20151120-3067 FERC PDF (Unofficial) 11/20/2015

153 FERC ¶ 62,125

UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION

NRG Chalk Point LLC Docket No. EC15-198-000 NRG Chalk Point CT LLC

ORDER AUTHORIZING ACQUISITION AND DISPOSITION OF JURISDICTIONAL FACILITIES

(Issued November 20, 2015)

On August 28, 2015, NRG Chalk Point LLC (Chalk Point) and NRG Chalk Point CT LLC (Chalk Point CT) (jointly, Applicants) filed an application under section 203(a)(1)(A) of the Federal Power Act (FPA)1 requesting Commission authorization for the disposition of jurisdictional facilities resulting from a proposed transaction (Proposed Transaction) in which Chalk Point CT will acquire ownership and control of an approximately 77 megawatt (MW) generating unit (Facility) at Chalk Point Generating Station in , and certain associated assets from Southern Maryland Electric Cooperative, Inc. (Southern Maryland Electric). The jurisdictional facilities associated with the Proposed Transaction are certain generator interconnection facilities associated with the Facility and wholesale power sales contracts and books and records related to sales of the output of the Facility.

Applicants state that Chalk Point is a Delaware limited liability company. According to Applicants, GenOn Mid-Atlantic, LLC (GenOn Mid-Atlantic) owns all of the membership interests of Chalk Point. Likewise NRG North America LLC owns all of the membership interests of GenOn Mid-Atlantic, and GenOn Americas Generation, LLC (GenOn Americas) owns all of the membership interests NRG North America LLC. NRG Americas Inc., a wholly owned subsidiary of GenOn Energy Holdings, Inc. (GenOn Holdings), owns all of the membership interests of GenOn Americas. GenOn Holdings is a wholly owned subsidiary of GenOn Energy, Inc., which is, in turn, a wholly owned subsidiary of NRG Energy, Inc. (NRG).

Applicants state that Chalk Point currently operates and leases the Facility from the Southern Maryland Electric. According to Applicants, Chalk Point also owns and operates the remaining units at the Chalk Point Generating Station, which have an aggregate capacity of 2,280 MW. Chalk Point Generating Station is located within the

1 16 U.S.C. § 824b (2012). 20151120-3067 FERC PDF (Unofficial) 11/20/2015

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5004/5005 submarket of the PJM Interconnection, L.L.C. (PJM) market. Chalk Point is an exempt wholesale generator that has obtained authorization from the Commission to sell energy, capacity, and certain ancillary services at market-based rates.

According to Applicants, Chalk Point CT is a Delaware limited liability company that was formed for the purposes of acquiring the Facility. NRG is the direct owner of all of the membership interests of Chalk Point CT. Applicants state that Chalk Point CT will be filing an application for authorization to sell energy, capacity, and certain ancillary services and will thus be a public utility under the FPA prior to consummating the Proposed Transaction.2

Applicants state that NRG is a Delaware corporation and an integrated wholesale power generation and retail electricity company whose common stock is publicly traded on the New York Stock Exchange. Applicants represent that they are not aware of any investor or investor group that owns, controls or holds with power to vote 10 percent or more of NRG’s outstanding common stock.

According to Applicants, NRG engages in three related electric businesses through various subsidiaries: (1) wholesale power generation and electricity and fuel trading; (2) retail electric supply and demand response; and (3) deployment and commercialization of alternative energy technologies, such as electric vehicle charging infrastructure, distributed solar and smart meter technology. In connection with the first of these business segments, NRG, through various wholly and partially owned subsidiaries, owns or controls over 53,000 MW of electric generating capacity throughout the , including approximately 18,590 MW in the PJM market, the relevant market for the Proposed Transaction, where the Facility is located.

Applicants state that Southern Maryland Electric is a cooperative utility that receives financing from the Rural Utilities Service under the Rural Electrification Act. According to Applicants, Southern Maryland Electric is thus exempt from FPA section 203 pursuant to section 201(f) of the FPA. Southern Maryland Electric currently owns the Facility and certain associated assets that it leases to Chalk Point.

