By Ted Caddell

No Sale to PSEG, NRG, Exelon

PPL and Riverstone Holdings have offered to divest about 1,300 MW of generation from their 15,000-MW combined fleet to avoid market power concerns over their planned spinoff.

The new company, Talen Energy, proposed two divestiture options in a filing with the Federal Energy Regulatory Commission July 15 (EC14-112). One involves six Riverstone plants and one PPL plant in New Jersey and Pennsylvania — all combined-cycle plants — for a total of 1,315 MW. The second involves the same six Riverstone plants, plus a 399-MW coal-fired plant in Maryland and two PPL hydro plants in Pennsylvania for a total of 1,346 MW.

In an affidavit supporting the spinoff, Julie Solomon, a market power expert for Navigant Consulting, said that no company with more than 10% of PJM’s summer installed capacity would be permitted to bid for the plants. That would leave out Public Service Enterprise Group, Exelon and NRG Energy.

With almost 14,000 MW of generation, the new company will rank fifth nationally in competitive generation (behind NRG, Exelon, Calpine and Next Era) and third among independent power producers. (See PPL-Riverstone Spin-Off Shuffles GenCo Rankings.)

“What we are laying out in the filing are some potential options if FERC deems there would be market power concerns,” PPL spokesman Ryan Hill said. “They are simply proposals at this time. If FERC would deem that we would have to sell some power plants, we proposed entering in a contract or contracts to do that within one year of approval.”

Under Talen’s plan, all of the generation assets listed in both options — a total of nearly 2,000 MW — would be put into a blind trust after the PPL-Riverstone transaction is completed. The assets would be operated by an unaffiliated third party, or “Independent Energy Manager,” which would bid all energy and ancillary services of the units until the divestiture is complete. The IEM would be paid a management fee with performance incentives.

“Because neither Talen Energy nor its affiliates will have any control over the generation in the hands of the IEM, any ability or incentive to exercise market power with respect to these units will be eliminated,” Solomon wrote. “I assume that all the plants in either Option 1 or Option 2 will be divested to a single new entrant, although under the Applicants’ proposal, multiple buyers could purchase the plants, as long as all of the plants in the option selected are sold.

“The interim mitigation is further enhanced by the presence of Commission-approved market monitoring and mitigation in PJM, and ongoing oversight by the PJM Independent Market Monitor.”

Hill said PPL still believes all regulatory approvals will be obtained within a year.