Utility Commissions Use Broad Laws to Force Industry Changes in M&A Cases

Matthew K. Stiles, Michigan Journal of Environmental and Administrative Law

On March 23, the DC Public Service Commission (PSC) finally gave its blessing to the proposed Exelon/Pepco merger, creating the largest utility in the United States, with operations in DC, Maryland, Delaware, New Jersey, Pennsylvania, and Illinois.[1] The DC PSC was the last of the requisite entities to allow the merger, after all the other states and the Federal Energy Regulatory Commission (FERC) gave their approval last year.[2]

As recently as February 26, the DC PSC had rejected the merger on the grounds that the merger provided no persuasive rationale for why businesses would subsidize $26 million worth of residential rate increases.[3] In the latest proposal, millions are still set aside, but for energy efficiency and conservation funds targeted at low-income residents, pilot programs (possibly to modernize the grid), and a mysterious “customer investment fund.”[4]

Opponents are still peeved at the fact that rate increases will happen as soon as this summer, despite three years of flat rates from Pepco before the merger.[5] Nevertheless, the DC PSC was able to extract many millions of dollars in allocations meant to help DC consumers that would not be available had they merely rubber-stamped the merger.

This strategy of withholding approval until the companies agree to an unrelated (or, at best, tangentially related) problem has been used elsewhere. Last year, the Connecticut Public Utility Regulatory Authority withheld its approval of Spanish energy conglomerate Iberdrola buying out UIL Holdings (whose subsidiaries serve Connecticut and Massachusetts electric and gas customers) until the company agreed to clean up an unused power plant in New Haven, Connecticut that UIL at one time owned, but later sold to private investors.[6]

Similar to the DC PSC using its approval as a bargaining chip in the Exelon/Pepco merger, the CT PURA was able to use its approval to coerce Iberdrola to clean up the contaminated power plant in New Haven. But is this legal?

Sure. The DC PSC is reined in only by what is in the “public interest.”[7] The CT PURA can approval acquisitions that meet a “public need” and ensure that the company will engage in “prudent management of the natural environment.”[8] These broad mandates provide a lot of discretion into what utility commissions can do to achieve policy or environmental goals.

With the changes in energy production away from coal to gas and renewables, along with the need to upgrade much of the nation’s infrastructure, mergers will continue to happen. By forcing utilities to commit to cleaning up past sins and pre-committing millions to cleaner energy and infrastructure upgrades, utility commissions can use existing laws to force meaningful change in the industry.


The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.

-Matthew K. Stiles is an Articles Editor for MJEAL. He can be reached at mkstil@umich.edu.

 

[1] Thomas Heath and Andew C. Davis, D.C. Regulators Green-light Pepco-Exelon Merger, Creating Largest Utility in the Nation, Wash. Post, Mar. 23, 2016, https://www.washingtonpost.com/local/dc-politics/in-a-surprise-move-dc-regulators-give-green-light-to-pepco-exelon-merger/2016/03/23/4ace2bc0-f10e-11e5-89c3-a647fcce95e0_story.html.

[2] Id.

[3] Aaron C. Davis and Thomas Heath, PSC Rejects Pepco-Exelon Merger but Leaves Window Open, Wash. Post, Feb. 26, 2016, https://www.washingtonpost.com/local/dc-politics/decision-nears-on-mega-utility-merger-that-would-end-one-of-washingtons-oldest-institutions/2016/02/26/ae04258c-dc96-11e5-925f-1d10062cc82d_story.html.

[4] Supra note 1.

[5] Id.

[6] Luther Turmelle, Connecticut Regulators Approve UIL Holdings Merger with Iberdrola, New Haven Register, Dec. 9, 2015, http://www.nhregister.com/article/NH/ 20151209/NEWS/151209499.

[7] D.C. Code § 34-301(2).

[8] 277 Conn. Gen. Stat. § 16-19e.

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