UtilityDive Quotes Drew Moratzka on Hurdles Facing Exelon Acquisition of Pepco Holdings

Stoel Rives attorney Drew Moratzka was quoted in UtilityDive in an article titled “Will Exelon's merger settlement push the Pepco deal past its final hurdle?” The article discusses the legal and financial wrangling surrounding the proposed $6.8 billion acquisition of Pepco Holdings by Chicago-based utility company Exelon Corp., which would create the nation’s largest utility.

In August, the District of Columbia Public Service Commission rejected the merger, citing the fear that the merged company would be too large for regulators to control as well as a conflict of interest between the city’s clean energy goals and Exelon’s business model, which relies in part on a large generation fleet that competes in wholesale markets and a generation portfolio that could lead it to favor obtaining energy through large, centralized plants over developing distributed resources and demand-side management.

However, regulators left the door open for the negotiation of an improved proposal on appeal, and the administration of D.C. Mayor Muriel Bowser quickly arrived at a settlement agreement with Exelon and a majority of the merger intervenors.

The settlement deal, which Bowser said she felt was in the best interests of D.C ratepayers, includes “ring fencing” financial provisions that are designed to wall off the assets of the subsidiary from its parent company and other businesses, thus protecting Pepco ratepayers in the District and elsewhere from financial risks that may exist in the company’s generation fleet.

Moratzka said that Exelon appears to be choosing a financial structure that intends to separate risks, although the way in which the company interprets and implements them, as well as their eventual effectiveness, remains to be seen. And he worries about how the provisions will be enforced.

“What I’m having a hard time understanding is, where are the teeth?” he said. “Let’s assume, because I think it’s reasonably fair, that the provisions do exactly what they say they’re going to do, keep things separate, and then 5 or 10 years later the utility decides to throw it out the window. What’s the recourse?”

Read “Will Exelon's merger settlement push the Pepco deal past its final hurdle?,” published October 15, 2015.