By Ayesha Rascoe
WASHINGTON (Reuters) - Utilities regulators for the District of Columbia on Tuesday denied Exelon Corp 's (N:EXC) $6.8 billion bid for Pepco Holdings Inc (N:POM), dealing a major blow to a deal that would have created the country's top power distributor.
Pepco shares fell 15.4 percent, and Exelon was down about 4 percent after the D.C. Public Service Commission said the companies had not proven that the proposed merger was in the public interest.
The three-member commission was the final regulatory hurdle for the deal, which was announced in April 2014. The four other states required to approve the deal had voted in favor of the merger.
The companies, which have 30 days to ask the commission to reconsider its order, said they were disappointed in the decision and would review their options.
If the commission rejects an application for reconsideration, the companies would then have the option of appealing the decision to the D.C. Court of Appeals. The companies may also choose to submit another application.
"Lately we have seen a trend of regulatory commissions rejecting deals and leaving the door open for a re-submitted application with enhanced terms for rate-payers," said Daniel Fidell, of USCA Securities LLC.
"That door is open for Exelon and Pepco. I expect they will be doing so," he added.
Commission Chairwoman Betty Ann Kane said the decision was one of the most important rulings that the agency would ever make. She said that while the merger would offer some benefits, some factors could prove harmful to the District.
"Pepco would become a second-tier company in a much larger corporation whose primary interest is not in distribution, but in generation," Kane said at the hearing where the decision was announced.
Opponents of the deal have said it would raise rates for consumers while limiting growth of renewable power in the region.
"The proposed acquisition would have been a substantial step backwards in the District's efforts to move toward more sustainable electricity generation and greater reliance on local, renewable energy," said Power DC, a coalition of environmentalists and public advocacy groups.
Pepco serves about 2 million customers in the District of Columbia, Delaware, Maryland and New Jersey. Exelon has about 7.8 million customers in Maryland, Illinois and Pennsylvania.
Before the D.C. rejection, the proposed transaction had won approval from Delaware, Maryland, New Jersey, Virginia and the U.S. Federal Energy Regulatory Commission.
It is not clear how the D.C. public service commission's decision would affect an ongoing review by the Justice Department. A department spokesman declined to comment on Tuesday.
The Public Service Commission was established in 1913 and regulates power, gas and telecommunication companies in the District of Columbia.
On the New York Stock Exchange, Exelon closed down 6.9 percent at $30.40, and Pepco dropped 16.5 percent to close at $22.51.