PJM monitor recommends mitigation for Talen Energy creation

Monitoring Analytics LLC, acting as the Independent Market Monitor for PJM Interconnection, on Sept. 16 told the Federal Energy Regulatory Commission that the proposed merger of power plant operations of PPL Corp. (NYSE: PPL) and Riverstone Holdings LLC has several market issues that need mitigation.

PPL and Riverstone power plants in several states, mostly coal- and gas-fired, would be put into a new entity, Talen Energy. At the close of the proposed transaction, PPL Corp.’s shareowners will own 65% of Talen Energy and the affiliates of Riverstone Holdings will own 35%.

“The Transaction, even with the Applicants’ proposed mitigation, would have an anticompetitive impact on several local energy markets,” said the Sept. 15 report. “The Market Monitor recommends that the Commission require behavioral mitigation measures to address the issues identified in this report. Appropriate mitigation could resolve the identified concerns about competitive impacts.

“The Market Monitor recommends that, if the Transaction is approved, the Commission require Talen to make cost-based offers in the energy and regulation market. The Market Monitor also recommends that Talen be required to continue to offer the same units and quantities historically offered into the regulation market because participation is voluntary and one way to exercise market power is simply not to offer. The Market Monitor also recommends that in the event that any assets divested by the Applicants and kept separate from the Transaction be precluded from being sold to any PJM market participant with more than three percent of the installed capacity in the overall PJM market, in the PJM MAAC submarket, or in the PJM 5004/5005 sub-market. On this basis, Option 1 or Option 2 assets would be precluded from being sold to American Electric Power Company; FirstEnergy Corp.; GenOn Energy, Inc.; Edison InternationalDominion Resources, Inc.; Public Service Enterprise Group Incorporated; Calpine Corp.; and PPL Corporation or to any of their directly or indirectly held subsidiaries.”

The applicants proposed two potential mitigation schemes designed to resolve any screen violations: Option 1 and Option 2. Both options call for a subset of the assets that would otherwise be part of the Talen combination to be divested to a third party.

  • Option 1 would have the Ironwood, Bayonne, Camden, Elmwood Park, Newark Bay, Pedricktown and York plants divested from the proposed Talen combination and sold to a third party.
  • Option 2 would have the C.P. Crane, Holtwood, Bayonne, Camden, Elmwood Park, Newark Bay, Pedricktown, York and Wallenpaupack plants divested from the proposed Talen combination and sold to a third party.

Under the Option 1 and Option 2 proposals, the eligible purchasing third party would be limited to asset owners with less than 5,000 MW (summer capacity) in the 5004/5005 interface defined geographic market. This requirement would, according to the filing and confirmed by the IMM, eliminate Public Services Enterprise Group, Exelon and NRG Energy from acquiring the Option 1 and Option 2 resources. The IMM has determined that the largest eligible third party is Calpine, where eligible is as defined by the applicants.

PPL Corp. and Riverstone Holdings, a leading energy and power investment firm, announced June 9 an agreement to combine their merchant generation businesses into a new stand-alone, publicly traded independent power producer (IPP). The new company will own and operate a diverse mix of 15,320 MW of generating capacity in key U.S. competitive energy markets. Based on current generating capacity, Talen Energy would be the third-largest investor-owned IPP in the nation.

A monitor contact is: Joseph Bowring, President of Monitoring Analytics LLC, 2621 Van Buren Avenue, Suite 160, Valley Forge Corporate Center, Eagleville, Pennsylvania 19403, (610) 271-8051, joseph.bowring@monitoringanalytics.com.

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.