As proposed, Constellation Energy’s plan to buy Calpine would hurt competition in the PJM Interconnection’s market and should be rejected, ratepayer advocates and the grid operator’s market monitor told the Federal Energy Regulatory Commission on Tuesday.
“The merger would incentivize and facilitate the surviving company’s opportunities for anticompetitive conduct, such as the withholding of supply, given the fleet changes post-merger and the supply and demand conditions in the generation and capacity markets,” the Maryland Office of People’s Counsel said in a protest.
The companies’ proposal to sell four Calpine power plants in PJM totaling about 3.5 GW isn’t enough to mitigate the potential for the merged company to exert market power, the ratepayer advocate said.
Constellation intends to buy Calpine from Energy Capital Partners in a deal with an equity purchase price of $16.4 billion, the independent power producers said Jan. 10. The combined entity will own almost 60 GW of nuclear, natural gas, geothermal, hydro, wind, solar, cogeneration and battery storage. Calpine owns 27 GW, according to the application. The companies own a combined 25.5 GW in PJM, where there is about 179 GW of installed capacity.
As proposed, once the deal is complete, Constellation could withhold power from gas-fired generation in PJM, which would increase energy prices to the benefit of the company’s nuclear power plant fleet, according to the Maryland OPC.
Others echoed the OPC’s concerns. “Constellation can withhold a small quantity from a generator and cause an outsize impact on the price paid to its other generators,” Public Citizen, PennFuture and the Clean Air Council said in a joint filing. “The transaction would increase the number of intermediate and peaker generators with which Constellation can do so.”
Also, the transaction likely increases Constellation’s incentive to withdraw its nuclear generation from PJM’s markets to sell electricity directly to new data centers, which could raise electricity prices, harm competition, worsen grid reliability and increase pollution, according to the groups.
Constellation and Calpine failed to adequately address how the proposed deal would affect retail electricity markets in Pennsylvania, according to the Pennsylvania Office of Consumer Advocate. Constellation is the largest supplier to commercial and industrial customers in Pennsylvania and Calpine is the fourth largest supplier, the OCA said.
The transaction could also result in an unacceptable increase in the concentration of firms competing in default electricity service auctions, harming retail customers who don’t shop for competitive electricity supply, the OCA said.
Monitoring Analytics, PJM’s market monitor, urged FERC to require measures that would prevent Constellation from exercising market power after the deal is complete.
For example, Constellation should not sell Calpine’s four power plants to any company that owns more than 3% of the installed capacity in PJM, according to the market monitor.
Other recommended commitments address the potential withholding of capacity market offers and co-located load. Also, Energy Capital Partners, which owns power plants in PJM, should not be allowed to own any shares of Constellation once the deal is complete, Monitoring Analytics said. If ownership is allowed, Energy Capital Partners should be barred from knowing about Constellation’s decisions related to its power plants, according to the market monitor.
Public Citizen, PennFuture and the Clean Air Council said Constellation should be required to sell all of Calpine's peaking power plants in PJM.
Constellation expects to close the deal early next year. The transaction requires various regulatory approvals, including from the Canadian Competition Bureau, the New York Public Service Commission and the Public Utility Commission of Texas.
