Remember this post, What Is PJM, back in 2009? Here is the dictionary definition of a cartel that I provided in that post:
cartel -2 : a combination of independent commercial or industrial enterprises designed to limit competition or fix prices
Now, click on this link to RTO Insider’s new post “DOJ Probing Interconnection Process in Exelon-Pepco Merger”. This story is about the US Justice Department’s anti-trust investigation of PJM.
RTO Insider starts with this great graphic:
So we see that if the Exelon/Pepco merger goes through, the holding companies that control the big generators in the MAAC interconnection queue will fall from five to four.
The Justice Department is investigating how holding companies in PJM’s MAAC sub-region (essentially the Mid-Atlantic states from NJ to MD) use their ownership of both transmission systems and generating plants to create difficulties for their competitors who are seeking to build new generation in the MAAC sub-region. Transmission owners control the requirements for interconnection with new plants. The big five (maybe soon to be big four) use this power to limit competition in the MAAC sub-region.
RTO Insider points to PJM Market Monitor Joe Bowring’s past objections to this situation:
Market Monitor Joe Bowring declined to comment yesterday on the department’s inquiry. But the Monitor has been recommending since 2013 that PJM outsource interconnection studies to an independent party to avoid potential conflicts of interest.
“Currently, these studies are performed by incumbent transmission owners under PJM’s direction. This creates potential conflicts of interest, particularly when transmission owners are vertically integrated and the owner of transmission also owns generation,” the Monitor said in the third-quarter report.
“There is also a potential conflict of interest when the transmission owner evaluates the interconnection requirements of new generation which is part of the same company,” the report added.
Go back and look at that definition of “cartel.” Did you catch the phrase “designed to limit competition”? That’s what this is all about.
I think it is hilarious that Joe Bowring refers to these practices as “potential” conflicts of interest. Potential? They have been going on for years, ever since PJM and other regional transmission organizations arose from the ashes of deregulation, with FERC’s blessing.
Speaking of FERC, the Justice Department’s investigation began just five days after FERC announced that it approved the Exelon/Pepco merger.
In its Nov. 20 order, FERC indicated it did not have any anticompetitive concerns with the Pepco acquisition. (See FERC Approves Exelon-Pepco Merger.)
Dismissing concerns of market power, possible rate climbs and suppressed competition, the commission approved the pending acquisition without discussion. Its written decision made clear it didn’t see any market issues with the acquisition, in part because Pepco holds only a negligible amount of generation. “While the commission is aware that Exelon will be a member with more assets after the merger, there is nothing in the record of this proceeding to indicate Exelon will have excessive influence over the stakeholder process or the independence of PJM.”
In other words, FERC said, “Nothing to see here, just keep moving.” The Justice Department apparently thought otherwise.
The Justice Department investigation is a big deal, and could throw a real monkey wrench in Exelon’s attempt to swallow Pepco.
This situation is the flip side of what happened in the PJM transmission line fiascos like PATH and TrAIL: PJM’s transmission planners colluded with big generators (AEP and FirstEnergy) to rig new transmission projects to serve those generators existing power plants. Cartels are truly wonderful things, if you are a member of one.
Hats off to RTO Insider’s great coverage of more PJM fakery.