The independent market monitor for the PJM Interconnection regional electricity grid has called upon the Federal Energy Regulatory Commission (FERC) to reject the sale of Virginia-based Dominion Energy to Florida-based NextEra Energy, citing the market power the combined entity would have.  

FERC is one of many regulators that must approve the transaction, which would create the largest electric utility company in the country and the third largest energy conglomerate.  The application is also under review by the Virginia State Corporation Commission (SCC).  

The same arguments are likely to surface with the SCC.  The SCC granted the PJM market monitor permission to participate in its case, despite it missing the deadline.   Dominion objected to the market monitor’s request for permission to join the case late, but its objections were overruled.  

PJM controls the electricity grid in Virginia and all or parts of twelve other states and the District of Columbia.  Its energy auctions set the short- and long-term price for wholesale electricity across the entire region and its several subregions, including the Dominion Zone covering most of Virginia.  PJM is also a participant in the SCC case but has filed no testimony so far.

The market monitor, Monitoring Analytics, is fully independent of PJM’s governing structure and exists to promote a “robust, competitive and nondiscriminatory electric power market in PJM,” according to its website.  PJM is mainly controlled by the many energy companies offering services under its market process, with federal oversight. 

The SCC case is entering an active phase, with testimony expected to appear soon from the SCC’s own staff technical and financial analysts.  It will be found here.  A long list of political and business stakeholders are participating as respondents to the case, and any expert testimony they want to offer is now due.  

The SCC must rule by mid-January and will hold a full hearing next month.  The lawyers alone for all these participants could fill most of its courtroom.  

Previous discussion about the proposed sale of Dominion, including its subsidiary Dominion Energy Virginia, has mentioned the potential economic influence a combination with NextEra could create.  The PJM market monitor’s FERC filing details the market power within PJM the expanded NextEra would enjoy, especially within the PJM Dominion subzone, with its huge and growing data center demand.  

NextEra’s major utility subsidiary is Florida Power and Light and most of its other assets are not in PJM territory, but it owns or controls 800 megawatts of independent generation and storage assets within the PJM region and is building major transmission assets.  Dominion owns or controls up to 2,000 megawatts of generation within PJM beyond the 24,600 megawatts owned by its Virginia regulated utility.  

The market monitor told FERC: 

“Dominion is the second largest owner of capacity in the PJM market and the largest owner of capacity in the constrained Chesapeake submarket, which includes Northern Virginia’s Data Center Alley and the Baltimore-Washington D.C. metropolitan area.  NextEra already has plans to build at least 4.3 GW of generation in PJM, particularly in southwest Pennsylvania, which would place it in the top ten owners of PJM capacity without the Merger. 

“NextEra also has an approved transmission project, the MidAtlantic Resiliency Link, that connects southwest Pennsylvania to Data Center Alley. The new and expanding Mountain Valley Pipeline natural gas project, partially owned by NextEra, connects the same area of Pennsylvania to a critical point on the Transco pipeline in the Dominion Zone of Virginia.”

It also told FERC: 

“The Merger would result in an unprecedented amount of economic and political power for NextEra. The Commission’s standard merger review process does not contemplate all of the implications of the Merger. The potential harms to the public interest include deterrence of potential competition, control of inputs to production, control of access to customers, rent seeking, expansion of monopoly power, incentives for further increases in the concentration of asset ownership in PJM, and potential impacts on PJM’s governance….

“Scale, financial strength, and operational breadth all enhance market power and any economic gains are more likely to accrue to investors rather than customers. The Applicants have not asserted that this Merger enhances competition or market efficiency…

“Approval of the Merger under Section 203 of the Federal Power Act requires a finding that it is consistent with the public interest. Although Section 203 has been interpreted not to require Applicants to show benefits to the public interest, it cannot be approved if concerns about harm to competition are supported with evidence in the record, and those concerns are not mitigated.”

The PJM market monitor then listed several possible mitigations, conditions or constraints that FERC could impose on any final agreement to allow the sale of Dominion.  The mitigations mentioned provide insight into the harm the PJM monitor is worried about. It proposed that FERC require:  

• The expanded NextEra should be prevented from offering dispatch prices within the PJM region with high mark-ups to increase its profits. A cap of an additional $1 per megawatt hour was suggested. 
• NextEra must decide to offer or not offer its generation units into the PJM system based on their physical limits, to “ensure that NextEra cannot use market power to operate inflexibly during weather alerts, emergencies,” and at other times it might be tempted to manipulate prices higher.
• NextEra may propose retirement of a unit only if the unit is expected to be uneconomic, to ensure that retirements of economic resources are not used to exercise market power in the energy and capacity markets.  (In the long run, that has implications created by the Virginia Clean Economy Act, which mandates the retirement of many viable Virginia power plants in less than 20 years.)  
• NextEra would be prevented from diverting generation away from serving PJM to serve data centers directly.  
• NextEra must commit that Dominion stays within PJM.  

The monitor argued that last one is crucial to maintaining confidence in PJM’s future stability, which in turn is required to encourage continued investment by others in meeting PJM’s growing demands.