Proposed Merger of BGE and PEPCO to Enhance Credit Quality

Strategic Insights -

The proposed merger of Baltimore Gas & Electric Company (BGE) and Potomac Electric Power Company (PEPCO) is expected to result in some modest credit strengthening within existing rating categories for both companies, according to Duff & Phelps Credit Rating Co. The merger would create a new electric and gas utility, with existing debt at each of the utilities assumed by the newly formed company. Anticipated merger savings of $1.3 billion over 10 years are expected to primarily stem from work force reductions and operating efficiencies.

Key Takeaways:

  • The proposed merger is expected to result in some modest credit strengthening within existing rating categories for BGE and PEPCO.
  • The new company would serve 1.8 million electric customers in Maryland and the District of Columbia, as well as 537,397 natural gas customers in Maryland.
  • The merger is expected to result in $1.3 billion in savings over 10 years, primarily from work force reductions and operating efficiencies.
  • The companies have contiguous service territories and are both members of the PJM power pool, making them low cost producers of electricity.
  • Economies of scale derived from the merger are expected to make the combined company a more formidable competitor.
  • The merger will require various regulatory approvals, including the Federal Energy Regulatory Commission, the Public Service Commissions of Maryland and the District of Columbia, the Nuclear Regulatory Commission, and the SEC.

Statistics:

  • $1.3 billion: Anticipated merger savings over 10 years
  • 10 years: Timeline for merger savings
  • 1.8 million: Number of electric customers to be served by the new company in Maryland and the District of Columbia
  • 537,397: Number of natural gas customers to be served by the new company in Maryland
  • $15.1 billion: Total assets of the new company
  • $4.8 billion: Annual revenues of the new company
  • 1997: Expected completion date of the merger
  • 2,300 square miles: Service territory of BGE in central Maryland
  • 640 square miles: Service territory of PEPCO in the Washington D.C. metropolitan area

Sources:

  • Duff & Phelps Credit Rating Co.
  • Catherine E. Drake, 312-368-2065
  • John C. Dell, 312-368-3161
  • PR Newswire, September 25, 1995
  • BGE POM
  • CO: Baltimore Gas & Electric Company; Potomac Electric Power Company
  • ST: Illinois, Maryland, District of Columbia
  • IN: UTI SU: RTG TM -- NY085 -- 2340 09/25/95 16:59 EDT