solely on providing safe, reliable and affordable distribution service to District residences, businesses and institutions. The evidence in the record is that sale and change in control proposed in the merger would move us in the opposite direction."
Commissioners said they feared Pepco would become a "second-tier company in a much larger corporation whose primary interest is not in distribution."
Critics of Exelon hailed the regulatory ruling, saying the company was getting its comeuppance for lobbying to raise the prices Illinois customers pay and for its stance against renewable energy sources generated by wind and solar power.
Exelon, the country's largest operator of nuclear plants, is pushing for policies that would reward such plants for not emitting greenhouse gases, similar to the way wind and solar power generators are reimbursed.
Exelon's electric utility subsidiary, ComEd, was stymied in its push earlier this year for a change to how residential customers are billed but is likely to revisit the issue, Rep. Bob Rita, D-Blue Island, said in June.
Exelon had revenues of $6.5 billion in the last quarter, up from $6 billion a year earlier. It earned $633 million or 74 cents per share in the latest quarter, up from $557 million or 60 cents a share, a year earlier.
kjanssen@tribpub.com