Applicants state that the terms of the Proposed Transaction are set forth in the Asset Purchase Agreement (Purchase Agreement), dated as of October 14, 2013, by and between Southern Maryland Electric and Chalk Point CT. Pursuant to the Purchase Agreement, Chalk Point CT will acquire the Facility and certain associated assets, and the existing lease arrangements relating to the Facility will be terminated. According to Applicants, the Proposed Transaction will thus result in a transfer of ownership of the

2 The Commission approved this filing in NRG Chalk Point CT LLC, Docket No. ER16-10-000 (November 5, 2015) (delegated letter order). 20151120-3067 FERC PDF (Unofficial) 11/20/2015

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Facility from Southern Maryland Electric to Chalk Point CT and a transfer of control over the Facility from Chalk Point to Chalk Point CT.

According to Applicants, the Proposed Transaction is consistent with the public interest and will have no adverse effect on competition, rates, or regulation. Applicants state that the Proposed Transaction presents no horizontal market power concerns in the PJM market, because the Proposed Transaction is akin to an internal corporate reorganization inasmuch as it simply transfers control over the Facility and associated assets from Chalk Point to Chalk Point CT, which are both wholly owned subsidiaries of NRG. Applicants add that the Proposed Transaction will not result in any change in ultimate control over the Facility and thus does not result in any other corporate entity obtaining ownership or control over the generation facilities of previously unaffiliated entities. Accordingly, Applicants maintain that the Proposed Transaction presents no horizontal market power concerns.

Applicants further state that the Proposed Transaction will not have an adverse effect with respect to vertical market power. According to Applicants, the Proposed Transaction does not involve any electric transmission facilities, other than facilities used to interconnect the Facility with the transmission grid, or any other upstream inputs to electricity products and thus presents no vertical market power concerns. Further, none of Applicants or their affiliates owns or controls electric transmission facilities, other than facilities used to interconnect generating facilities with the transmission grid, or inputs to electricity products that could be used to erect barriers to the PJM market. Accordingly, Applicants maintain that the Proposed Transaction presents no vertical market power concerns.

According to Applicants, the Proposed Transaction will not have an adverse effect with respect to rates. Applicants state that wholesale sales of the output of the Facility will continue to be made at market-based rates, albeit pursuant to Chalk Point CT’s tariff rather than Chalk Point’s tariff. Applicants add that, through an affiliate, Chalk Point receives cost-based compensation for providing reactive power and voltage support from units at the Chalk Point Generating Station pursuant to Schedule 2 of the PJM Open Access Transmission Tariff (PJM OATT), and the Facility will be included in a revised revenue requirement expected to be filed while this Application is pending. However, Applicants maintain that neither Schedule 2 nor any other provision of the PJM OATT would allow for the pass through of any transaction-related costs. Neither Applicant has any captive wholesale or retail customers or provides unbundled transmission service. Applicants add that certain of Applicants’ affiliates provide reliability must run, reactive power supply and voltage support, and black start services at cost-based rates, but none of the rate schedules and tariffs pursuant to which they provide such services contains any mechanism that would allow for the pass-through of costs related to the Proposed Transaction. Accordingly, Applicants submit that the Proposed Transaction will not have not have an adverse impact on rates charged to captive wholesale or transmission 20151120-3067 FERC PDF (Unofficial) 11/20/2015

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customers.

Applicants state that the Proposed Transaction will not have any adverse effect on the effectiveness of federal or state regulation. In particular, the Proposed Transaction will not impair the ability of the Commission to regulate rates for wholesale sales from the Facility or of state regulators to regulate retail sales from that facility.

With respect to Cross-Subsidization, Applicants submit that the Proposed Transaction falls within the safe harbor for transactions that do not involve a franchised public utility with captive customers. Furthermore, the Transaction is a bona fide, arm’s- length, bargained-for exchange between non-affiliated entities. Nevertheless, Applicants state that, based on facts and circumstances known to them or that are reasonably foreseeable, the Proposed Transaction will not, at the time of the closing of the Proposed Transaction or in the future, result in: (i) any transfer of facilities between a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, and an associate company; (ii) any new issuance of securities by a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, for the benefit of an associate company; (iii) any new pledge or encumbrance of assets of a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, for the benefit of an associate company; or (iv) any new affiliate contract between a non-utility company and a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, other than non-power goods and services agreements subject to review under sections 205 and 206 of the FPA.

