The Federal Energy Regulatory Commission on Dec. 18 approved the transactions needed to turn PPL Corp. (NYSE: PPL) and Riverstone Holdings LLC power plants over to the newly-created Talen Energy, but also ordered that potentially more power plants be sold than the parties wanted to ease PJM Interconnection submarket concerns.
The companies told FERC that they have committed to a market power mitigation plan that consists of two alternative divestiture options (Option 1 and Option 2), comprising two sets of generating plants. These sales are particularly designed to ease concerns in the PJM 5004/5005 submarket. Both options call for divestiture to a third party of a subset of the assets, totaling approximately 1,300 MW, which would otherwise be part of Talen Energy.
- Under Option 1, the Ironwood, Bayonne, Camden, Elmwood Park, Newark Bay, Pedricktown, and York power plants would be divested and sold to a third party.
- Under Option 2, the CP Crane, Holtwood, Bayonne, Camden, Elmwood Park, Newark Bay, Pedricktown, York, and Wallenpaupack plants would be divested and sold to a third party.
Applicants explained that the proposed divestiture plan is to offer the Option 1 units in at least two bundles, consisting of the following: the Sapphire Units (Bayonne, Camden, Elmwood Park, Newark Bay, Pedricktown, and York); and the PPL Ironwood facility. Applicants stated that the proposed divestiture is to offer the Option 2 units in at least three bundles, consisting of the following: the Sapphire Units; the coal-fired CP Crane facility; and the PPL Holtwood and Wallenpaupack facilities.
Applicants said that only three market participants have been identified as ineligible: affiliates of Public Service Enterprise Group (PSEG), Exelon Corp. and NRG Energy. Applicants stated that all other buyers could acquire one bundle and almost all other buyers theoretically could acquire more than one of the bundles without causing any Economic Capacity screen failures, depending on who the other buyers are.
“We find Applicants’ proposed mitigation is insufficient to address the competitiveness concerns identified in the 5004/5005 submarket, one of the submarkets with the greatest overlap of Applicants’ generation resources, as explained below,” said the Dec. 18 FERC order. “Accordingly, we condition our authorization of the Proposed Transaction on additional mitigation measures to address the competitiveness concerns in the 5004/5005 submarket, as explained below. Specifically, we find that Applicants have not demonstrated that the Proposed Transaction, with Applicants’ proposed mitigation, will not have an adverse effect on competition because Applicants have not demonstrated that their proposed mitigation would adequately mitigate the market power screen failures in the 5004/5005 submarket.”
FERC says one option is to sell power plants covered by both options
“Under the additional mitigation measures we require, Applicants may choose to either: (1) limit offers from the Mitigated Assets that Talen Energy continues to own after completing the divestiture of the Option 1 or Option 2 assets to cost-based offers in the energy market within the 5004/5005 submarket; or (2) divest all of the Mitigated Assets, that is, units included in both Option 1 and Option 2. Alternatively, Applicants may submit a compliance filing in which they propose different mitigation measures to address the adverse effect on competition in the 5004/5005 submarket. If Applicants choose to implement either of the additional mitigation measures enumerated in (1) or (2) above, we find that the Proposed Transaction will have no adverse effect on horizontal market power. On this basis, Applicants shall inform the Commission through an informational filing in this docket prior to closing of the Proposed Transaction which of the two additional mitigation measures is selected. If, on the other hand, Applicants choose to submit a different mitigation proposal to address the adverse effect on competition in the 5004/5005 submarket, Applicants must make a compliance filing that includes a horizontal market power analysis demonstrating that the Proposed Transaction will have no adverse effect on competition in that submarket.
“We also accept Applicants’ commitment to exclude, as eligible buyers, entities that own more than 10 percent of the total installed capacity (based on summer ratings) in the 5004/5005 submarket. As previously noted, under this limitation, the only “excluded’ buyers are PSEG, Exelon, and NRG Energy, and their respective affiliates.
“In addition, we find Applicants’ proposed interim mitigation measures will ensure that Talen Energy will not be able to exercise market power prior to completion of the required divestitures. Specifically, prior to completing the required divestitures, TalenEnergy will effectively relinquish day-to-day control over the dispatch of all of the Mitigated Assets, totaling approximately 2,000 MW of generation, including decisions relating to dispatch of the Mitigated Assets, to an Independent Energy Manager. We emphasize that the interim mitigation is intended to be temporary. Thus, we will require that Talen Energy enter into a binding agreement or agreements to divest either all of the Mitigated Assets or the Option 1 or Option 2 assets, depending on Applicants’ selection, within one year after the closing of the Proposed Transaction. With this time limit, we accept Applicants’ proposed interim mitigation measures, including their proposal to appoint an independent monitor, to certify that Talen Energy has complied with the interim mitigation requirements. Under Applicants’ interim mitigation proposal, no entity may serve as the Independent Energy Manager if it owns, controls, or manages more than 5,000 MW of generation in the 5004/5005 submarket.”
On July 15, PPL Corp. and RJS Power Holdings LLC filed an application requesting commission authorization to complete the multi-step transaction. The interests in PPL Energy Supply’s public utility subsidiaries will be separated from PPL Corp., distributed to PPL Corp.’s shareowners, and combined with RJS Power Holdings’ public utility subsidiaries to form a new company, Talen Energy. Talen Energy will be owned 65% by PPL Corp.’s shareowners and 35% by affiliates of Riverstone Holdings LLC, the parent of RJS Power Holdings.
Talen would get a number of power plants, including PPL’s big Montour and Brunner Island coal plants in Pennsylvania, PPL’s share of the Colstrip coal plant in Montana, and several Riverstone assets, including power plants in New Jersey and Maryland.
Example power plants from each side of the deal are:
- PPL Brunner Island owns the coal-fired Brunner Island Steam Electric Station, located in East Manchester Township, York County, Pennsylvania (1,411 MW summer rating);
- PPL Holtwood owns the Wallenpaupak Hydroelectric Station, located at the border of Wayne and Pike counties, Pennsylvania, and the Holtwood Hydroelectric Station, located in Lancaster County, Pennsylvania (293 MW summer rating);
- PPL Ironwood owns the Ironwood Facility located in South Lebanon Township, Pennsylvania (660 MW summer rating);
- PPL Martins Creek owns Martins Creek Steam Electric Station Units 3 and 4 located in Lower Mount Bethel Township, Northampton County, Pennsylvania, and 23 combustion turbine generators located on nine sites throughout central and eastern Pennsylvania (2,035.8 MW combined summer rating);
- PPL Montour owns the coal-fired Montour Steam Electric Station, located in Montour County, Pennsylvania. PPL Montour also owns a 12.34% undivided interest in the Keystone coal station, located in Armstrong County, Pennsylvania, and a 16.25% undivided interest in the Conemaugh coal station, located in Indiana County, Pennsylvania (2,004 MW combined summer rating).
- Brandon Shores owns a coal-fired facility located in Anne Arundel County, Maryland (1,273 MW summer rating;
- Wagner owns a coal-, natural gas- and oil-fired generating facility located in Anne Arundel County, Maryland (976 MW summer rating);
- CP Crane owns a coal- and oil-fired facility located in Baltimore County, Maryland (399 MW summer rating);
- Bayonne owns a natural gas- and distillate fuel oil-fired combined-cycle cogeneration facility in Bayonne, New Jersey (158 MW summer rating);
- Camden owns a natural gas- and distillate fuel oil-fired combined-cycle facility located in Camden, New Jersey (55 MW summer rating).