NRG Energy is pushing back against arguments from PJM’s Independent Market Monitor (IMM) that its deal with LS Power would increase market concentration in the RTO and needs to meet conditions before FERC approval (EC25-102).
In an earlier protest, the IMM called for bidding limits on generation and demand response resources. (NRG will acquire CPower in the deal.) Those resources have grown in importance as the supply-demand balance in PJM has narrowed. (See PJM Monitor Calls for Bidding Limits on NRG Generation, DR in LS Deal.)
NRG told FERC in an Aug. 7 response that its deal to buy power plants and a DR aggregator from LS Power would not have an adverse impact on PJM. NRG filed a delivered price test (DPT) and updated analysis from economist John Morris. As in past proceedings, the IMM proposes conditions that are directed at the effectiveness of the PJM markets and mitigation measures as a general matter that goes beyond FERC’s normal merger review process, NRG said.
The DPT analysis from Morris “showed that the transaction will have no adverse effect on competition in PJM or any relevant or potentially relevant PJM sub-market,” the firm said. “Indeed, while applicants are not required to show that the transaction will enhance competition, the DPT analysis shows that the transaction would actually reduce concentration in the PJM market and all relevant or potentially relevant sub-markets in most time periods.”
FERC staff posted a deficiency letter Aug. 13, seeking more information on the deal, including questions about whether demand response resources were included in the horizontal market screens for PJM and NYISO. Staff asked other questions about data NRG submitted around generation.
The IMM filed an answer Aug. 27 arguing that NRG failed to rebut findings that its structural market power would grow with the deal as measured by the “three pivotal supplier [TPS] test.”
“NRG applicants should not be permitted to exercise market power, and the transaction should not be approved without reasonable measures to protect the public interest in competition and competitive market outcomes,” the IMM said.
The deal will increase market power in sub-markets of PJM, and NRG misstates the deal’s impact on the concentration of ownership in demand response, the IMM said.
“The applicants must provide record support for a finding that a transaction is consistent with the public interest,” the IMM said. “Showing that a transaction has net positive benefits for competition would provide evidentiary support … consistent with the public interest finding. Showing that a transaction does not harm competition is the minimum. No transaction can be approved under the applicable standard if it harms the public interest.”
NRG pushed back by saying the IMM failed to provide enough evidence backing up its “alternative competitive analysis” and instead relies on a dataset that is not available to NRG or the public.
“Over and above the unfairness to applicants of accepting such an analysis, doing so would create massive regulatory uncertainty extending beyond this proceeding as entities considering transactions involving assets in the PJM market would be left with no way of evaluating, in advance, whether those transactions could even potentially be deemed to present competitive issues,” NRG said.
Morris’ initial analysis argued that the deal essentially will flip the supply positions of NRG and LS Power in PJM, with very little change in market concentration. NRG would grow from 1.2% of supply to 5.4%, but LS’ share falls from 6.5% to 2.4%, resulting in lower market concentration across the RTO.
The IMM and consumer advocates ignore the second part of the deal, NRG said, focusing on NRG’s growth and ignoring the shrinking supply of LS Power, which will remain as a competitor in PJM.
While FERC previously said it does not rely on the TPS test for analysis of mergers, NRG noted that even so, the market already has rules in place when a firm fails the TPS test — when its generators are dispatched for constraint control, the unit is dispatched at the lower of the cost or price offer, NRG said.
While FERC has said it does not condition approval of mergers on the TPS test, it has never said the Monitor’s analysis is irrelevant or uninformative, the IMM said.
“The transaction creates new opportunities and/or enhances existing opportunities for NRG to raise energy market prices (LMP) to the benefit of its generation through economic or physical withholding because PJM needs NRG’s supply to manage transmission constraints,” the IMM said. “The transaction creates new opportunities for NRG to raise capacity market prices, and energy market prices on peak days, by significantly increasing ownership concentration in PJM demand response resources. Both areas of concern are relevant to the transaction.”
NRG also pushed back on worries about DR — noting the resource does not operate as a separate product in PJM and is bid into its markets alongside generation.
“Moreover, even as to measures of who controls demand response, the figures provided in the IMM report are misleading, because as Dr. Morris indicates, curtailment service providers, like CPower, are just ‘intermediaries between retail customers and PJM,’ and it is the retail customers that ‘control whether demand response will be provided and, if accepted as a capacity resource, whether they will perform,’” NRG said.
“It is also the case that demand response represents a small percentage of the total capacity in the PJM market. What appears to concern the IMM is not increased concentration in some imagined demand response market but instead perceived inadequacies in the rules governing demand response participation in the broad energy, capacity and ancillary services markets.”
The IMM said that was wrong and PJM’s own tariff defines Curtailment Service Providers as market participants.
“This is an incorrect and misleading characterization of how demand response works in the PJM markets,” the monitor added. “CSPs are market participants that control market strategy, control market offers, and hold the responsibility for demand response performance in the PJM markets.”