The filing was noticed on August 31, 2015, with comments, protests, or interventions due on or before September18, 2015. None were received.

Information and/or systems connected to the bulk system involved in this transaction may be subject to reliability and cybersecurity standards approved by the Commission pursuant to FPA section 215. Compliance with these standards is mandatory and enforceable regardless of the physical location of the affiliates or investors, information database, and operating systems. If affiliates, personnel or investors are not authorized for access to such information and/or systems connected to the bulk power system, a public utility is obligated to take the appropriate measures to deny access to this information and/or the equipment/software connected to the bulk power system. The mechanisms that deny access to information, procedures, software, equipment, etc., must comply with all applicable reliability and cybersecurity standards. The Commission, North America Electric Reliability Corporation or the relevant regional entity may audit compliance with reliability and cybersecurity standards. 20151120-3067 FERC PDF (Unofficial) 11/20/2015

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When a controlling interest in a public utility is acquired by another company, whether a domestic company or a foreign company, the Commission’s ability to adequately protect public utility customers against inappropriate cross-subsidization may be impaired absent access to the parent company’s books and records. Section 301(c) of the FPA gives the Commission authority to examine the books and records of any person who controls, directly or indirectly, a jurisdictional public utility insofar as the books and records relate to transactions with or the business of such public utility. The approval of the Proposed Transaction is based on such examination ability.

Order No. 652 requires that sellers with market-based rate authority timely report to the Commission any change in status that would reflect a departure from the characteristics the Commission relied upon in granting market-based rate authority.3 The foregoing authorization may result in a change in status. Accordingly, applicants that have market-based rates are advised that they must comply with the requirements of Order No. 652. In addition, applicants shall make appropriate filings under section 205 of the FPA to implement the Proposed Transaction.

After consideration, it is concluded that the Proposed Transaction is consistent with the public interest and is authorized, subject to the following conditions:

(1) The Proposed Transaction is authorized upon the terms and conditions and for the purposes set forth in the application;

(2) The foregoing authorization is without prejudice to the authority of the Commission or any other regulatory body with respect to rates, service, accounts, valuation, estimates or determinations of costs, or any other matter whatsoever now pending or which may come before the Commission;

(3) Nothing in this order shall be construed to imply acquiescence in any estimate or determination of cost or any valuation of property claimed or asserted;

(4) The Commission retains authority under sections 203(b) and 309 of the FPA to issue supplemental orders as appropriate;

(5) If the Proposed Transaction results in changes in the status or upstream ownership of the Applicants’ affiliated qualifying facilities, an appropriate

3 Reporting Requirement for Changes in Status for Public Utilities with Market- Based Rate Authority, Order No. 652, 70 Fed. Reg. 8,253 (Feb. 18, 2005), FERC Stats. & Regs. ¶ 31,175, order on reh’g, 111 FERC ¶ 61,413 (2005). 20151120-3067 FERC PDF (Unofficial) 11/20/2015

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filing for recertification pursuant to 18 C.F.R. § 292.207 (2015) shall be made;

(6) Applicants must inform the Commission of any material change in circumstances that depart from the facts or representations that the Commission relied upon in authorizing the Proposed Transaction within 30 days from the date of the material change in circumstances;

(7) Applicants shall make appropriate filings under section 205 of the FPA, as necessary, to implement the Proposed Transaction; and

(8) Applicants shall notify the Commission within 10 days of the date that the disposition of jurisdictional facilities has been consummated.

This action is taken pursuant to the authority delegated to the Director, Division of Electric Power Regulation - West, under 18 C.F.R. § 375.307. This order constitutes final agency action. Requests for rehearing by the Commission may be filed within 30 days of the date of issuance of this order, pursuant to 18 C.F.R. § 385.713.

Steve P. Rodgers, Director Division of Electric Power Regulation - West 20151120-3067 FERC PDF (Unofficial) 11/20/2015 Document Content(s) EC15-198-000.DOC...... 1-6