149 FERC ¶ 61,148 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Cheryl A. LaFleur, Chairman; Philip D. Moeller, Tony Clark, and Norman C. Bay. Exelon Corporation and Docket No. EC14-96-000 Pepco Holdings, Inc. ORDER AUTHORIZING PROPOSED MERGER (Issued November 20, 2014) I. Background ............................................................................................................................ 2. A. Description of Applicants ............................................................................................... 2. 1. Exelon ........................................................................................................................... 2. a. Exelon Energy Delivery Company and Its Electric Utility Subsidiaries ................. 4. i. Commonwealth Edison ......................................................................................... 6. ii. PECO ................................................................................................................... 7. iii. Baltimore Gas & Electric ................................................................................... 9. b. Exelon Generation .................................................................................................... 11. c. Purple Acquisition .................................................................................................... 12. 2. Pepco Holdings and Pepco Holdings Affiliates ........................................................... 13. a. Pepco Holdings ........................................................................................................ 13. b. Regulated Public Utilities ........................................................................................ 14. i. Pepco ..................................................................................................................... 16. ii. Delmarva ............................................................................................................. 17. iii. Atlantic City Electric .......................................................................................... 19. c. Pepco Energy Services ............................................................................................. 20. B. The Proposed Transaction ................................................................................................ 21. II. Notice of Filings ................................................................................................................... 22. III. Discussion ............................................................................................................................ 26. A. Procedural Matters ........................................................................................................... 26. B. Standard of Review under Section 203 ............................................................................ 29. C. Analysis of the Proposed Merger ..................................................................................... 30. 1. Effect on Horizontal Competition ................................................................................ 30. a. Applicants’ Analysis ............................................................................................... 30. b. Comments and Protests ............................................................................................ 33. c. Answers .................................................................................................................... 35. Docket No. EC14-96-000 - 2 - d. Commission Determination ..................................................................................... 44. 2. Effect on Vertical Competition ..................................................................................... 50. a. Combining Generation and Natural Gas Facilities .................................................. 50. i. Applicants’ Analysis ............................................................................................. 50. ii. Comments and Protests ....................................................................................... 53. iii. Answers .............................................................................................................. 55. b. Combining Generation and Transmission ................................................................ 60. i. Applicants’ Analysis ............................................................................................. 60. ii. Comments and Protests ...................................................................................... 61. iii. Answers .............................................................................................................. 67. c. Commission Determination ...................................................................................... 76. 3. Effect on Rates .............................................................................................................. 84. a. Applicants’ Analysis ............................................................................................... 84. b. Comments, Protests, and Answers ........................................................................... 85. i. Procedures for Recovery of Merger Related Costs .............................................. 86. ii. Costs Subject to Applicants Hold Harmless Commitment ................................. 93. iii. Formula Rate Protocols ...................................................................................... 101. c. Commission Determination ...................................................................................... 105. 4. Effect on Regulation ..................................................................................................... 116. a. Applicants’ Analysis ............................................................................................... 116. b. Comments and Protests ............................................................................................ 117. c. Answer ...................................................................................................................... 119. d. Commission Determination ..................................................................................... 120. 5. Cross-Subsidization ...................................................................................................... 125. a. Applicants’ Analysis ............................................................................................... 125. b. Comments and Protests ............................................................................................ 127. c. Applicants Answer ................................................................................................... 132. d. Commission Determination ..................................................................................... 134. 6. Other Issues .................................................................................................................. 136. a. Environmental Risks ................................................................................................ 136. i. Protests .................................................................................................................. 136. ii. Applicants Answer .............................................................................................. 139. iii. Commission Determination ................................................................................ 140. b. Ex Parte Contacts ..................................................................................................... 142. i. Protests .................................................................................................................. 142. ii. Applicants Answer .............................................................................................. 144. iii. Commission Determination ................................................................................ 145. c. Corporate Relationships ........................................................................................... 146. i. Protest and Answer ............................................................................................... 146. ii. Commission Determination ................................................................................. 148. d. Accounting Treatment .............................................................................................. 149. e. Other Obligations ..................................................................................................... 153. Docket No. EC14-96-000 - 3 - 1. On May 30, 2014, Exelon Corporation (Exelon) and Pepco Holdings, Inc. (Pepco Holdings) (together, Applicants), together with their respective subsidiaries that are public utilities subject to the jurisdiction of the Commission, filed an application pursuant to sections 203(a)(1)1 and 203(a)(2)2 of the Federal Power Act (FPA) and Part 33 of the Commission’s Regulations3 requesting that the Commission approve a merger and disposition of assets by which Exelon would acquire Pepco Holdings (Proposed Merger).4 As discussed below, we have reviewed the Proposed Merger under the Commission’s Merger Policy Statement5 and authorize the Proposed Merger under FPA section 203 as consistent with the public interest, subject to the clarifications discussed below. I. Background A. Description of Applicants 1. Exelon 2. Applicants explain