On February 26, 2016, the Public Service Commission of the District of Columbia (“DCPSC”) issued an order rejecting the Nonunanimous Full Settlement Agreement and Stipulation (“Settlement”), which proposed to amend the terms of the proposed merger between Exelon Corporation (“Exelon”) and Pepco Holdings, Inc. (“Pepco” and together with Exelon, “Joint Applicants”). In the order, the DCPSC determined that the Settlement was not in the public interest. Instead, the DCPSC proposed a Revised Settlement that would, among other things, defer its decision on the allocation of a proposed $25.6 million for Customer Base Rate Credit in the Settlement.

On June 18, 2014, the Joint Applicants filed their initial merger application, which the DCPSC denied in an August 27, 2015 order. On October 6, 2015, the Joint Applicants filed a motion to reopen the record after the District of Columbia (“D.C.”) government and the Joint Applicants negotiated the Settlement (see October 28, 2015 edition of the WER). Under the terms of the Settlement, Exelon’s original investment in D.C. was increased from $14 million to $78 million. Exelon also committed to invest another $17 million in energy efficiency programs and to purchase 100 MW of wind generated power to serve D.C. load as part of the Settlement. On October 8, 2015, D.C. Mayor Muriel Bowser issued a press release confirming the D.C. government’s support for the Settlement.

In its order rejecting the Settlement, the DCPSC determined that the Settlement as filed was not in the public interest. Specifically, the DCPSC found that

  1. the record failed to provide a persuasive rationale for excluding non-residential ratepayers from sharing in a proposed $25.6 million allocation of the Customer Investment Fund (“CIF”) for Customer Base Rate Credit relief and failed to establish that the Settlement would not undermine the DCPSC’s policy of addressing the negative class rate of return that exists for residential ratepayers as a result of the allocation;
  2. the Settlement assigned roles to the Joint Applicants that would undermine competition and grid neutrality;
  3. the proposed uses of the CIF for sustainability projects and the Low-Income Home Energy Assistance Program would not improve Pepco’s distribution system nor advance the DCPSC’s objective to modernize D.C.’s energy systems and distribution grid; and
  4. the Settlement’s proposed method of allocating the CIF funds to D.C. agencies would deprive the DCPSC of the ability to enforce compliance with the terms of the Settlement and to ensure that all of the funds would be used to further the objectives of enhancing the distribution system and benefiting D.C. ratepayers.

In addition to rejecting the Settlement, the DCPSC proposed the Revised Settlement. The Revised Settlement includes the following proposals:

  1. the decision on the allocation of the $25.6 million to be used for a Customer Base Rate Credit among Pepco’s customers would be deferred until the next base rate case proceeding;
  2. Exelon would no longer be required to develop 5 MWs of solar generation at the D.C. Water and Sewer Authority’s Blue Plains facility under “commercially acceptable” terms, and Pepco would be committed to facilitate and expedite the interconnection of a solar project at the Blue Plains facility of up to 5 MWs;
  3. Settlement terms would be revised to ensure that the CIF and any penalty funds would remain under the DCPSC’s regulatory authority, and that the CIF is available for projects that support the missions of the DCPSC and is not subject to being diminished based on budgetary concerns within the D.C. government; and
  4. the Joint Applicants would be committed to support and facilitate certain pilot projects approved by the DCPSC.

Although Chairman Betty Ann Kane concurred with the DCPSC’s decision to reject the Settlement, Chairman Kane voted against proposing the Revised Settlement, stating her belief that no alternative “will address the fundamental structural problem of Exelon’s acquisition of Pepco.” In a comment to the Washington Post, Mayor Bowser indicated that she would not support the Revised Settlement.

The parties to the Settlement have until March 11, 2016 to accept the Revised Settlement. A copy of the DCPSC order is available here.