Exelon 2014 Annual Report Download - page 173

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
(a) PECO’s gas POR program became effective on January 1, 2012 and includes a 1% discount on purchased receivables in order to recover the implementation costs
of the program. If the costs are not fully recovered when PECO files its next gas distribution rate case, PECO will propose a mechanism to recover the remaining
implementation costs as a distribution charge to low volume transportation customers or apply future discounts on purchased receivables from natural gas suppliers
serving those customers.
(b) For ComEd and BGE, reflects the incremental allowance for uncollectible accounts recorded, which is in addition to the purchase discount. For ComEd, the
incremental uncollectible accounts expense is recovered through its Purchase of Receivables with Consolidated Billing (PORCB) tariff.
4. Mergers, Acquisitions, and Dispositions
Proposed Merger with Pepco Holdings, Inc.
Description of Transaction
On April 29, 2014, Exelon and Pepco Holdings, Inc. (PHI) signed an agreement and plan of merger (as subsequently amended and
restated as of July 18, 2014, the Merger Agreement) to combine the two companies in an all cash transaction. The resulting
company will retain the Exelon name and be headquartered in Chicago. Under the Merger Agreement, PHI’s shareholders will
receive $27.25 of cash in exchange for each share of PHI common stock. In connection with the Merger Agreement, Exelon entered
into a subscription agreement under which it has purchased $126 million of a new class of nonvoting, nonconvertible and
nontransferable preferred securities of PHI as of December 31, 2014, with additional investments of $18 million to be made quarterly
up to a maximum aggregate investment of $180 million. The preferred securities are included in Other non-current assets on
Exelon’s Consolidated Balance Sheet. PHI has the right to redeem the preferred securities at its option for the purchase price paid
plus accrued dividends, if any. Exelon expects total cash required to fund the acquisition of common stock and preferred securities
plus other related acquisition costs to total approximately $7.2 billion. As part of the applications for approval of the merger, Exelon
and PHI proposed a package of benefits to the PHI utilities’ respective customers, providing for direct investment of more than $100
million with the actual amount and timing of any related payments dependent upon settlement discussions in merger regulatory
approval proceedings and the terms of regulatory orders approving the merger.
To date, the PHI stockholders, the Virginia State Corporation Commission, the New Jersey Board of Public Utilities (NJBPU) and the
FERC have approved the merger of PHI and Exelon. The Federal Communications Commission has also approved the transfer of
certain PHI communications licenses. On February 11, 2015, the NJBPU approved the proposed merger and the previously filed
settlement signed and filed by Exelon, PHI, Atlantic City Electric (ACE), NJBPU staff, and the Independent Energy Coalition. The
settlement provides a package of benefits to ACE customers and the state of New Jersey. This package of benefits includes the
establishment of customer rate credit programs, with an aggregate value of $62 million for ACE customers and energy efficiency
programs that will provide savings for ACE customers of $15 million.
Completion of the transaction also remains conditioned upon approval by the Public Services Commissions of the District of
Columbia, Delaware and Maryland. Procedural schedules have been set in these commission proceedings and final approval
decisions are expected in the first half of 2015.
On October 9, 2014, PHI and Exelon each received a request for additional information from the DOJ. The request had the effect of
extending the DOJ review period until 30 days after PHI and Exelon each has certified that it had substantially complied with the
request. On November 21, 2014, Exelon and PHI each certified that it had substantially complied with the request. Accordingly, the
HSR Act waiting period expired on December 22, 2014, and the HSR Act no longer precludes completion of the merger. Although
the DOJ allowed the waiting period under the HSR Act to expire without taking any action with respect to the merger, the DOJ has
not advised Exelon or PHI that it has concluded its investigation. Exelon and PHI will continue to work cooperatively with the DOJ
regarding the proposed merger.
Exelon and PHI continue to expect to complete the merger in the second or third quarter of 2015.
Exelon has been named in suits filed in the Delaware Chancery Court alleging that individual directors of PHI breached their
fiduciary duties by entering into the proposed merger transaction and Exelon aided and abetted the individual directors’ breaches.
The suits seek to enjoin PHI from completing the merger or seek rescission of the merger if completed. In addition, they also seek
unspecified damages and costs. In September 2014, the parties reached a proposed settlement which is subject to court
approval. Final court approval of the proposed settlement is not expected to occur until the second quarter of 2015, at the
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