Exelon acquires distributor Pepco

Chicago-based electricity giant Exelon has signed a deal that will see it absorb Pepco Holdings, a major power distributor in the Mid-Atlantic region, slingshotting it past Duke Energy as the largest US electricity distribution company.

The $6.8bn deal will swell Exelon’s retail base by two million customer accounts – to 10 million – in a densely populated part of the US where Exelon already owns some renewables capacity.

In addition to its huge distribution business, Exelon is also a major electricity generator, with 35GW of capacity on its books – including 1.3GW of wind, making it the country’s 12th largest windpower generator andan customer of turbine makers like GE, Nordex and Suzlon.

Exelon is also the largest nuclear-energy generator in the US.

Exelon is currently building the 40MW Fourmile Ridge wind farm in Maryland, a state served by Pepco, and the final phases of its 230MW Antelop Valley Solar Ranch mega-PV project are slated for commissioning over the next few months.

Exelon's wind unit is headquartered in Iowa. The largest chunk of the company's wind capacity is located in Michigan.

Despite its outsized renewables footprint, Exelon is no stranger to controversy within the industry, having been kicked out of the American Wind Energy Association lobbying group in 2012 for collaborating with group’s attempting to persuade Congress not to renew the Production Tax Credit.

Exelon believes the PTC is denting its large nuclear-energy business.

Exelon plans to sell fossil-fuel plants worth about $1bn to help finance its acquisition of Pepco, but insists it will maintain the financial firepower to acquire new generation assets – including renewables.

Analysts had mixed reactions to the deal, which will increase the percentage of profits Exelon earns from regulated electricity sales to 60-65%. Regulated utilities are faring better in the current climate of lower power prices and weak demand, while deregulated utilities tend to have an advantage in stronger markets.

Few observers doubt that Exelon can improve the performance of Pepco, which is earning lower profits than state regulators are allowing for. Some, however, question the 20% premium it is paying compared to Pepco’s closing share price before the deal was announced.

In 2011 Exelon acquired Constellation Energy – through which it owns investments in renewables companies like PV micro-inverter maker SolarBridge – and it has also made failed runs at other major renewables players, including an aborted takeover bid for NRG Energy in 2008-2009.