BGE owner Exelon closes $6.9 billion deal to buy Pepco

Millions of Marylanders will now all pay their bills to the nation's largest utility company.

Baltimore Gas and Electric Co. owner Exelon Corp. closed its merger with Washington-area utility Pepco Holdings on Wednesday, hours after District of Columbia regulators reversed course and voted 2-1 to approve the union.

The resolution comes seven months after the Public Service Commission initially rejected the deal and two years after the companies unveiled the proposed $6.9 billion merger. It joins millions of Marylanders under the umbrella of what is now the nation's largest utility, connecting Pepco and subsidiary Delmarva Power with BGE and utilities in Chicago, Philadelphia and New Jersey.

The commission approved the deal on conditions that included a $73 million customer investment fund to ensure that it benefits D.C. utility customers.

Given that the companies accepted those terms, Exelon might have to sweeten offers of similar bill credits and other investments in Maryland, New Jersey and Delaware, a consumer advocate said. Regulators in those states had already approved the deal.

Exelon officials said they agreed to spend $430 million on bill credits, reliability improvements and other investments across the Mid-Atlantic.

Exelon CEO Chris Crane said the merged companies "look forward to getting to work to deliver those benefits to our customers and communities."

The deal gives Exelon the steady, regulated earnings of Pepco to help offset losses at its aging fleet of nuclear power plants across the country. It also follows a trend of consolidation within the U.S. utility industry as power companies face tepid electricity demand, low energy prices and rising costs to upgrade old equipment and comply with pollution regulations.

Wednesday's decision settled a back-and-forth between the companies, the commission and District politicians over what was the best deal for all parties.

District of Columbia regulators first turned down the proposed merger in August, saying it was not in the public interest. They rejected it again last month after Exelon struck a compromise with Washington Mayor Muriel Bowser and other city officials that included $78 million in benefits. The PSC offered a counterproposal, but Bowser and the D.C. Office of the People's Counsel said they could not accept the commission's plan because it did not guarantee a freeze on residential bills for three years.

Bowser criticized the commission's decision Wednesday — in particular, the benefits it will provide the federal government and commercial utility customers instead of residents.

"It appears the Public Service Commission favors government and commercial ratepayers over D.C. residents," she said. "Instead of a three-year rate increase reprieve that we negotiated, it appears that D.C. residents will be hit with a rate increase as soon as this summer."

Opponents of the deal in Maryland expressed disappointment that the D.C. commissioners removed what had been the merger's final hurdle.

Maryland Attorney General Brian E. Frosh "remains fundamentally opposed to the merger, because he believes it does not benefit consumers and it stifles efficiency, innovation and the adoption of alternative energy sources," spokesman David Nitkin said in an email.

Frosh plans to review the commission's ruling and determine any next steps.

Paula Carmody, the Maryland People's Counsel, said she expects the deal to come back to the Maryland Public Service Commission for further review. A clause in the Maryland commission's terms with Exelon and Pepco allows it to seek further benefits for utility customers in the state if the companies agree to more generous terms elsewhere.

"We will be pursuing all that we can on behalf of our customers to make sure they at least have equal benefits," Carmody said.

The Maryland PSC approved the deal in May based on conditions that included $100 bill credits for customers of Pepco in Maryland's Washington suburbs and its subsidiary Delmarva Power on the Eastern Shore. It was not immediately clear how the D.C. commission's terms compared with those imposed in Maryland, Carmody said.

Opponents of the deal plan to continue pursuing a legal challenge to Maryland's approval of the merger, Carmody said.

Last June, the Office of the People's Counsel, Maryland's consumer advocate, along with the Sierra Club and Chesapeake Climate Action Network, filed a lawsuit challenging the decision in the Circuit Court of Queen Anne's County, which is served by Delmarva Power. After a judge there rejected the lawsuit, the groups appealed to Maryland's Court of Special Appeals.

Shares of Pepco Holdings Inc. soared 27 percent Wednesday to close at $26.95. Exelon Corp. shares slipped less than 1 percent.

Bloomberg News contributed to this article.

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