The Federal Energy Regulatory Commission on Aug. 20 signed off on the sale of coal-, oil- and gas-fired capacity in Illinois and Massachusetts by Dominion Resources (NYSE: D) to Energy Capital Partners II LLC.
On March 21, Dominion Energy Brayton Point LLC, Kincaid Generation LLC and Elwood Energy LLC filed an application requesting authorization for the disposition of jurisdictional facilities. Applicants requested authorization for a transaction in which indirect subsidiaries of Energy Capital Partners II LLC (ECP II) would purchase from Dominion Energy direct and/or indirect ownership interests in the following:
- Brayton Point, which operates in the ISO New England (ISO-NE) market. Brayton Point owns and operates an approximately 1,544 MW facility consisting of three coal-fired units, one gas/oil-fired steam unit and four small diesel-fired units located in Somerset, Mass.;
- Kincaid, which operates in the PJM Interconnection market. Kincaid owns an approximately 1,158 MW facility, consisting of two coal-fired units located in Kincaid, Ill.; and
- Elwood, which operates in the PJM market. Elwood, where Dominion controls a 50% stake, owns an approximately 1,424 MW facility consisting of nine natural gas-fired turbine units in Elwood, Ill. The output of four of the nine units, about 600 MW, is fully committed to Constellation Energy Commodities Group under two long-term power purchase agreements (PPAs). The first long-term PPA for Units 5 and 6 at Elwood expires in 2016, and the second PPA for Units 7 and 8 expires in 2017.
Plant buyer already controls various other power plants
ECP II is associated with various companies, including Broad River Energy LLC, Dighton Power LLC, Lake Road Generating Co. LP, Liberty Electric Power LLC; MASSPOWER, Milford Power Co. and Red Oak Power LLC.
- Broad River operates an approximately 847 MW dual-fuel fired (natural gas/low sulfur distillate fuel) simple-cycle facility located in Cherokee County, S.C., within the Duke Energy Carolinas LLC balancing authority area.
- Dighton owns and operates an approximately 140 MW natural gas-fired facility located in Dighton, Mass., within the ISO-NE market.
- Lake Road owns and operates an approximately 750 MW natural gas-fired, combined cycle facility located near Killingly, Conn., within the ISO-NE market.
- Liberty Electric owns and operates an approximately 541 MW combined cycle, natural gas-fired facility located at the Borough of Eddystone, Delaware County, Pa., within the PJM-East submarket of the PJM market.
- MASSPOWER owns and operates an approximately 255.6 MW gas- and oil-fired, combined-cycle facility in Indian Orchard, Mass., within the ISO-NE market.
- Milford Power owns and operates an approximately 507 MW gas- and oil-fired combined-cycle facility located in Milford, Conn., within the southwest Connecticut submarket of the ISO-NE market.
- Red Oak owns an approximately 776 MW combined-cycle, natural gas-fired facility located in Sayreville, Middlesex County, N.J., within the PJM market.
Additionally, the related Energy Capital Partners, through various entities, has an indirect ownership interest in Empire Generating Co. LLC, which owns and operates an approximately 672 MW facility in the City of Rensselaer and the towns of East Greenbush and North Greenbush, N.Y., located in the New York Independent System Operator (NYISO) market.
Sale deal passes competitive power tests in the applicable regions
As for the competitive aspects of the Dominion sale of assets, FERC noted: “Applicants argue that the Proposed Transaction will have no adverse impact on horizontal competition in ISO-NE (where the Brayton Point Facility is located) or in PJM (where the Kincaid and Elwood Facilities are located). In the ISO-NE market, Applicants state that affiliates of ECP II currently own 1,640 MW of generation, while Dominion is affiliated with 4,092 MW of generation, inclusive of the Brayton Point Facility. Applicants submit that because Dominion is affiliated with more generation in ISO-NE than is Brayton Holdings, the effect of the Proposed Transaction is to reduce market concentration in ISO-NE, and therefore the Proposed Transaction has no adverse impact on horizontal competition in this market. Applicants add that there is no horizontal effect in any relevant submarket in ISO-NE because the Brayton Point Facility is not located in a submarket in ISO-NE that the Commission has historically analyzed (that is, Connecticut and Southwest Connecticut), nor in the Northeast Massachusetts/Boston (NEMA/Boston) zone.
