By Tom Kleckner

The staff of the Texas Public Utility Commission last week recommended that it require Vistra Energy and Dynegy to divest at least 1,281 MW of generation to secure approval of their merger.

Vistra’s power generation subsidiary, Luminant Generation, challenged the staff recommendation, assuring the PUC that market power would not be an issue (Docket No. 47801).

PUC staff filed the recommendation on Feb. 5, calling for approving the merger conditioned on Vistra and Dynegy divesting themselves of enough Texas generation to stay below the statutory cap of 20% of ERCOT installed capacity.

Staff said the two companies exceeded the limit because Dynegy owns 820 MW of generation in the Eastern Interconnection “capable of delivering electricity to ERCOT” over DC ties. Staff ruled that capacity should be included in Luminant’s market share calculation.

Together, Luminant and Dynegy own almost 18 GW of generation in Texas. Dynegy also owns 21.6 GW outside the state that isn’t deliverable to ERCOT. Including the 820 MW of generation deliverable over the DC ties would give the companies 21.46% of the Texas ISO’s capacity.

Staff said in their memo that Luminant and Dynegy have committed not to import power over the DC ties. However, they said, the arrangement “fails to satisfy the statutory language, because a commitment on [their] part to not import power … does not negate their capability of doing so.”

In its response filed Friday, Luminant asked the PUC to exclude the 820 MW, based on the entities’ commitment to not import power. The generation firm said a “reasonable mitigation” would be acceptance of the companies’ commitment not to import power and allow the transaction to close without any divesting generation.

Luminant also requested its 915-MW Lake Hubbard gas-fired plant be excluded from the market power analysis, saying it was grandfathered as part of a 2000 agreement with the PUC (Docket No. 28081).

The company told the commissioners it is working with staff on a proposed order. The PUC has an open meeting Feb. 15, but the agenda has not yet been posted.

In their filing, staff recommended several changes to the proposed transaction:

• Divesting the generation should the commission find the combined installed capacity exceeds the 20% cap;
• Termination of a 2015 voluntary mitigation plan (Docket No. 44635);
• Self-monitoring compliance with the cap;
• Filing quarterly compliance reports for two years or until the combined company falls below 18.5% of ERCOT’s total; and
• Filing a written report with the PUC within 30 days on noncompliance with the 20% cap.

Vistra announced its $1.7 billion acquisition of Dynegy in October. The all-stock deal will create a generation and retail giant owning 40 GW of capacity and serving nearly 3 million customers, mainly in ERCOT, PJM and ISO-NE. The proposed acquisition requires regulatory approvals from FERC, the PUC and the New York Public Service Commission. (See Vistra Energy Swallowing Dynegy in $1.7B Deal.)