TESTIMONY DELIVERED BY PATRICK BAHN
JANUARY 12, 2015
Dear Members of the Commission,
I would like to file the following as my comments in opposition to the Pepco Exelon Merger
I am a resident of the District and have a Masters in Business and Public Administration, and am currently completing a JD in town. It has been my observation backed up by serious study of data that the Pepco merger has all the hallmarks of being a poor outcome for the customers, shareholders and stakeholders of Pepco:
Pepco needs to evolve to the new mammalian paradigms of 21st century electricity, not double down at high cost to 20th century, electrical ideas and the financial engineers who brought us the global financial crisis.
I believe for these and other sound reasons, this merger is not in the interest of the customers, stakeholders or citizens of the District.
I would like to file the following as my comments in opposition to the Pepco Exelon Merger
I am a resident of the District and have a Masters in Business and Public Administration, and am currently completing a JD in town. It has been my observation backed up by serious study of data that the Pepco merger has all the hallmarks of being a poor outcome for the customers, shareholders and stakeholders of Pepco:
- 85% of all Mergers and Acquisitions have historically resulted in a loss of shareholder value. It is incumbent upon Exelon to show how and why they will beat these rather frightening odds in order to approve this. It isn't our burden to show they won't, it's their's to show they are.
- The bulk of all M&A is driven by Wall Street seeking Fee income and Chief Executives seeking to justify higher salaries and bonuses. The PSC should look towards a condition if they choose to approve this to freeze all Exelon and Pepco Senior executive salaries for the next 10 years and that no fees from the merger may be rate based but must instead come from earnings. This is a 7.2 Billion dollar debt driven M&A, which will saddle Pepco with hundreds of millions in new debt service for no value add to the DC Enterprise. This is 3 times the amount of money scheduled to be invested into Grid Undergrounding and reliability investment. IF PEPCO Were discussing investing $7 billion into grid resiliency, undergrounding, storm protection, EMP protection, lighting protection, I would be all for it. Investing $7 billion so a Wall Street bank can collect fat financing fees seems the height of folly.
- Pepco is a mid-Atlantic utility and Exelon is primarily a mid-western utility, Exelon will see no scaling efficiencies but will rather face tremendous integration issues as processes and management control are stretched. Decision makers will be outside the region and utterly unfamiliar with the local political culture and needs.
- Bloomberg New Energy Finance says there is a tremendous shift coming in the electrical industry. Micro-grid, home PV production, local storage, V2H, V2G are all shaping a new industry coming fast. Green energy at zero variable cost is rapidly disrupting Fossil Energy at high variable cost. The paradigm is moving from supply management to demand management. Moving another layer of management on top and welding $20 billion in stranded nuclear assets onto Pepco, will cripple the organization in a time of rapid change. Pepco has finished a process of restructuring, and is about as well suited to handle the tsunami of change headed their way. Anchoring them to Exelon's generating assets, many of which are about to be written off as dead losses will only harm pepco and the service customers.
- This, like all Wall Street-driven plans assumes healthy continuous growth in revenues and profits. In reality, electricity consumption is stagnating and declining. The LED lightbulb, high efficiency appliances, and smart computers are pulling less power, plus behind the meter PV is poleaxing consumption. Pepco needs to figure out how to either capture the EV market or learn to make money in a market with continuously declining consumption and margins. Being forced to meet the demands of the carnivores of wall street will crush any opportunity for that and in ten years leave a husk of a company gutted assets, destroyed workforces and a PSC left to pick up the pieces.
Pepco needs to evolve to the new mammalian paradigms of 21st century electricity, not double down at high cost to 20th century, electrical ideas and the financial engineers who brought us the global financial crisis.
I believe for these and other sound reasons, this merger is not in the interest of the customers, stakeholders or citizens of the District.
