Editor’s note: The following commentary appeared on CenterMaryland.org on March 13, 2015.
By Donald C. Fry
In April 2014, Exelon Corporation and Pepco Holdings Inc., announced plans to merge and subsequently filed formal merger applications in Washington, D.C., and four states where Pepco had customers or transmission assets – Maryland, Delaware, New Jersey and Virginia.
The acquisition of Pepco Holdings by Exelon would create an electric and natural gas distribution utility serving approximately 10 million customers in contiguous service areas from Trenton, N.J., through central Maryland to the southern Delmarva Peninsula.
Among other things, it would deliver to customers more efficient and reliable service, buoyed by best practices and a larger pool of resources shared by still locally-managed utilities within the company. It would also generate more jobs and a continuing high level of community service and charitable giving, according to Exelon filings.
Now, almost a year later, regulatory commissions in all but one of the four states have approved the merger. Guess which state is dragging its heels?
The answer is, of course, Maryland. Our state has mounted zealous opposition to Exelon’s request to acquire Pepco Holdings and is asking the Maryland Public Service Commission to deny the request.
As recently as March 3, newly-elected Maryland Attorney General Brian Frosh and assistant attorneys general for the Maryland Energy Administration filed a brief with the Maryland Public Service Commission in opposition to the merger.
It was also opposed by the state’s energy administration prior to the November election.
Proposed public utility mergers are, by definition, complex matters that require due diligence. In this case that translates into Public Service Commission proceedings that have produced thousands of pages of testimony, the inevitable dueling witnesses, dueling data, the expression of grave concerns by activists and the uncomfortable spectacle of a state government vigorously challenging the credibility of a major private-sector corporation.
For example, Exelon contends that the merger will create up to 7,000 jobs that generate a positive economic impact of more than $600 million. Opponents counter that the merger will cost the state almost 5,000 jobs and $300 million in economic losses.
“This merger will harm Maryland customers, offers no tangible, incremental benefits of sufficiently meaningful value and is not in the public interest,” Attorney General Frosh argues in the recently-filed brief.
You get the highly adversarial picture. Opponents cite fears of Exelon controlling too much of the market and argue that it will hurt price competitiveness. This despite the fact that utilities are regulated and only permitted to do what the Public Service Commission approves. Meanwhile, in Maryland price competition already exists from energy suppliers whose products are delivered to customers though the utilities.
If all of this sounds familiar, it should. It harkens back to when former Governor Martin O’Malley orchestrated vehement state opposition to the proposed merger of Constellation and Florida Power and Light that ultimately was abandoned and the Constellation and Exelon merger that gained Public Service Commission approval after protracted, highly public contentiousness.
In the process, Maryland was subjected to unwanted national notoriety portraying our state as being generally regulation-centric and hostile to business.
So again, we find our state government opposing another acquisition sought by Exelon, but this time it’s a proposal that crosses state boundaries and affects four states and the District of Columbia.
In Maryland it’s essentially a protracted and animated process where the state and a variety of other advocates extract as many concessions as possible from the utility seeking Public Service Commission approval.
Most people understand that mergers of this magnitude inevitably generate an elaborate bargaining process, not just in Maryland. It’s always a process that has many moving parts and produces many points of contention and negotiation before distilling into a set of merger conditions that a utility regulatory body will ultimately rule whether or not they are in the state’s best interest.
But the fact remains that, as of today, the Federal Energy Regulatory Commission and regulatory bodies in New Jersey, Delaware and Virginia have all approved the proposed Exelon-Pepco deal.
Yet Maryland, newly proclaimed as a state that is “open for business,” is still mulling it over.
This may be a first test of whether Maryland is actually going to have a better business climate and deal with complex, but normal, business transactions in a thorough but expedited fashion.
Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.