Exelon Corporation (EXC) and Pepco Holdings, Inc. (POM) have received the green signal from the Virginia State Corporation Commission (SCC) for their proposed merger.
Why is the SCC Approval Important?
Pepco Holdings' Potomac Electric Power Company (Pepco) and Delmarva Power & Light Company (DPL) provided distribution services in Virginia. They still hold a few transmission assets in the state. This necessarily required the approval from the SCC. With the nod from the state commission under their belt, the utilities have progressed on the proposed merger.
Exelon-Pepco Merger Recap
On Sep 23, 2014, Pepco Holdings’ shareholders approved the $6.8 billion deal. The merger news was initially flashed on Apr 30. For more details read: Pepco Holdings Shareholders Clear the Exelon Merger Deal and Exelon Corp. to Acquire Pepco, Expand in Mid-Atlantic.
Pending Approval from the Commissions
The companies are currently waiting to receive approvals for the proposed merger from several commissions, including the Federal Energy Regulatory Commission (FERC), Maryland Public Service Commission, Delaware Public Service Commission, Public Service Commission of the District of Columbia and New Jersey Board of Public Utilities.
Upon customary approvals, the transaction is expected to close either in the second quarter or third quarter of 2015.
Leading Mid-Atlantic Utility in the Making
Upon approval, the combined entity will become a leading utility firm in the Mid-Atlantic region and serve around 10 million electricity and gas customers.
Exelon's units — Baltimore Gas and Electric Company (BGE), Commonwealth Edison Company (ComEd) and PECO Energy Company (PECO) — will merge with Pepco Holdings’ Atlantic City Electric Company (ACE), DPL and Pepco.
The Benefits
Both Exelon and Pepco Holdings, along with their customers and residents of the Mid-Atlantic states, stand to benefit from the proposed transaction. The consolidated entity will bring about economies of scale with the ability to efficiently execute long-term growth plans while creating new jobs and boosting the economy in Delaware, Maryland, New Jersey and Washington, D.C.
Though Exelon currently has a significant presence in the Mid-Atlantic, the proposed deal will allow the company to further solidify its operations in the region.
Exelon is creating a customer benefit fund, worth $100 million, for the public service commissions in Pepco Holdings’ service territories. The fund will be used by Pepco Holdings’ customers in terms of rate credits, assistance programs and energy efficiency. Exelon will also allocate $50 million for charitable activities in Pepco Holdings’ service territories over the next decade.
Deals in the Utility Sector
An inorganic expansion strategy is currently acting as the easiest approach for the utilities to expand their operations. In Jun 2014, Wisconsin Energy Corporation (WEC) inked a definitive agreement to acquire Integrys Energy Group, Inc. (TEG) for $9.1 billion. Subject to customary approvals, the transaction is expected to close in the summer of 2015.
Zacks Rank
Exelon currently has a Zacks Rank #3 (Hold) while Pepco Holdings holds a Zacks Rank #2 (Buy).
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