Pepco Is Being Sold. Here Are Five Ways It Could Affect D.C.
D.C., say hello to Exelon, your new electricity overlord.
The Chicago-based nuclear energy powerhouse has agreed to pay $6.8 billion to acquire Pepco Holdings, the electricity utility for the District and parts of Maryland, Delaware, and New Jersey. "This is a tremendous opportunity to take Pepco Holdings to the next level," Pepco CEO Joe Rigby told reporters on a conference call this morning.
What does it mean for D.C. residents? Nothing, yet. The companies are hoping to close the deal by the third quarter of next year, so it'll be a while before we see any change. And even then, D.C. customers will continue to see the "Pepco" name on their electricity bills. But Pepco's reach in the District extends far beyond power lines, so the ultimate effects of the deal could be broadly felt. Here are a few ways things might change—or not.
1. Reliability could improve. (It can't get much worse.)
Pepco won plaudits in October 2012 for its strong response to Hurricane Sandy as utilities in neighboring jurisdictions struggled to keep the lights on. Other than that, it's been rough going. Pepco was named the most hated company in America in 2011, largely for reliability issues. A Washington Post study in 2010 found that Pepco was among the least reliable big-city utilities in America, with customers experiencing 70 percent more outages than the average and those outages lasting twice as long. Pepco's response to the 2012 derecho storm was widely condemned.
Last year, Exelon-owned ComEd, Illinois' largest utility, boasted record reliability. (The company does have its own issues, however; it's been accused of astroturfing to promote its political agenda.) Exelon is committing to investments in infrastructure and reliability improvements for Pepco customers. Rigby says Pepco has made recent improvements to its reliability, and those improvements will continue under Exelon.
2. Don't expect rates to go down.
Exelon is also committing $100 million, or about $50 per customer, to a "customer investment fund," says Exelon CEO Christopher Cane. That'll be used for rate credits, energy efficiency programs, and assistance to low-income customers. It's a nice touch, but it shouldn't mask the fact that rates are expected to rise. At ComEd, in order to modernize the electricity grid, Exelon is raising rates annually. Infrastructure improvements in D.C. should have the same effect. With work beginning this year on the $1 billion project to bury D.C.'s above-ground power lines, customers' monthly payments were already going to be increasing by a few dollars. (Rigby says that process won't change under Exelon. "It’s all systems go on that front," he says.) If Exelon does more to try to boost reliability, rates could increase further—even if Cane says he expects the merger to save the combined companies to save around $80 million annually.
3. What's it mean for the D.C. United deal?
Ideally, nothing. As part of the deal to build a soccer stadium at Buzzard Point, the District was supposed to have acquired all the necessary land there and secured D.C. Council approval by Jan. 1. We're in late April, and that still hasn't happened. Pepco controls some of the land the city will need, and it's likely to be part of the complex land swaps that the city is expected to undertake in order to assemble the necessary parcels. Could the process really drag on until the third quarter of next year, when Exelon is set to take over? That's unlikely, provided the deal gets done at all. But even in the interim, Pepco's interests might change now that it's being sold, and Exelon could weigh in on any land swaps or purchases.
Rigby, though, says the takeover won't bring any change on this front. "That’s all part of the normal business," he says of the potential land deals. "It’ll just be a continuation of that process."
4. Solar power could get a boost.
D.C.'s mix of energy sources isn't likely to change much when its utility changes hands. But Pepco, in small ways, has stood in the way of locally generated solar power. Due to a quirk in Pepco's system, customers who have solar panels on their roofs that produce more electricity than they consume in a certain month can't get credit for that surplus on the next month's bill if they use online billing. On the plus side, Pepco, after initial skepticism, helped enact a new law allowing customers to pool their resources to produce solar power. But Exelon produces its own solar power, and owns what it calls the largest urban solar power plant in America. Perhaps it will be more of a partner in renewable energy efforts than Pepco has been.
5. The local economy could be affected.
Pepco employs 3,242 people in the D.C. area, according to the Post. It and its predecessors have been around since the 19th century. What will the end of independence mean for the company? If Exelon sets up centralized control in Chicago, that could mean fewer executive and administrative jobs at Pepco's 9th Street NW headquarters.
"We’ll still have a headquarters here in D.C.," says Rigby. "When you get into a transaction like this, a lot of times at the administrative office level, there’s overlap in the jobs. And we’ll deal with that in a very fair and balanced way. I think it’s premature to say where jobs will migrate in the future."
Additionally, Pepco is philanthropically active: In 2012, Pepco and its parent company gave more than $3 million to nearly 350 local and regional organizations. Exelon has committed $50 million to charitable giving in Pepco's service areas over the next 10 years. But the company's approach to its giving, and its long-term commitment, remain to be seen.
And finally, Pepco's work affects areas of the economy we tend not to think about. Why did it take forever to repave Sherman Avenue NW? Because Pepco and other utilities were slow in their utility work there. Why has the H Street streetcar construction taken so long? In part, it's utility work by Pepco.
If all the regulatory approvals are made and the deal goes through next year, D.C. customers will keep paying their bills to Pepco. But they could be feeling the effects of today's announcement in a number of ways.
Due to a typo, the article originally reported that Pepco is being sold for $6.8 million. It's $6.8 billion.
Photo by Darrow Montgomery