Dive Brief:

• Vistra’s plan to buy Energy Harbor’s nuclear power plants and other assets will hurt competition in wholesale and retail markets and should be rejected, the Ohio ratepayer advocate and the Northeast Ohio Public Energy Council, or NOPEC, told the Federal Energy Regulatory Commission on Friday.

• “Vistra currently has market power in the PJM energy and capacity markets, especially in local markets defined by frequently binding constraints, and adding the Energy Harbor nuclear units to its fleet will increase the incentive to exercise market power,” Monitoring Analytics, the PJM Interconnection’s market monitor, said.

• FERC should only approve the $3.4 billion transaction if it imposes conditions aimed at preventing Vistra from using its market power to affect energy and capacity prices, according to the market monitor.

Dive Insight:

Under the deal announced in early March, Vistra will buy three nuclear power plants in Ohio and Pennsylvania — Beaver Valley, Besse-Davis and Perry — totaling 4,048 MW. The acquisition will also add about 5 million Energy Harbor retail customers to Vistra’s portfolio.

If approved, the assets will be held in Vistra Vision, a subsidiary holding company. Nuveen Asset Management and Avenue Capital Management II, which together own 63% of Energy Harbor, will have a 15% passive, non-voting stake in Vistra Vision, according to an application at FERC. 

Vistra and Energy Harbor said the planned deal wouldn’t hurt competition, raise electric rates or reduce regulatory oversight. They asked FERC to approve the transaction by July 17.

However, if approved, the transaction increases structural market power in PJM’s energy market and in local markets defined by transmission constraints as well as in the capacity market, according to Monitoring Analytics.

Monitoring Analytics said FERC should condition the deal on four behavioral limits for Vistra:

• Forbid price-based offers that cross cost-based offers;
• Require operating parameters based on physical limits;
• Require Vistra to use a capacity market offer cap equal to its net avoidable cost rate; and
• Commit to reducing “capacity interconnection rights” based on the addition of behind the generator load at the acquired nuclear power plants.

The Office of the Ohio Consumers’ Counsel said the deal could allow Vistra and its affiliates to exercise “significant” market power in Ohio, likely increasing electricity prices. The office represents residential ratepayers.

“This merger would provide Energy Harbor, Dynegy and other Vistra affiliates incentives for withholding supply in order to raise prices in both the Standard Service Offer auctions and in the competitive services provided by their retail marketing affiliates,” the OCC said.

Also, the proposed merger would decrease competition in PJM’s capacity and energy wholesale markets, which could lead to higher prices for consumers when transmission constraints develop, the office said.

NOPEC, a governmental aggregator that buys electricity and gas for more than 200 Ohio communities, echoed the OCC’s concerns.

In the last five years, the number of companies supplying Ohio’s standard offer market, which serves customers that don’t buy electricity from third-party suppliers, has shrunk to six from 11, NOPEC said.

FERC should consider how the proposed deal would affect retail customers because the Ohio Public Utilities Commission lacks the authority to review it, according to NOPEC.

Vistra and Energy Harbor, formerly FirstEnergy Solutions, failed to say whether Nuveen and Avenue would have representatives on Vistra’s board after the deal closes, according to NOPEC. 

When considering Vistra’s incentives to engage in anticompetitive behavior, FERC should keep in mind that agency staff said in September that its subsidiary, Dynegy, engaged in market manipulation, NOPEC said.