Environmental and Watchdog Groups Challenge Constellation’s Bid to Buy Calpine

Yesterday, Earthjustice filed a protest on behalf of Public Citizen, PennFuture, and Clean Air Council, challenging the consolidation of two of the nation’s largest utilities. The organizations argue that the Federal Energy Regulatory Commission (FERC) must block the consolidation or impose conditions to protect the public.

U.S. nuclear power provider Constellation Energy seeks to acquire Calpine Corp. and its fleet of gas-burning generators, creating one of the largest energy companies in the U.S. The deal would grant Constellation immense power in energy markets across the country, including regional transmission organization PJM Interconnection LLC. The consolidation threatens to raise electricity rates, harm competition in energy markets, jeopardize reliability, and increase pollution.

The merger exacerbates Constellation’s ability and incentive to withhold supply and raise prices in PJM. All of Constellation’s resources selling in the energy market would benefit at the expense of consumers who would see their electricity bills skyrocket.

The deal also increases Constellation’s incentive to pull its nuclear generators out of PJM to sell power to data centers. This would trigger a consumer price increase while Constellation’s new units enjoy higher returns. Everyday customers would continue to pay more and pollution would increase as dirtier, more expensive, and less reliable fossil fuel would be increasingly used to meet demand. Those fossil-burning resources would also be better positioned to manipulate a market with less supply.

Energy Capital Partners (ECP) would secure a sizable ownership of Constellation after the deal. ECP would have the power to pressure Constellation to act to benefit ECP’s other assets in PJM, like pulling the nuclear generators so that ECP’s assets become more valuable. ECP could also deploy its own assets to benefit the value of its stock in Constellation.

The deal poses additional threats to consumers that require further investigation. Constellation claims the consolidation will create a major retail electricity supplier. That kind of dominance can give it the power to set prices for customers. However, in its FERC application, Constellation only states it will honor existing contracts without addressing price concerns. The Federal Power Act was enacted to check consolidation of utilities’ power harmful to the public. FERC must block the deal, or set terms for the acquisition that protect the public such as requiring:

• Constellation to divest Calpine’s fossil-burning units in PJM
• Constellation to add low-cost generation before it may withdraw nuclear units from PJM
• Constellation to substantially fund projects benefitting energy-burdened consumers’ ability to respond to price increases
• Constellation to extend and expand current conditions on its ability to exercise market power
• Constellation to relinquish any additional voting interests it would obtain in PJM stakeholder processes that would allow it to unfairly control the process
• Energy Capital Partners to divest from Constellation

“This merger has the potential to manipulate the energy market at a time when we face surging electricity prices. With a concentration of market power, this company could prioritize profits over public interest, incentivizing fossil fuel-fired power plants to operate more frequently. There is a real danger that the merged entity will manipulate the energy market leading to even higher energy prices for Pennsylvania consumers and small businesses and even greater emissions into our air,” said Jessica O’Neill, Managing Attorney for Litigation, PennFuture.

“The $26.6 billion acquisition of Calpine by Constellation not only is one of the largest fossil fuel power transactions in history, but the scope of Constellation’s resulting market concentration poses unacceptable risks to consumers paying higher prices for electricity. Energy Capital Partners’ retention of 6.7% of Constellation’s voting shares post-transaction materially ties the private equity firm’s financial fortunes to that of Constellation’s, creating additional incentives for ECP to engage in anti-competitive behavior. The unprecedented magnitude and scope of this proposed sale requires FERC to either reject the transaction outright, or set the matter for evidentiary hearing,” said Tyson Slocum, Energy Program Director, Public Citizen.

“FERC’s duty under the Federal Power Act is to protect the public. Mergers that threaten to raise consumers’ rates and enable market manipulation are inconsistent with the public interest. We learned that lesson the hard way during the California Energy Crisis, when mergers and acquisitions by companies like Enron magnified their ability to exercise market power. The result was exorbitant bills and blackouts. With utilities again seeking to consolidate power, FERC must be vigilant in protecting competition and consumers,” said Michael Lenoff, Senior Attorney, Earthjustice.

“This acquisition’s foreseeable outcome of much higher electric bills for everyday people, who are already shouldering a tough economy, will only benefit corporations’ coffers,” said Alex Bomstein, Clean Air Council Executive Director. “Even though the energy wholesale market is complex, which hinders watchdog efforts, we fight for the just enforcement of the Federal Power Act that protects the ‘public’s interest’ before all else.”