Exelon, Pepco proposed merger blocked by commission

Approval from the D.C commission would have been the last regulatory hurdle the companies would need to clear in order for the merger to go through, Reuters noted.

(EXC – Get Report) are down by 4.59% to $31.15 in mid-day trading on Tuesday, after it was announced that the Public Service Commission of the District of Columbia denied the company’s request to merge with Pepco Holdings (POM).

Though the proposal for the merger won critical support in Montgomery and Prince George’s County, the three-person Public Service Commission rejected the merger in a 2-1 vote.

The PSC based its decision on seven factors, including the merger’s impact on the financial health of the district, utility management, public safety, risks from operations outside D.C., competition in retail and wholesale markets, conservation and environmental goals, and the PSC’s ability to regulate the new utility.

Pepco shares dropped 17 percent on the news, while Exelon dropped 3 percent.

In a joint statement Tuesday, the companies said the commission “fails to recognize the benefits of the merger”.

The regulators also said they believe that a conflict of interest at the company could prevent Pepco from becoming a ” cleaner and greener” utility that uses more renewable energy.

Power DC, a coalition of District citizens that had opposed the merger, applauded the decision as a victory for local ratepayers.

Commissioners said they didn’t like the deal as it was now structured, adding the companies will have 30 days to ask for the commission to reconsider its decision.

“Pepco would become a second-tier company in a much larger corporation whose primary interest is not in distribution, but in generation”, Kane said at the hearing where the decision was announced.

Delaware Public Advocate David Bonar, whose office supported the deal after Exelon agreed to improved concessions for Delaware, said this morning that “everybody else in the region is going to have to sit down and reassess their positions” as a result of the D.C. decision.