The Independent Market Monitor (IMM) for PJM Interconnection said the planned takeover by NRG Energy (NYSE: NRG) of the capacity of bankrupt Edison Mission Energy can be fixed with a mild remedy in terms of market competition.
Edison Mission Energy, which among other things controls several coal-fired power plants in Illinois under Midwest Generation, sought Chapter 11 bankruptcy protection in December 2012. In late 2013, NRG agreed to buy Edison Mission Energy, with that deal awaiting an approval from the U.S. Bankruptcy Court for the Northern District of Illinois
An updated report that the IMM filed with the Federal Regulatory Commission on Jan. 2 provides a revised assessment of the impact of the proposed merger between NRG and Edison Mission Energy on PJM wholesale electricity markets including the Energy Market, the Capacity Market and the Regulation Market. In conducting this analysis, the IMM made use of actual dispatch, offer and availability data to define the relevant markets and to examine the effects of the proposed merger on those markets using concentration ratios and pivotal supplier indices.
The Jan. 2 report incorporates the most current available information on asset ownership, including exclusion from the entire analysis of units that retired in 2013. A prior report from Dec. 9 provided analysis of the energy market based on ownership and available resources at the time the market interval was cleared in the 2012-2013 planning year; of the regulation market based on ownership and available resources at the time the market interval was cleared in the October 2012 through September 20131; and of the capacity market based on current ownership and withdrawn deactivation requests at the time of the analysis.
This Jan. 2 revised report provides the analysis for the same periods using the current (as of December 2013), rather than historical, ownership and operational status of the relevant market resources in the periods. Resources that retired as of December 2013 have been removed from the market structure calculations for all relevant market intervals and units for which retirement plans have been withdrawn have been added. Any changes in the ownership of market resources have been fixed at December 2013 for all the relevant market intervals studied.
The most significant issue identified in both the Dec. 9 report and the Jan. 2 report relevant to the standards of review applicable to a merger under Section 203 of the Federal Power Act is the increase in market power in the PJM Regulation Market that will result from combining the assets of the two companies and the dominant position in a specific local energy market that NRG would gain as a result of the merger. The Market Monitor said it believes that this issue can be addressed by conditioning approval of the merger on the applicants’ adoption of mitigation in the form of behavioral rules applicable to applicants’ participation in the PJM Regulation Market.
The IMM analysis was adjusted to include the withdrawn deactivations of these power generating units: Avon Lake 7, Avon Lake 9, New Castle 3, New Castle 4, New Castle 5, New Castle Diesel and Gilbert 8. Plus there were changes to reflect the fact that EME no longer controls the 1,884-MW Homer City coal plant in Pennsylvania, which was turned over in 2012 to financial entities controlled by General Electric that had been leasing the plant to an EME affiliate for several years.
The EME units looked at in the report include a mix of coal (Joliet, Waukegan, Powerton, Fisk and Will County), combustion turbine (Fisk and Waukegan), and wind (Big Sky, Lookout and Pinnacle) facilities.