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US FERC approves proposal to divide Exelon into two independent power companies

Highlights

Deal to result in two publicly traded companies

Critics claim transaction will affect competition

The US Federal Energy Regulatory Commission has approved a transaction to effectively divide Exelon into two independent publicly traded companies.

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The commission's approval allows the ownership of the intermediate holding company owning dozens of power companies affiliated with Exelon to be distributed to Exelon's shareholders through a dividend, according to an Aug. 24 FERC order. The deal will ultimately result in two independent companies: Exelon and HoldCo.

Before the deal closes, the dozens of entities' ownership will transfer to HoldCo, a new holding company that will serve as a direct, wholly owned Exelon subsidiary, according to the order. From there, the interests in HoldCo will be distributed proportionally to Exelon's shareholders through a dividend, effectively creating two publicly traded entities. Exelon's and HoldCo's stock will then be traded separately.

The dozens of smaller companies own or are affiliated with about 30.9 GW of generation capacity across the US. One of the entities, Exelon Generation, also owns the Everett Marine LNG terminal in Massachusetts that is interconnected to the Mystic generating station. Among the entities, Constellation NewEnergy and Exelon Generation Supply are power marketers. The remaining companies own and operate power generators.

Once the deal closes, the franchised public utilities will no longer have an affiliation with the dozens of smaller companies, and those companies' generation facilities will be dissociated from Exelon's transmission facilities, according to the order.

FERC approval

FERC determined that the proposal was "consistent with the public interest." The commission also found that the proposed transaction would not adversely affect horizontal market power because the dozens of affected companies "will not become newly affiliated with any jurisdictional generation assets, and market concentration will not increase," FERC said.

The proposed deal will also not adversely affect vertical competition or rates, the commission said. The franchised public utilities' transmission facilities will continue to operate under PJM's control regardless of the transaction. FERC does not foresee any fuel supply or delivery issues either because the dozens of companies do not own or control natural gas distribution facilities.

Additionally, the commission does not expect state or federal regulation to be hindered by the deal.

Protests

FERC approved the deal despite multiple protests from consumer advocates, including the Pennsylvania Office of Consumer Advocate and the New Jersey Division of Rate Counsel.

Among several concerns, those advocates argued that the proposal will "result in a significant reordering of market participants and raises competition concerns in the PJM market," according to the order. The consumer advocates said that HoldCo would become PJM's largest generation owner, yet its application lacked an analysis of horizontal market power impacts.

But FERC deemed such an analysis as unnecessary because most all of the affiliated generation capacity will remain with the dozens of small companies even after the sale closes. The dozens of companies said that their affiliated generation will only fall from 30.9 GW to about 30.4 GW once the transaction is consummated.

The consumer advocates also called for an investigation into potential vertical market power impacts from the deal, claiming that the proposal fails to "provide sufficient information to ensure that control of the generation and transmission facilities will be disassociated," according to the order.

FERC countered that the deal would "not result in any new combination of upstream inputs to generation with applicants' generation assets."

The dozens of affected companies said that they have not yet chosen new officers to lead Exelon and HoldCo after the transaction closes. But they pledged not to select common officers and directors to lead the companies and subsidiaries.