“In the PJM market, Applicants state that Dominion is currently affiliated with 23,755 MW of generation, inclusive of the Kincaid and Elwood Facilities, while affiliates of ECP II currently own 1,317 MW of generation,” FERC added. “As is the case in ISO-NE, Applicants conclude that the effect of the Proposed Transaction is to reduce market concentration in PJM, and therefore the Proposed Transaction will not have an adverse impact on horizontal competition in PJM. Applicants add that there is no horizontal effect in any submarket in PJM because neither the Kincaid Facility nor the Elwood Facility is located in a submarket within PJM that the Commission historically has analyzed.
“Applicants add that ECP II’s affiliates’ holdings in NYISO, which is a market first-tier to ISO-NE and PJM, do not alter any of the foregoing conclusions. Applicants state that ECP II is affiliated with a 580 MW generating facility located in the NYISO market. Applicants state that this generation represents only 1.5 percent of installed generation in NYISO, and hence would be allocated a very small share of imports into ISO-NE or PJM, thus having a non-material effect on ECP II’s market share in those markets.”
Conservation Law raises issues about submarket, lifespan of Brayton Point
A group called Conservation Law raised issues in this proceeding, saying the applicants did not analyze how this deal would affect market concentration within any submarket in ISO-NE. Conservation Law said the commission has historically analyzed the submarket of Connecticut and Southwest Connecticut. Conservation Law contended that there is reason to believe that constraints may arise again, not only in that submarket, but potentially in Southeastern Massachusetts (SEMA) as well, where Brayton Point Station is located.
Said FERC: “We find that the combination of generation resulting from this Proposed Transaction will not affect horizontal competition. There is no evidence in the record that demonstrates that the Proposed Transaction will increase market concentration in the two relevant markets – the ISO-NE and PJM markets, where the facilities subject to the Proposed Transaction are located.”
The commission added: “Furthermore, we find it unnecessary to consider the effect of the Proposed Transaction on the Connecticut submarkets as none of the facilities subject to the Proposed Transaction are located in those submarkets. We also decline Conservation Law’s request to consider SEMA as a relevant submarket for purposes of our evaluation of the Proposed Transaction.”
Another issue raised by Conservation Law is where Brayton Point fits into the long-term power picture in the region. “Conservation Law asks the Commission to require Applicants to provide further information regarding the plans for the future operations at Brayton Point Station,” FERC noted. “Conservation Law contends that, across the nation, aging, outdated coal- and oil-fired electric generating facilities have been retiring apace, and the trend is no different within the ISO-NE control area. Conservation Law states that the Somerset Station and AES Thames have ceased to operate, and Salem Harbor Station retired two units in December 2011, and will retire the remaining two units in May 2014. Conservation Law adds that Dominion Energy received above-market payments for the operation of Salem Harbor Station as a result of successive de-list bids that were rejected on the basis of reliability concerns prior to the identification of a transmission solution. Conservation Law characterizes the financial picture for Brayton Point Station as being similarly bleak.”
Conservation Law said the applicants have provided no information regarding the plans for future operations at Brayton Point, including whether the new owner expects to continue to participate in the capacity market, seek above market payments, repower the facility, or shut down the existing facility and build new generation at the site. Conservation Law stated that ISO-NE has already projected that Brayton Point may be retired by 2020, and if the new owner plans either to repower or consider building a new natural gas facility, doing so could have a negative impact on system reliability, given current concerns about over-reliance on natural gas. Conservation Law stated that the likelihood that the new owner will either seek above market payments or seek to retire is not a mere possibility, but a real danger that must be examined by the commission prior to the approval of this sale deal.
Said FERC on this issue: “We agree with Applicants that Conservation Law’s assertions concerning future operations of the Brayton Point Facility are speculative and go beyond the scope of this proceeding. Therefore, consistent with precedent, we will not consider these concerns of Conservation Law in the context of this section 203 analysis.”