Constellation Energy and Calpine Corp. asked FERC to approve their proposed merger and offered to sell off most of the latter’s natural gas fleet in PJM to assuage market power concerns (EC25-43). (See Constellation to Acquire Calpine for $29.1B.) 

“The combined company will have a geographically diverse coast-to-coast presence and operate the most reliable and cleanest generation portfolio in the country,” the firms told FERC. “This will allow the company to better serve customers with a broader array of energy and sustainability products to power homes and businesses at competitive prices while continuing to provide reliable, clean and secure generation to the grid.” 

Calpine has a large presence in California, where Constellation is not very active, and the two overlap a little in New England, New York and the Midcontinent ISO, but their biggest overlap is PJM and specifically the eastern part of the RTO. 

The two firms proposed selling all but one of Calpine’s combined cycle natural gas plants in PJM, which totals 3,546 MW. The units that will go on sale if FERC approves the application are valuable and high-performing plants, and two of them are dual-fuel capable. 

The plants proposed for sale are the 1,134-MW Bethlehem Energy Center, the 569-MW York Energy Center 1, the 1,136-MW Hay Road Energy Center and the 707-MW Edge Moor Energy Center. 

Eastern PJM is the one area where the combined generation of Constellation and Calpine led to violations of market power screens. The application argued that those failures “do not reflect actual competitive concerns” because the region no longer should be considered a submarket, and Constellation’s bids already are covered by an agreement with PJM’s market monitor.

“Nevertheless, to avoid a potentially protracted regulatory proceeding and speed the governmental approval process, applicants commit to a robust mitigation plan that would involve the divestiture of all but one of Calpine’s combined cycle natural gas plants located in eastern PJM,” the application said. “As described below, that mitigation plan would eliminate all screen violations in these PJM submarkets.” 

Without the sales, the combined firm would own more than 25 GW of generation in PJM, which compares to just 8 GW in California and less in other markets. 

Constellation owns 2.3% of CAISO’s generation now and Calpine 13.4%, but their combination would have a minimal impact on market power there, the application argued. 

In PJM, Constellation owns 11.4% of the generation and the deal would bring an additional 3% under its corporate umbrella. The consultants hired by the merging firms argued that the submarkets FERC has looked at historically in PJM no longer make sense. Still, they said, the mitigation plan would eliminate market screen failures in all of them. 

There should be enough buyers that do not have significant ownership in PJM for the four power plants, but the application noted that FERC can review any potential buyers if it approves the Constellation-Calpine deal. 

For any period between the merger’s close and the sale of the four power plants, Constellation said it would abide by voluntary mitigation that keeps its bids in the relevant PJM submarkets near its generators’ costs.