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Updated Market Power Analysis By IMM Does Not Change Concerns Regarding Exelon-Constellation Merger
September 19, 2011
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Late Friday, Monitoring Analytics, LLC, filed with FERC as well as the Maryland PSC an updated market power analysis regarding the proposed merger of Constellation Energy and Exelon, but which does not materially alter the PJM independent market monitor's conclusions regarding the merger.
The updated analysis corrects an "anomaly" in the data used in the IMM's original report.
The correction resulted in a, "de minimis effect on a small subset of HHI [Herfindahl-Hirschman Index] results."
However, the changes, "did not materially change the outcome of the analysis."
"The revised measure of incremental effective MW reduced the number of relevant tests and reduced the number of screen violations but did not materially change the concerns about competitive outcomes identified in the original analysis. The corrections do not require changing any of the Market Monitor's conclusions about the impact on competition of the proposed merger included in the July 21st analysis. Nor do the comments submitted contemporaneously by the Market Monitor require any revision," the IMM said in its updated filing.
"The analysis concludes that the proposed merger would significantly increase concentration in the PJM energy market, particularly in those markets defined by constraints that separate the PJM energy market into local markets for 100 or more hours a year," the IMM affirmed
In short, the IMM affirmed that the proposed divestiture of Constellation's Brandon Shores, H.A. Wagner and C.P. Crane facilities to a firm without an existing market presence in the constrained markets would "reduce, but not eliminate, the competitive issues of the proposed merger."
Additionally, divestiture of the plants to one of the significant players in the constrained markets would exacerbate the competitive issues with the proposed merger, the IMM noted.
The IMM did not offer specific recommendations as to additional actions which would be required to completely eliminate such competitive issues, though the IMM agreed that, in principle, an effective mitigation plan could be implemented that would address the competitive issues identified.
"Appropriate mitigation could resolve the concerns about competitive impacts identified in this report. Appropriate mitigation can take both structural forms and behavioral forms, as recognized in the Applicants' filing. Structural mitigation could take the form of divestiture of specific units and should include constraints on buyers in order to avoid creating an unintended negative impact on market structure. Behavioral mitigation can take the form of requirements to engage in competitive offer behavior in each PJM market," the IMM said.
FERC Docket EC11-83
Md. PSC Case 9271
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