Chicago-based energy giant Exelon Corp. announced Wednesday it will acquire Atlantic City Electric’s parent company, Pepco Holdings, in a $6.8 billion deal.
This would expand Exelon’s reach into New Jersey’s regulated-utility market, where it tried to merge with PSE&G in North Jersey in 2006 but scrapped plans amid pushback from state regulators. The latest proposal will face state scrutiny in Pepco’s regions in South Jersey, Maryland, Delaware and Washington, D.C., as well as from federal energy regulators.
“The company is going to have to explain to us why they think this is good, why it won’t harm ratepayers or employees,” said Stefanie Brand, who represents utility customers as director of the New Jersey Division of Rate Counsel.
Brand said her office and the Board of Public Utilities will examine how the proposal will affect rates, competition, employees and the safety and reliability of electricity.
Executives from both companies said they expect a deal to close in mid-2015.
Exelon, the largest owner of nuclear plants in the U.S., is already known in the region as the owner of the nuclear Oyster Creek Generating Station in Lacey Township, southern Ocean County. It is also the parent of Philadelphia-area electric and natural gas utility PECO.
Exelon CEO Chris Crane said the acquisition will reduce expenses by $80 million annually.
Crane indicated this could ultimately result in customers paying less. He said the company is creating a $100 million fund, about $50 per customer, for public commissions in affected states to give rebates to customers, promote energy efficiency or assist low-income energy programs.
Atlantic City Electric in March filed a $61.7 million request to the state Board of Public Utilities to increase rates by 5.6 percent per month. The average residential customer using 1,000 kilowatts currently pays about $170 per month. That case is pending before the BPU.
Pepco President and CEO Joseph Rigby said utility investment plans will not be affected.
“As we go forward in the combined company, there will be cost savings. We would look for an equitable sharing of those benefits with our customers,” Rigby said.
Crane said no jobs will be affected at the operating facilities, and union contracts will be honored.
“A lot of times at the administrative office level, some of the professional level, there’s overlap in the jobs, and we’ll deal with that in a fair and balanced way,” he said.
Both companies operate utilities but have different models.
Pepco, based in Washington, D.C., has no power plants, but owns and maintains the wires that distribute electricity to homes and businesses.
In New Jersey, the state’s four regulated electric utilities have to buy power competitively at annual auctions.
Much of Exelon’s business is power generation, but it has been growing its utility holdings.
The company owns generating stations across the country — including 23 nuclear reactors — capable of producing 34,700 megawatts, which is enough to power about 34 million homes.
Exelon said the acquisition is a diversification of its balance sheet reflecting dips in power prices, something that has cut into its core business.
Frank Felder, director of the Center for Energy, Economic & Environmental Policy at Rutgers University’s Bloustein School of Planning and Public Policy, said regulated utilities offer more stable and less risky investments than power generation. That has been evident the past few years as a weak economy curbed electric demand and cheaper natural gas used in power plants drove down prices.
“The utility side is a little more stable. Maybe it’s a way of diversifying their assets,” Felder said. “Another way of getting more earnings is merging or buying up companies. It’s also a way to institute cost-cutting.”
Exelon tried to enter the state’s regulated utility market in 2006 by acquiring Newark-based PSE&G, the state’s largest electricity provider. PSE&G has nearly four times as many electric customers as Atlantic City Electric.
State regulators and watchdogs helped to scuttle the plans, amid concerns the mega-merger would give Exelon too much power to control prices across New Jersey and would not reduce rates enough. The New Jersey Public Interest Research Group was one of the entities that opposed the effort.
Jennifer Kim, director of the Trenton-based nonprofit, said the new proposal will require a close look at long-term rate impacts, particularly in one of the costliest states to buy electricity.
The U.S. Energy Information Administration says residential electricity in New Jersey costs about 30 percent more than the national average, according to December data.
Exelon, which reported nearly $25 billion in revenue last year, has electricity and natural gas utilities reaching 6.6 million customers in southeastern Pennsylvania through PECO, in central Maryland through Baltimore Gas & Electric, and in Illinois though ComEd.
In 2012, Exelon merged with Baltimore Gas & Electric’s parent, Constellation Energy, as it increased its foothold in utilities.
Pepco Holdings has about 2 million customers in three states and the District of Columbia through Atlantic City Electric, Delmarva Power and Pepco.
Among them are 547,000 Atlantic City Electric customers in a 2,700-square mile service territory in southern New Jersey.
The acquisition will also require approval of Pepco shareholders. Exelon on Wednesday morning said shareholders would receive a premium of 24 percent on the stock.
Crane said the utilities in the acquisition, including Atlantic City Electric, will keep their names.
Pepco’s headquarters will remain in Washington. Atlantic City Electric’s main office will remain in Mays Landing, Exelon said.
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