Pepco operates through its subsidiaries Pepco, Delmarva Power and Atlantic City Electric.

The three-member commission has voted against the deal, which was announced in April 2014 with an aim to create a large electric and gas utility in the Mid-Atlantic region, citing that it does not serve public interest.

Public Service Commission of the District of Columbia Commissioner Fort said: "The Proposed Merger would diminish Pepco’s ability to directly raise issues that address the needs of District ratepayers while posing regulatory challenges for the Commission and the interested parties who participate in Commission proceedings."

The commission considered the effects of the proposed transaction on seven public interest factors, including ratepayers and shareholders, on competition in the local retail and wholesale markets and on conservation of natural resources and preservation of environmental quality.

The Commission approval was the last permit required for the completion of the deal, which already secured approvals from Virginia, New Jersey, Delaware, Maryland, and the Federal Energy Regulatory Commission.

The firms will have option to ask the Commission to reconsider its decision within 30 days period.

Pepco and Exelon said in a joint statement: "We are disappointed with the Commission’s decision and believe it fails to recognize the benefits of the merger to the District of Columbia and its residents and businesses.

"We continue to believe our proposal is in the public interest and provides direct immediate and long-term benefits to customers, enhances reliability and preserves our role as a community partner.

"We will review our options with respect to this decision and will respond once that process is complete."