PJM’s Independent Market Monitor told FERC on July 7 that NRG Energy’s proposed purchase of power plants and demand response from LS Power would increase structural market power in the RTO (EC25-102).

The Monitor asked for the commission to impose behavioral constraints on the proposed merger, which includes assets in other markets, though the biggest overlap is PJM. (See NRG Energy Seeks FERC Approval for LS Power Deal.)

“The transaction would increase structural market power in PJM markets,” the Monitor said. “The significant increase in the concentration of ownership of emergency and pre-emergency demand resources is especially noteworthy given the newly pivotal role of these resources and the absence of any applicable market power mitigation rules.”

DR does not have a must-offer obligation, which allows for physical withholding and no offer caps, allowing for economic withholding, according to the IMM.

“This absence of market power mitigation rules is much more significant now than ever before in the history of the PJM capacity market as a result of the fact that demand resources are included in the reserve margin for the first time ever in the 2025/2026 delivery year,” the Monitor said. “The PJM capacity market would have been short of meeting the reliability requirement in the [Base Residual Auction] for 2025/2026 but for these demand resources.”

The behavioral commitments would ensure competitive behavior on behalf of NRG and be applied uniquely to the firm’s portfolio of emergency and pre-emergency demand resources. The Monitor said the conditions were warranted because of their “extreme increase in concentration.”

The IMM listed nine commitments in its filing that NRG should follow to ensure its bids are competitive even with the higher market power once the deal closes.

• • All resources should develop cost-based offers using a fuel-cost policy that passes the IMM’s review and are limited to just $1/MWh of markup.
  • All resources should be required to refrain from using crossing price and cost-based energy market offer curves to ensure no price-based offers with high markups will be dispatched by PJM.
  • All operating parameters should be based on physical limits as defined in PJM’s tariff.
  • NRG should have to agree to only retire power plants when they become uneconomic, meaning avoided costs are expected to exceed projected revenues.
  • The company should have to bid into the capacity market at prices that do not exceed net avoidable costs to ensure that market offers stay competitive, even if PJM changes its rules.
  • It should have to bid all supply at its full installed capacity of all its cleared unforced capacity megawatts into the day-ahead and real-time markets.
  • NRG should be required to base its energy offers, including the pre-emergency and emergency DR strike price, on the documented cost of dispatch and all its capacity offers on the net avoidable cost of the resources’ participation in DR programs.
  • All emergency and pre-emergency demand resources should be offered in the capacity market following the transaction.
  • NRG should commit to not removing resources from PJM’s markets for co-location deals until final rules are developed by FERC to ensure continued competitive results in the wholesale markets.