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How Pepco Sale Could Affect Reliability

The other night at my local Giant, a gentleman came up to me and said: "Councilmember Berliner, you really need to put something out on the sale of Pepco. People don't really understand what is happening." Got it. Here it goes.

As you know, Exelon Corporation announced last week its intention to purchase Pepco for $6.8 billion. What is less understood is that this transaction must be approved by our state electricity regulators on the Maryland Public Service Commission. Our state regulators must find that the sale to Exelon is in the public interest — not Exelon's interest, not Pepco's interest, our interest.

So, first, who is Exelon? One of the largest energy players in the country; the largest operator of nuclear power plants; and owners of a number of large utilities, including, ComEd in Chicago (its home), Baltimore Gas & Electric that it bought a few years ago, and PECO Energy in Philadelphia.

Most analysts agree that what drove this deal is that Exelon's nuclear power plants are struggling to compete with low cost natural gas in the competitive, unregulated wholesale power markets, and that they were eager to get the "stable" earnings and cash flow that characterize regulated distribution utilities like Pepco. The purchase also makes geographic sense given their Philadelphia and Baltimore presence.

Mergers like this are increasingly common in the utility world. Bigger generally means more access to capital in the financial markets, and access to capital is needed given the substantial investments that are needed. And boy, do we know firsthand what happens when investments aren't made.

I don't have statistics at my fingertips in this moment regarding Exelon's reliability, but I would say that Exelon has a decent reputation in the utility world for being forward thinking; the reliability of BG&E is certainly better than Pepco's; and it will have the financial strength to do what needs to be done to provide us with a much higher quality of service. And much, of course, needs to be done!

What happens next you ask? Well, once formal "filings" are made (and they haven't been made yet), the proposed sale will be reviewed by a host of state and federal regulatory bodies, including the Maryland Public Service Commission and the Federal Energy Regulatory Commission, where I worked once upon a time.

Insofar as the deal cannot happen without our state regulators' blessing, it gives our state — and our residents I hope — significant leverage. And from my perspective, that leverage must be used to require significant ratepayer benefits as a condition of the deal.

I don't need to tell you how long all of us have suffered from unreliable service — not after five years in a row of lowest quartile performance. Our state regulators should, among other things, insist on binding commitments by Exelon to provide service that ranks in the very top quartile nationally. And soon. We have waited long enough.

That is why on Tuesday I introduced a resolution — co-sponsored Councilmembers Andrews, Branson, Elrich, Leventhal, Navarro, and Riemer — that calls upon the Commission to do precisely that: 1) to use the full breadth of their authority on our behalf, 2) to require Exelon to get to top quartile in three years, and 3) to tie their cost recovery with performance, not promises. Certainly our county will be at the table fighting for us as a result of legislation that I sponsored years ago.

Bottom line — I think if our state uses its leverage wisely, we can obtain significant ratepayer benefits out of this deal ... and we should. The future should be brighter ... literally.

Hope this helps you have a better understanding of one of the most important issues affecting our quality of life in Montgomery County.