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Md. OPC, Pa. OCA Call Exelon-Constellation Mitigation Proposal Inadequate

July 13, 2011
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In a protest at FERC (EC11-83), the Maryland Office of People's Counsel and Pennsylvania Office of Consumer Advocate called the proposed mitigation offered by Exelon and Constellation Energy as part of their merger application inadequate, while also calling the analysis of retail market issues presented in the FERC application, "cursory."

"The transaction as proposed in the Application would adversely affect consumers in the PJM region, including Maryland and Pennsylvania consumers, because the merger would increase the ability of these companies to exercise market power, which is not adequately mitigated by the measures proposed by the Applicants, and the effects of the merger on wholesale electricity prices and transmission rates impact the retail rates paid by residential consumers," the consumer advocates said.

Consumer advocates presented an affidavit from Richard Hahn of La Capra Associates in which Hahn argued that the approach used in the applicants' market power analysis understates the market shares in the destination market. "This approach assumes that all low cost generation in the western portion of PJM is available to compete with generation in the 5004/5005 market. In reality, some of this generation would be deployed to serve load in the western portion of PJM. When PJM establishes its Day Ahead energy market and operates this market in Real Time, PJM optimizes its dispatch to serve all loads simultaneously and schedules imports and exports to minimize system costs while respecting all appropriate transfer limits between subregions of the RTO. The Applicants' model ignores the need to simultaneously supply all loads and instead considers loads only in the destination market under study. Similarly, when establishing the winning bids in the capacity markets, PJM simultaneously resolves the capacity needs in each LDA. The Applicants' approach in analyzing capacity markets does not properly consider these needs outside of the destination market under study. This may explain why the Applicants' HHIs [Herfindahl-Hirschman Index] for certain capacity market LDAs are significantly lower than the HHIs determined by the PJM IMM," Hahn said.

Hahn further argued that the applicants' analysis appears to understate the concentration of the EMAAC capacity market, as the 2011 State of the Market Report by the PJM IMM calculates an HHI for EMAAC for the 2012/13 RPM auctions of 2,057, significantly higher than the applicant's study's 1,123.

"Applicants briefly discuss the impact on retail markets, but provide no analysis supporting that discussion," Hahn added.

"Applicants should be required to disclose their market shares of the Pennsylvania POLR market, and a full analysis of this retail market should be performed," Hahn said.

"In summary, the Application addresses retail markets in only a cursory fashion. A more in-depth analysis of retail SOS / POLR markets should be performed," Hahn added.

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