Testimony on Pepco Exelon Merger

Good evening. My name is Kevin Clinton and I am the Chief Operating Officer for the Federal City Council. The Federal City Council is a civic organization comprised of the area’s top business, professional, education and non-profit leaders committed to the improvement of the District of Columbia. The Council operates at the intersection of the private sector, the District government and the federal government to develop and implement solutions to our most important challenges.

It is my pleasure to testify before the Commission regarding the proposed merger between Pepco Holdings Inc. and the Exelon Corporation.  Our comments were previously submitted in writing to the Commission in a letter on July 9, 2014.

As an organization, we recognize the fundamental role that the District’s infrastructure plays in the vitality and sustainability of our economy and environment. A strong and committed local utility has the capacity to enhance public confidence in our economy, ensure the reliability of our access to electricity, invest in the capital stock of our electricity distribution infrastructure, improve efficiency to allow for high quality services at reasonable rates, and commit to the long-term to its community.

We believe that the merger of Exelon and Pepco has the potential to provide these benefits for the District of Columbia and we look forward to the Public Service Commission’s consideration of the following issues among others as part of its review of the proposed merger:

  • Enhance economic confidence: This merger signals that Exelon, a Fortune 100 company, views our economy and our business climate as attractive for investment and growth. Exelon’s commitment to providing premium, resilient electricity infrastructure will be an integral factor in the District’s transition to becoming a world-class city and its investment will support the development of our economy. According to Dr. Susan F. Tierney’s study included in the Exelon and Pepco filings, the merger would create up to 1,281 new jobs in the District and have a total economic value of not less than a range of $95.4 to $133.6 million. These projected benefits, if fully realized, could translate to a win for consumers, communities, and businesses in the District.
  • Ensure reliability of electricity access: The combination of Exelon’s other mid-Atlantic distribution networks with Pepco’s vast infrastructure will enhance overall system capacity for addressing outages quickly.  Especially given more integration of information technology in all sectors, we need sufficient and reliable electricity supply to minimize unnecessary business interruptions and losses. Over the 2018-2020 period, Exelon plans reductions in the average outage frequency by 48 percent in its proposed D.C. operational area and average outage duration by 28 percent comparing to Pepco’s metrics over the 2011-2013 period.
  • Invest in the capital stock: Pepco has committed to a number of capital improvements to enhance the reliability and resiliency of our electricity infrastructure such as plans to underground wires across the District of Columbia. These investments require significant capital which Exelon is committed to providing in line with current plans. In addition, the Council is pleased that Pepco is committed to environmental remediation efforts adjacent to the Anacostia River and would expect that Exelon will maintain these commitments much like it did in Illinois and Baltimore.
  • Improve efficiency to maintain reasonable electricity rates: One of the benefits of a larger scale is a broader base of operations and expertise from which to draw ideas and innovations that will help improve the efficiency of operations. These efficiencies over the long term will help reduce expected growth rates in electricity rates and improve service quality for consumers and businesses. Exelon estimates that the merger could produce anticipated annual savings of $43 million for the Pepco Holdings, Inc. companies that would ultimately be passed on to Pepco Holdings, Inc. utility customers through either improved service or lower rates as governed by the rate-setting process of the Public Service commission.
  • Deepen commitment to the community: Pepco has been a good corporate citizen and our hope is that Exelon will sustain Pepco’s commitment to the community. Exelon has promised that during the next ten-year period it will provide a level of charitable contributions and traditional local community support on an average annual basis that exceeds Pepco’s 2013 giving. Exelon commits to provide a $14 million Customer Investment Fund to be used for customer benefits at the discretion of DC Public Service Commission as a down payment on future consumer related benefits from the merger.

The merger of Exelon and Pepco has the potential to provide substantial benefits to the District of Columbia including a positive impact on utility rates, service quality, jobs, communities, and the city’s business environment. We realize that the Public Service Commission is at the beginning of a lengthy process that will ensure that the interests of consumers and businesses are served by this transaction. We are optimistic that this process will serve the best interest of the District of Columbia.

Thank you for the opportunity to testify this evening. I would be happy to answer any questions you may have.

Testimony before the Public Service Commission

Kevin Clinton

Chief Operating Officer, Federal City Council

January 20, 2015