The District of Columbia Public Service Commission announced a 2-1 vote on Friday morning to reject the proposed $6.8 billion Exelon-Pepco merger.

The vote dismisses a $78 million settlement agreement the utilities filed last fall with the support of D.C. Mayor Muriel Bowser.  The decision comes after the PSC voted down the original merger proposal last August, throwing plans to create the nation’s largest utility off-track.

But the deal continues to advance. Commissioner Joanne Doddy Fort introduced a proposed alternative settlement agreement to be considered by the parties, which two of three commissioners approved. Stakeholders now have 14 days to consider the new terms. If an agreement is reached, the deal will close.

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detailed the two votes:

1. Is the proposed settlement agreement (NSA) in the public interest?

Motion: Reject the proposed NSA.

Kane: Yes
Fort: Yes
Phillips: No

2. Fort provides alternative terms. Contained various components, including removal of Exelon as the developer for solar projects as proposed in the NSA, addition of non-compliance penalties, etc.

Motion: Allow settling parties to review the proposed alternative within 14 days and accept the revised agreement, or request other relief. If all parties accept the agreement, then the joint application for approval would be deemed approved as being in the public interest.

Kane: No
Fort: Yes
Phillips: Yes

In the first vote, Commissioner Fort and Chairman Betty Ann Kane determined that the NSA was not in the public interest based on four grounds laid out in the PSC order.

First, regulators took issue with the exclusion of non-residential ratepayers as part of a $25.6 million customer credit. Second, they said that Exelon’s takeover of a competitively sourced 5-megawatt solar project at D.C. Water "undermines competition and grid neutrality.” Third, they determined that sustainability and low-income energy projects included in a customer investment fund (CIF) “do not improve Pepco’s distribution system nor advance the Commission’s objective to modernize the District’s energy systems and distribution grid.” Fourth, commissioners found the proposed method of allocating the CIF funds did not give regulators adequate oversight.

However, the deal could still be approved.

Commissioner Willie Phillips, who voted to approve the NSA on Friday, also voted in favor of Fort’s proposed alternative. The alternative (summarized in a press release) includes four conditions:

  • Deferring decision on allocation of $25.6 million Customer Base Rate Credit until next Pepco rate case
  • Removing a provision that designates Exelon as the developer of a 5-megawatt solar generation facility at D.C. Water, and requiring Pepco to facilitate the interconnection through a competitive process
  • Creating an escrow fund with two subaccounts at Pepco to hold $32.8 million of the proposed $72.8 million customer investment fund created by Exelon in the proposed settlement, $21.55 million of which is to be used to modernize the D.C. grid
  • Striking as premature provisions regarding Pepco’s role to develop public purpose microgrids, requiring Pepco to facilitate and support pilot projects under a separate proceeding (FC 1130)

"The commission's order prescribes new provisions that we and the settling parties must carefully review to determine whether they are acceptable," Exelon spokesperson Paul Elsberg said in a statement.

Exelon previously stated that if a settlement isn't reached by March 4, the utility would cut its losses and walk away from the merger. The 14-day review period passes the March 4 deadline. But after two years of negotiations and having spent $259 million on the acquisition, experts believe the Chicago-based utility is likely to accept the proposed alternative.

In her dissent, Chairwoman Kane argued, as she did in the August ruling, that the merger represents an inherent conflict of interest that is not addressed in the proposed alternative.

“In particular, the return of Pepco to an ownership structure that includes energy generation, supply, marketing and sales will result in an entanglement of management, financial health, and decision-making,” she wrote. “This is fatal flaw which will adversely affect Pepco and create a diversion of focus that carries it in the opposite direction from D.C. law and policy."