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OSBA Seeks Investigation of Exelon-Constellation Merger, Impact on Retail Markets
June 22, 2011
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The Pennsylvania Office of Small Business Advocate has filed a complaint at the Pennsylvania PUC seeking, among other things, an investigation into the impact of the proposed Exelon-Constellation Energy merger on the state's retail electricity and natural gas markets (P-2011-2247936).
"Each of the Companies is a self-proclaimed top 10 leader in the U.S. commercial and industrial retail electricity markets and each is licensed as both an EGS [electric generation supplier] and an NGS [natural gas supplier] in Pennsylvania. Thus, the proposed merger will result in the elimination of retail competition between two top 10 suppliers and a reduction in competitive choices for retail customers," OSBA said.
"Although there may be a relatively large number of EGSs and NGSs licensed in Pennsylvania and some might argue that a merger resulting in the loss of only one would have little effect, considering only the number of suppliers is insufficient. To adequately evaluate the proposed merger's impact on the retail market, further Commission investigation is needed to determine the size of the market shares of Exelon and Constellation and the load profiles of the small business customers that they serve," OSBA added.
"Additionally, because Exelon and Constellation are leading wholesale suppliers, the proposed merger also has the potential to impede competition in the wholesale markets, which would negatively impact the retail price for electricity and gas acquired by default service providers pursuant to Section 2807(e) of the Public Utility Code and by suppliers of last resort pursuant to Section 2207(a) of the Public Utility Code," OSBA continued.
"The potential for the proposed merger to have an adverse impact on retail rates in the electricity market is especially significant. Exelon and Constellation are major generators of electricity and competitors, or potential competitors, in default service procurements throughout the Commonwealth. The proposed merger would eliminate Exelon as a wholesale competitor. Because of the potential for a resulting increase in default service rates, it is critical that small business customers have the option to solicit offers from as many EGSs as possible. The elimination of Exelon as an EGS would deprive small business customers of one of those options," OSBA said.
Citing 66 Pa. C.S. Sec. 2811(b), and similar provisions relating to the retail gas market, OSBA said that the Commission is "required" to investigate the proposed merger of Exelon and Constellation, "to determine its impact on Pennsylvania's retail electricity and natural gas markets, refer any findings of anticompetitive conduct or unlawful exercise of market power that will adversely affect Pennsylvania retail customers to the appropriate regulatory bodies, and intervene in proceedings initiated by those bodies to protect Pennsylvania's interests." OSBA is seeking PUC intervention in the FERC review of the merger as well.
Exelon and Constellation have said that the Pennsylvania PUC is not required to approve the merger. However, OSBA contrasted this with Exelon's prior attempt to merge with PSEG in which it did seek PUC approval, despite the transaction being constructed in a "substantially similar" fashion to the proposed Constellation merger.
Indeed, much of the Exelon-PSEG merger case before the Pennsylvania PUC related to wholesale market power issues raised by the Exelon-PSEG merger. Although Constellation has much less physical capacity immediately neighboring the PECO service area than PSEG did, Constellation also has a much larger competitive retail load obligation in the PECO area and neighboring service areas than PSEG did at the time of its proposed merger.
Furthermore, OSBA sought a declaratory order holding that Exelon is required to seek prior Commission approval in order to transfer to Constellation its electricity generation supplier license and natural gas supplier license. Transfers of both electric and natural gas licenses require prior PUC approval.
Alternatively, if Exelon purports to "abandon" the Exelon licenses, OSBA sought a declaratory order holding that the Commission must approve any assignment of Exelon's retail customer contracts to Constellation.
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