Benefits of BGE, Pepco merger unclear D.C.'s chief regulator perceives inconsistency

February 19, 1997|By BLOOMBERG NEWS

WASHINGTON -- Baltimore Gas & Electric Co. and Potomac Electric Power Co. officials haven't backed up all their claims about benefits of the proposed merger of the two companies, the District of Columbia's chief regulator said yesterday.

Marlene L. Johnson, head of the District of Columbia Public Utility Commission, said she was "concerned" about what she perceived as an inconsistency: Company officials cite competition as one of the primary reasons for the merger, but they are reluctant to speculate about what form competition might take.

"You must have some idea," Johnson told BGE Chairman Christian Poindexter and Pepco Chairman Edward Mitchell at a hearing yesterday, after the two executives declined to answer questions about how or when competition might occur.

BGE announced 1 1/2 years ago that it planned to buy Pepco for $2.9 billion in stock. Although shareholders have approved the plan to combine the companies into a new firm, Constellation Energy, the agreement is still subject to approval by federal, District and Maryland regulators, and possibly by Congress.

"The purpose [of the merger] is to get this new company prepared to be a strong competitor" in a changing marketplace, Poindexter said. It's up to regulators to set the "ground rules" for that marketplace, he said.

"There isn't any question about a nationwide movement toward customer choice," said Mitchell. He said the Washington area is lagging behind much of the nation in the move toward competition.

The Pepco-BGE combination is one of a number of mergers planned as states open their electricity markets to competition and Congress prepares to consider deregulation. Companies are seeking to cut costs and enter new businesses before competitors arrive.

When the merger was proposed, the companies estimated it would save $1.3 billion over 10 years, with most of the savings coming from job cuts.

Mitchell acknowledged that the estimate is rough, and could give no guarantee that customers would benefit at all. Still, he said, the combined company would be more efficient than the two would be separately.

Federal and Maryland regulators already have held hearings on the proposed merger.

Pub Date: 2/19/97

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