When Washington, D.C., regulators approved the $7 billion merger between Pepco Holdings and Exelon on March 23, they laid in place the final step to create the largest publicly held utility in the country.
“Exelon is a big player in the utility industry and it just got bigger,” said Utility Director Jim Hunter. “As for what that means for our members, or for the industry, it’s little more than prognostication right now.”
The merger affects multiple IBEW locals and approximately 2,500 members along the Atlantic coast. IBEW also has about 7,500 members under Exelon contracts.
Exelon, based in Chicago, owns Commonwealth Edison, Baltimore Gas & Electric and Pennsylvania’s PECO. It also owns Constellation Energy and the largest number of nuclear reactors in the country.
Pepco Holdings, based in Washington, owns utilities in the mid-Atlantic region, from New Jersey to Virginia including Pepco, Atlantic City Electric and Delmarva Power. Combined, Exelon will now power the homes of approximately 10 million customers.
Additionally, the new owners come with deep pockets and investments in grid modernization.
“An advantage of Exelon buying Pepco Holdings is that Pepco needs a tremendous amount of infrastructure investment,” Hunter said. “That means jobs for us and a better grid for customers. And a larger company like Exelon has better access to capital to make it happen.”
“This will be a work in progress for a while,” said Washington, D.C., Local 1900 Business Manager James A. Griffin.
One aspect that has been settled is the contract for Local 1900’s 1,000-plus members. Pepco is the local’s largest employer and the contract was part of the negotiation to win its support.
Local 1900, along with Atlantic City, N.J., Local 210, Wilmington, Del., Local 1238 and Salisbury, Md., Local 1307, secured three-year extensions on their contracts and raises of 2.5 percent even if the merger didn’t go through. If the merger proved successful, members would receive a 3 percent raise. The final deal also included the promise to hire new employees – and the new hires must be external, assuring new members.
Getting raises regardless of the merger’s success was crucial considering how unlikely the deal’s passage seemed at times. The District of Columbia Public Service Commission, the last regulator to approve the deal, twice rejected it. And it took nearly two years to complete, an unprecedented amount of time, said Utility Dive, a utility publication.
Among the issues was what D.C.’s commission chairperson called a “conflict of interest” between a District law and Exelon’s business model. The law stipulates that the city’s utility can be a transmission and distribution company only. Exelon has both distribution and generation, where its nuclear reactors reside along with hydro, natural gas, oil and renewables.
D.C. Mayor Muriel Bowser expressed concerns about possible price increases for District residents and others worried about a large company, and one located outside the region, taking over.
"It's like the big shark gobbling up the little, happy healthy minnows for their own benefit," D.C. Council member Mary Cheh told WAMU, a local public radio station.
“Talk to me in 90 days,” said Local 1238 Business Manager Stephen Newberry, whose members work for Delmarva Power as well as Pepco Holdings. Delmarva is a subsidiary of Pepco.
Newberry said this is his third merger. He’s heard a lot of pitches but he’s cautiously optimistic, a sentiment echoed by other business managers.
“We hope that the deep pockets of a large company like Exelon will keep us in work and allow us to better serve the public,” said Local 1307 Business Manager Vaughn B. Horner Jr., whose members work for Delmarva Power. “Of course, that remains to be seen.”
“I’m a realist,” said Local 210 Business Manager Charles Hill Jr., whose members work for Atlantic City Electric Company. He has also seen a few mergers in his day.
“If this didn’t go through, it would have been someone else,” Hill said.
Indeed, the repercussions of deregulation continue to play out alongside other changes in the market like cheaper natural gas, resulting in more companies consolidating. Exelon is now the largest utility, but it’s not alone in terms of overall size and scope. There are Duke and NRG Energy, Southern Company and others.
“The problem with consolidation is we are moving farther and farther away from local control,” Hunter said. “Every time there is another merger or acquisition, you move control farther and farther away.”
Exelon has been described as having a culture of “command and control,” with policies for everything. Such a culture could provide more consistency for subsidiaries and locals.
“They are more detail oriented and that may actually help make the business run better,” Horner said. “Many policies are of the regional version since they are in so many other states. It’s actually helpful to some extent to have the policies in writing. That makes it less likely that each local area decides what the policy is.”
Whether Exelon’s policy-driven model will provide uniformity or take away a local perspective is up for debate. And it may come down to something more personal.
“Relationships vary company to company,” Hunter said. “The success often depends on who’s in charge.”
Still, they can count on one thing.
“We have our contract, so we have security for the next three years,” Hill said.
Homepage photo credit: Flicker user nevermindtheend.