POM Pepco Holdings,

Exelon Corp. moved closer Friday to completing a contested $6.8 billion acquisition of Pepco Holdings Inc. that would create one of the largest electric utility holding companies in the U.S. But it is still far from a done deal.

Utility regulators for the District of Columbia voted 2-1 on Friday to reject a proposed settlement agreement offered by Exelon and others as an alternative to the commission's outright rejection of the transaction in August 2015.

But in another 2-1 vote, the commission then came back with an amended version of the settlement agreement it said would be acceptable, and gave the parties until March 11 to accept or reject its conditions.

Share prices for Exelon and Pepco briefly dropped Friday morning amid reports the deal was rejected before bouncing back in afternoon trading.

Those who must now sign off on the amended settlement include groups representing utility ratepayers, the D.C. government and business interests including an association representing apartment and office building owners.

Exelon previously garnered approvals from other regulators in the area served by Pepco, including Delaware, Maryland, New Jersey and Virginia, making D.C. the final hurdle.

Charlie Harak of the National Consumer Law Center, which represents low-income ratepayers in the matter, said that "based on a quick and limited review of the 270-page order, my instincts say this is not a deal breaker for Exelon—but they will have to say."

Exelon spokesman Paul Elsberg said that "once we have had a chance to study the order and confer with the settling parties, we will have more to say about what it means and our next steps."

Paul Patterson, a utilities analyst for Glenrock Associates in New York, said that "it's more likely than not" that Exelon will go along with the new terms.

The amended settlement agreement includes changes that appeared designed to maintain a utility focus on energy efficiency and grid modernization, two goals of the D.C. commission.

It also proposes to give the commission more control over dollars contributed by Exelon to seal the deal, for example, requiring escrow-account treatment for millions of dollars set aside for the benefit of Pepco ratepayers, to prevent funds from being raided by city officials.

When Pepco and Exelon first announced their merger agreement in April 2014, Exelon faced criticism it was paying too much for Pepco.

Chief Executive Chris Crane said it was an important transaction because it would increase Exelon's rate-paying customers by two million to a total of 10 million and substantially increase the proportion of Exelon's earnings coming from stable, regulated enterprises in D.C. and five states.

Exelon owns a large number of unregulated power plants—including the nation's biggest fleet of nuclear reactors—and has been battered by low power prices in deregulated energy markets.

The utility's record on acquisitions has been mixed. It failed in efforts to acquire PSE&G of New Jersey, amid state opposition, in 2005. But it succeeded in its 2011 acquisition of Constellation Energy of Baltimore, adding Baltimore Gas and Electric to its other utilities, Commonwealth Edison in Chicago and PECO in Philadelphia.

If the Pepco deal closes, Exelon will add three utilities to its stable: Atlantic City Light, Delmarva Power and Pepco or Potomac Electric Power.

Write to Rebecca Smith at rebecca.smith@wsj.com

(END) Dow Jones Newswires

February 26, 2016 15:35 ET (20:35 GMT)

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