Monday, February 18, 2019

Texas PUC Conditionally Approves Vistra-Dynegy Merger

The Public Utility Commission of Texas last week conditionally approved Vistra Energy’s $1.7 billion acquisition of Dynegy, allowing the combined company to avert a requirement that it divest generation over market power concerns (Docket No. 47801).

The commission amended staff’s proposed order by excluding 820 MW of DC tie import capacity from the Eastern Interconnection as “not being appropriate” in determining the combined entity’s market share. Combined with a previous ruling that excluded a 915-MW gas plant from market power calculations, Vistra’s generation arm, Luminant, would no longer be required to divest itself of at least 1,281 MW of capacity.

ERCOT PUCT Vistra Energy Dynegy

The Texas PUC had an open meeting on March 29 | AdminMonitor

PUC staff in February had recommended the divestiture to keep post-merger Vistra below the statutory cap of 20% of ERCOT installed capacity. (See Vistra Balks at Divesting 1,281 MW in Dynegy Merger.) Staff’s proposed order excluded Luminant’s Lake Hubbard power plant from the calculations based on its grandfathered exemption in a previous docket (No. 45429).

ERCOT PUCT Vistra Dynegy Merger

PUCT Chair DeAnn Walker | AdminMonitor

PUC Chair DeAnn Walker and Commissioner Arthur D’Andrea both filed memos in the proceeding, with Walker agreeing to D’Andrea’s more substantive changes during the March 28 open meeting.

ERCOT PUCT Vistra Dynegy Merger

PUCT Commissioner Arthur D’Andrea | AdminMonitor

With the modifications, the order now says Vistra and Dynegy have met the requirements for approval “by demonstrating that the proposed transaction will not result in the combined ownership and control of more than 20% of the installed generation capacity located in or capable of delivering electricity to ERCOT.”

Staff had said that Dynegy owns 820 MW of generation in the Eastern Interconnection “capable of delivering electricity to ERCOT” and recommended that capacity should be included in the calculation. D’Andrea countered by saying the DC ties should be treated as an exception, “not as a natural extension of the ERCOT market.”

“I like the idea of saying that doesn’t count as our market,” he said.

With the changes, Luminant would no longer have to go through with the prospective sale of up to three gas plants, whose suitors include a trading firm.

“If you look at those three plants, I think I trust Vistra with them,” D’Andrea said. “Would you rather Vistra, who you know and with a ton of skin in the game, run those three plants this summer, or would you rather a trader run those three plants this summer?”

Luminant assuaged the commission by committing that they would not import power over the DC ties. “That commitment is legally binding and enforceable through the coercive power of the state,” D’Andrea wrote in his memo. “To my eyes, that makes the applicants ‘incapable’ of importing power.”

The commission added language requiring the combined entity to annually file an affidavit, “under penalty of perjury, attesting to compliance” with the commitment not to import.

Walker said she was concerned other applicants could make the same commitment in future cases. “If we’re expecting ERCOT to police this, I’m worried about the workload on [the ISO].”

“We’re mostly dealing with really big players with a lot of skin in the game,” D’Andrea said, noting ERCOT’s Independent Market Monitor “can go after them.”

“If [the IMM] finds something, they’ll violate their agreement, and that’s a pretty serious thing. That’s something we don’t take lightly,” he said.

The Texas PUC’s commissioners share a laugh before the meeting | AdminMonitor

Vistra announced its intention to acquire Dynegy in October. The all-stock deal will create a generation and retail company owning 40 GW of capacity and serving nearly 3 million customers, mainly in ERCOT, PJM and ISO-NE. (See Vistra Energy Swallowing Dynegy in $1.7B Deal.)

Vistra said the transaction remains on track to close by July. It is only waiting on FERC approval, having obtained all other necessary regulatory approvals, including that of the New York Public Service Commission. Vistra’s shareholders approved the merger in an early-March vote.

ERCOT Directors’ Elections Approved

The commission’s consent agenda included the approval of Terry J. Bulger’s election (Docket No. 47916) and Peter Cramton’s re-election (Docket No. 47915) as unaffiliated directors on ERCOT’s board.

Bulger, a 35-year banking professional with ABN AMRO and Bank of Montreal, fills the vacancy created by Jorge Bermudez’s resignation in 2016. His term will begin in April’s board meeting.

Cramton, an economics professor at the University of Maryland College Park and the University of Cologne, will begin a second three-year term on Aug. 17.

Both directors were elected during ERCOT’s annual membership meeting in December.

— Tom Kleckner