Criticism of Pepco merger with Exelon unfounded

Former PSC chair: Criticism that a merger between Exelon and Pepco Holdings will affect Md.'s market power and

A Pepco Holdings merger with Exelon is a good deal and is in the best interest of residents of the state of Maryland. It has the potential to make Maryland a national leader in the development of microgrids, energy efficiency, distributed energy — including renewables — and other technology that will be the backbone of the grid of the future and a strong incentive for businesses to locate here.

I've heard criticism that a merger between Exelon and Pepco Holdings will affect market power and influence in the state, but I find it to be inaccurate. The merger will have no impact on competition and will bring lower rates, making Maryland more competitive in attracting businesses and investment. Generally speaking, in the electric industry, customer rates have two major pieces — the power supply cost (usually about two thirds of the customer's electric bill) and the cost of delivering the power supply (the remaining one third). Just like many other states today, Maryland electric consumers can choose to buy power from among a host of independent, competing electric supply companies. The merger will not change that.

For those customers who do not shop around, the Maryland Public Service Commission supervises a competitive bidding process to buy power at the lowest available price. The merger will not change that. Moreover, in the energy supply market generally, Exelon supports competitive markets that ensure that the output of its generation plants, including its nuclear plants that emit virtually no greenhouse gases, will only be sold if it offers a lower price than its competitors.

The role of the local electric utilities — like BG&E, Pepco and Delmarva Power — is simply to deliver the power and maintain the electric delivery infrastructure, pursuant to commission regulation and only within their respective service territories. The merger will not change that.

The proposed merger only affects the local electric utility companies — Exelon would acquire Pepco and Delmarva Power. There is no impact whatsoever with respect to power supply costs or competition among electric supply companies. Pepco and Delmarva, like BG&E, are state regulated electric delivery companies. They do not compete with each other, they do not own electric generating facilities, they do not participate in the competitive retail energy supply business. They simply deliver power to customers within their service territories.

Improved reliability is essential and paramount. That is why Exelon and PHI have committed to accelerating Pepco and Delmarva Power's reliability improvements so that by 2018, Pepco will achieve first-quartile performance and Delmarva Power will achieve second-quartile performance as measured against peers. If Exelon falls short of these commitments, the company faces significant financial penalties.

They also committed to delivering a robust package of commitments aimed at providing direct benefits to customers and the state through a combination of bill credits to customers, funding for energy efficiency programs, low-income customer assistance and renewables investments. Exelon has also agreed to help make energy more affordable by establishing a $94.4 million customer fund that will provide a combination of bill credits and funding for energy efficiency programs to help customers save money by using less energy.

To promote clean energy, the companies have pledged to create a $50 million "Green Sustainability Fund" to stimulate investments in things like community solar energy storage, energy efficiency, clean transportation and other technology. Exelon will also develop 15 megawatts of solar generation throughout Pepco Holdings' Maryland service area.

The progress at BG&E in terms of reliability, customer satisfaction and infrastructure investment clearly demonstrate the benefits of joining a family of high-performing utilities that have the capital to invest in their systems and the ability to share resources and best practices.

This merger is indeed a rare case when you can combine a pro-consumer, pro-business and pro-environmental agenda into one package. Energy is the backbone of the economy, and this deal offers an opportunity to make it more reliable and more affordable thanks to stringent cost-containment measures embedded in the agreement, projected merger savings and the investments Exelon and PHI have committed to make.

Our officials and community representatives, including Montgomery County Executive Ike Leggett and Prince George's County Executive Rushern Baker, are to be congratulated for their leadership in negotiating with Exelon and Pepco Holdings to reach an agreement that will provide tremendous value for our residents, businesses, environment, state and economy.

Frank O. Heintz is former chairman of the Maryland Public Service Commission from 1982 to 1995 and served as president and chief executive officer of Baltimore Gas & Electric Co. from July 2000 to Sept. 2004. Mr. Heintz served on the board of directors of Pepco Holdings, Inc. from May 2006 to May 2014. His email is foah@aol.com.

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