PPL, RJS opt for additional market mitigation, not extra power plant sales

PPL Corp. (NYSE: PPL) and RJS Power Holdings LLC told the Federal Energy Regulatory Commission on Jan. 27 that they have opted for other power market mitigation measures, not extra power plant sales, to ease FERC concerns about the creation of Talen Energy, a new, publicly-traded power producer.

On Dec. 18, 2014, the commission conditionally approved a transaction where several power plants, including the coal-fired Brunner Island and Montour plants in Pennsylvania, will be separated from PPL Corp., distributed to PPL Corp.’s shareowners, and combined with RJS Power Holdings’ public utility subsidiaries to form Talen Energy. In their application, the companies had proposed two alternative packages of divestitures that they thought would each independently satisfy any horizontal market power concerns in the PJM Interconnection 5004/5005 submarket. But the commission in the Dec. 18 order conditioned authorization of the transaction on additional mitigation measures. 

Specifically, the commission stated that the applicants may choose among three alternatives:

  • (1) file an informational filing electing to limit offers from the mitigated assets that Talen Energy continues to own after completing the divestiture of either of the proposed divestiture packages to cost-based offers in the energy market within the 5004/5005 submarket;
  • (2) file an informational filing electing to divest all of the assets included in both divestiture packages; or
  • (3) elect to submit a different mitigation proposal to address the commission’s concerns regarding the 5004/5005 submarket.

“Applicants have analyzed each alternative and its potential impact on the business of Talen Energy,” said the Jan. 27 report from the companies. “Based on this analysis, Applicants hereby submit this information filing to notify the Commission that they have chosen to implement alternative 1, above – i.e., they will limit offers from the mitigated assets that Talen Energy continues to own after completing the divestiture of either of the proposed divestiture packages to cost-based offers in the energy market within the 5004/5005 submarket.”

Both power plant sales options, which PPL/RJS indicated in the Jan. 27 filing that they plan to preserve, calls for divestiture to a third party or parties 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.
  • Under Option 2, the CP Crane, Holtwood, Bayonne, Camden, Elmwood Park, Newark Bay, Pedricktown, York, and Wallenpaupack plants would be divested.

PPL/RJS didn’t say in the Jan. 27 filing which of these packages will be divested under its latest planning.

PPL Corp. and RJS parent Riverstone Holdings LLC said in a Jan. 27 public statement that the additional mitigation measures address competitiveness issues in a specific region of PJM that includes eastern Pennsylvania, New Jersey and Maryland. They noted that PPL and RJS proposed divesting either of two groups of assets in that region. Each group has about 1,300 MW of generating capacity. The two groups include common assets with about 650 MW of capacity.

PPL and RJS Power Holdings have agreed that within 12 months after closing of the transaction, Talen Energy will divest generating assets identified in one of the groups, and limit PJM energy market offers from assets it would retain from the other group to cost-based offers. “After full evaluation, both parties believe the enhanced mitigation will not have a materially different impact on the future operating results of Talen Energy than the original proposal,” said the companies. They said the decision on which group of assets to get rid of is not expected until after closing of this merger.

The parties are continuing with other regulatory reviews to obtain approvals needed to complete the transaction. These include the Nuclear Regulatory Commission, U.S. Department of Justice and Pennsylvania Public Utility Commission. The transaction is expected to close in the second quarter of 2015.

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.