NRG, GenOn say their merger presents no market power issues

NRG Energy (NYSE: NRG) and GenOn Energy (NYSE:GEN) told FERC that their planned merger will create no market power issues, including in PJM, where GenOn in particularly controls a lot of capacity, much of it coal-fired.

On Aug. 10, the two companies filed a request that the commission approve a merger and disposition by which NRG will acquire and combine with GenOn in a stock-for-stock transaction. This merger was first announced July 22.

“The merger of NRG and GenOn will form a strong competitive wholesale generation company with a diverse generation fleet located in the premier competitive wholesale energy markets in the United States,” the companies told FERC. “On top of the enhanced core generation business, the merger also will support the expansion of NRG’s retail business in the Northeast. The new company, which will continue to be known as NRG, also will benefit from the Applicants’ combined environmental expertise, experience and scale to successfully reduce total emissions.”

Although the merger will create a large independent power company, it does not raise any competitive issues, the companies said. They argued that:

  • their generation is spread throughout the United States rather than concentrated in any single market; although this generation overlaps in a number of markets, neither company has a significant market share in any market;
  • they pass each of the commission’s merger screens in each relevant market and submarket, and for each period of the year;
  • they do not own or control any electric transmission assets, natural gas transportation assets, or other inputs to the generation of electricity that would allow them to exercise vertical market power to affect wholesale electric markets.

Also, GenOn and NRG said they have no captive wholesale requirements or transmission customers served under regulated cost-based rates and, thus, the merger transaction cannot have any adverse effect on the rates of such customers. Nor does the transaction have any effect on the commission’s jurisdiction or the jurisdiction of any state commission. Finally, because neither of the applicants owns any traditional public utilities with captive customers, the transaction does not raise any cross-subsidization concerns, they added.

“Consequently, the Commission should readily be able to determine that the Transaction is consistent with the public interest, as required under [Federal Power Act] Section 203,” the companies said. “The Applicants request that the Commission issue an order no later than December 31, 2012, approving the Transaction without condition and without a hearing.”

NRG and GenOn are both major independent power producers

NRG engages in three related electric businesses. First, it is a wholesale power generator engaged in the ownership and operation of power generation facilities; the trading of energy, capacity and related products; and the transacting in and trading of fuel and transportation services. Second, NRG is a retail electric supply company engaged in the sale of electricity, energy services, and cleaner energy products to retail electricity customers in deregulated markets primarily through its subsidiaries, Reliant Energy, Green Mountain Energy, and Energy Plus. Finally, NRG is focused on the deployment and commercialization of alternative energy technologies, such as electric vehicles, distributed solar and smart meter technology.

GenOn is a wholesale generation company that, through its subsidiaries, owns or controls electric generating capacity located, in many cases, near major metropolitan load centers in the Eastern PJM, and Northeast and Western regions. GenOn also engages in integrated asset management and proprietary trading operations. GenOn’s customers are principally Independent System Operators (ISOs), Regional Transmission Organizations (RTOs) and investor-owned utilities. GenOn’s generating portfolio is diversified across fossil fuel and technology types, operating characteristics and several regional power markets.

Frayer finds no major issues in any overlapping markets

GenOn and NRG hired Julia Frayer of London Economics International LLC to analyze the horizontal competition effects (as well as the vertical market power effects) of the merger. NRG and GenOn have overlapping generation in six markets (PJM, ISO-New England, New York ISO, California ISO, Entergy, and Midwest ISO). However, in the Midwest ISO market, NRG controls only 18 MW of capacity, all of which is contracted for under long-term sales agreements, the company noted. This represents a de minimis overlap of generation capacity.

NRG, for example, owns about 1,500 MW of capacity and GenOn owns about 12,300 MW of capacity in the PJM market, with much of that GenOn capacity fired by coal, like the Chalk Point, Morgantown, Cheswick and Avon Lake plants.

Notable is that both companies own minority stakes in the Keystone and Conemaugh coal plants in Pennsylvania. NRG owns 4% (63 MW) of Keystone’s capacity, and 4% (also 63 MW) of Conemaugh’s capacity. GenOn owns 17% (285 MW) of Keystone’s capacity and 16% (282 MW) of Conemaugh. In combination, the two companies own about 8.7% of the generation capacity in the PJM market.

Frayer noted that a total of 4,969 MW of new entry will come online between 2012 and 2013 within PJM and this new capacity was included in the competitive analysis screen (along with associated contracts). More than 50% of these new plants are located in PJM West (AEP, APS and ComEd zones). On the other hand, a total of 3,526 MW of plants are anticipated to be retired in PJM during the same time period. This is based on the PJM Deactivation List as of June 14. The retired plants include the following plants owned by GenOn: Elrama, Niles (coal units only) and Potomac River. 

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.