Exelon's Philadelphia utility fulfills promises to customers, regulators

Peco Energy and Chicago-based Unicom merged to form Exelon more than a decade ago

October 30, 2011|By Hanah Cho, The Baltimore Sun

As Exelon Corp. continues to pursue Constellation Energy Group, the Chicago energy giant is pointing to a decade-old deal with a Philadelphia utility as a success that should reassure wary Marylanders — and regulators — about its intentions toward Baltimore's last Fortune 500 company.

Maryland officials, consumer advocates and others are not convinced that the proposed $7.9 billion Exelon-Constellation deal would benefit consumers and preserve local control of Baltimore Gas and Electric Co. On Monday, Maryland regulators will begin their review of the deal and hear from critics concerned about a range of issues from service levels to charitable contributions.

But in Philadelphia, a look at the deal involving Peco Energy shows that, on the whole, the Chicago power company has kept its promises to ratepayers and regulators. In 2000, Peco agreed to lower rates and improve service, while committing to maintain its charitable giving and workforce levels for several years, easing regulatory approval.

"It paid off here," said former Pennsylvania Gov. Edward G. Rendell, who was mayor of Philadelphia when the merger between Peco and Chicago-based Unicom Corp. that created Exelon was announced in late 1999.

"I think Baltimore … has nothing to worry about," Rendell added, emphasizing that in Philadelphia's case, Exelon believed that "local autonomy is important and that local management is important."

But the job of persuading Marylanders to accept an out-of-town corporate parent isn't easy. Two previous attempts by Constellation to sell itself failed; the Maryland Public Service Commission has the power to veto the proposed merger.

Some Maryland officials and consumer advocates question how independent BGE would be under Exelon and fear that the utility would have to compete for resources with Exelon's other businesses. (Besides Peco, Exelon owns Chicago utility Commonwealth Edison.)

Critics are seeking protections and concessions beyond the $250 million incentive package the two companies have proposed to win over regulators and naysayers in Maryland.

Lance Haver, Philadelphia's director of consumer affairs, has mixed feelings about Peco's merger and cautions Maryland regulators to be vigilant. While acknowledging that Peco's customers got rate reductions and other benefits, Haver said those protections should have been greater, given that deregulation of the electricity market has not lived up to its hype.

"The promise that deregulation would lead to all this competition to bring prices down and lead to innovative technology and new generation has turned out not to be true," said Haver, who as head of another consumer advocacy group pushed for concessions at the time of the merger.

"So as the [Maryland] Public Service Commission looks at this merger, they know that. They have a much better picture of what restructuring has brought and should be able to do a better job of protecting Baltimoreans."

The marriage between Peco and Unicom came as electricity deregulation was starting to shake out in Pennsylvania. The transition took more than a decade, as one of the last rate caps came off in Peco's service region at the end of last year.

Executives at Peco and Unicom said at the time of the merger that it would create size and scale, enabling the new company to be more competitive in a changing market.

But Pennsylvania officials, consumer groups and environmentalists worried that the merger would hurt consumers, minimize local control and reduce philanthropic contributions — similar to concerns being raised now by groups in Maryland.

The company agreed to cut rates by $200 million over several years, keep at least 1,100 employees in its Philadelphia headquarters until 2008 and continue to donate to area charities at the same level through 2003.

Adjusting for inflation, Peco's rate reductions amounted to a $200 credit per residential customer — double what Exelon and Constellation officials are offering each of BGE's 1.1 million residential ratepayers, according to outside consultants hired by the Maryland Public Service Commission staff.

Exelon disputes that analysis, saying the Peco rate credit was closer to $100.

Sonny Popowsky, Pennsylvania's consumer advocate on utility issues then and now, said Peco "fairly" responded to concerns about preserving local management and control.

"Peco has always been an essential part of Philadelphia and that was part of the concern with that merger," Popowsky said. "I think they have maintained their Southeast Pennsylvania focus reasonably well."

In an interview last week, Peco CEO Denis P. O'Brien said the company emerged from the merger as a stronger utility.

O'Brien — who followed his father's career at Peco more than 30 years ago — described the utility's reputation as "very involved in the community, delivering good service, being very responsive and a company that [customers] could count on."

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