STATE OF NEW YORK PUBLIC SERVICE COMMISSION

At a session of the Public Service Commission held in the City of Albany on December 13, 2012

COMMISSIONERS PRESENT:

Garry A. Brown, Chairman Patricia L. Acampora Maureen F. Harris James L. Larocca Gregg C. Sayre

CASE 12-E-0359 - NRG Energy, Inc., Plus Merger Corporation, and Genon Energy, Inc. - Joint Petition for a Declaratory Ruling that Public Service Law §70 Does Not Apply to a Proposed Transaction, or in the Alternative, for Approval of the Proposed Transaction Pursuant to §70.

ORDER APPROVING A MERGER AND ACQUISITION UPON CONDITIONS

(Issued and Effective December 14, 2012)

BY THE COMMISSION:

BACKGROUND In a petition filed on August 2, 2012, and supplemented on October 26, 2012, NRG Energy, Inc. (NRG) requests issuance of a Declaratory Ruling deciding that its acquisition of GenOn Energy, Inc. (GenOn) through a merger transaction need not be reviewed further under Public Service Law (PSL) §70. In New York, GenOn owns, indirectly, the 1,093 MW (net) Bowline Generating Facility (Bowline) and Hudson Valley Gas Corporation (HVGC), which transports gas fuel through its pipeline facilities to Bowline. NRG owns indirectly five generation facilities totaling 3,923 MW in capacity, listed at Appendix A. CASE 12-E-0359

In conformance with State Administrative Procedure Act (SAPA) §202(1), notice of the petition was published in the State Register on October 3, 2012. The SAPA §202(1)(a) period for submitting comments in response to the notice expired on November 19 2012. No comments were received.

THE PETITION The Initial Filing The Petitioners begin by describing NRG as primarily a wholesale power generation company that owns indirectly or controls approximately 24,105 MW of electric generation capacity throughout the U.S., and also provides retail access service to over two million electric customers, located primarily in . The five generation facilities NRG owns in the New York Independent System Operator, Inc. (NYISO) market, the Petitioners continue, are regulated lightly under the PSL.1 In the ISO-New England, Inc. (ISONE) and PJM Interconnection LLC (PJM) markets, adjacent to New York, NRG controls total capacity amounting to 2,073 MW, and 1,454 MW, respectively. The Petitioners report that NRG is affiliated with a power marketer, NRG Power Marketing LLC, that operates in New York and other states, and is also affiliated with three energy services companies (ESCO) -- Green Mountain Energy Company, Energy Plus Company, and Reliant Energy Northeast LLC.

1 Case 99-E-0616, NRG Energy, Inc., Order Providing For Lightened Regulation (issued June 7, 1999); Case 96-E-0897, Consolidated Edison Company of New York, Inc. – Plans For Rates and Restructuring, Comprehensive Order Approving Transfer of Generating Facilities and Making Other Findings (issued June 17, 1999); Case 99-E-0974, NRG Energy, Inc., Order Providing For Lightened Regulation (issued October 21, 1999)(NRG Light Regulation Orders).

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Turning to GenOn, the Petitioners explain that its portfolio of generation facilities located in the U.S. totals approximately 22,700 MW. GenOn’s Bowline and HVGC subsidiaries in New York are both regulated lightly under the PSL.2 In the adjacent ISONE and PJM markets, the Petitioners continue, GenOn owns or controls, respectively 1,358 MW and 13,067 MW of generation capacity. Moreover, GenOn is affiliated with a power marketer, GenOn Energy Management LLC, that operates in New York. Describing the merger transaction, the Petitioners explain that GenOn will become a wholly-owned subsidiary of NRG, and the combined entity will operate in the future under the NRG name. After the merger, NRG’s existing shareholders will own 71% of the combined company, with existing GenOn shareholders holding the remaining 29% of the stock. According to the Petitioners, the merger will materially improve the long-term financial health of the combined companies. The Petitioners maintain that the merger transaction does not raise any horizontal market power issues. NRG’s 3,923 of generating capacity, they point out, amounts to approximately 9% of the total capacity available in NYISO markets, spread across NYISO Zones A, C, and J. GenOn, in turn, owns only the Bowline facility in New York, located in NYISO Zone G, with its 1,093 MW of capacity constituting approximately 2.5% of the total capacity available in NYISO markets. Their combined generation capacity totals 5,016 MW, amounting to approximately 11.5% of the capacity available in NYISO markets.

2 Case 99-E-0633, Southern Energy Bowline LLC, Order Providing For Lightened Electric and Gas Regulation (issued June 24, 1999); Case 01-G-0045, Hudson Valley Gas Corporation, Order Concerning Exemption From Jurisdiction and Transfer of Property (issued May 2, 2001)(GenOn Light Regulation Orders).

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The Petitioners maintain that at this level, the combined company will not control enough capacity to enable it to manipulate NYISO markets. Other factors, the Petitioners add, also indicate that NRG will be unable to exercise horizontal market power after consummating the merger. The Petitioners point out that the Bowline facility has a low capacity factor, that it is geographically and electrically distant from NRG’s existing generation fleet because separated from that fleet by transmission system constraints, and that NRG’s proportionate ownership of generation in New York is overstated because it anticipates mothballing substantial portions of its capacity at its Dunkirk facility.3 The Petitioners also note that, after the merger, NRG will continue existing project development efforts at the Astoria, Bowline and Dunkirk sites that comport with Governor Cuomo’s Energy Highway policy initiative. The Petitioners maintain that, after the merger, NRG will not be able to exercise horizontal market power within New York as a result of the interests it holds in the adjacent ISONE and PJM markets. The Petitioners calculate that NRG’s post merger share of those markets will amount to only to 10.8% and 7.9%, respectively, of the available capacity. Given that transmission constraints limit transfers between the NYISO, ISONE and PJM markets, the Petitioners opine that these levels of concentration are not of concern within New York. The Petitioners assert that the transaction poses no other potential harm to the interests of captive New York ratepayers.

3 As discussed in an Order Deciding Reliability Issues and Addressing Cost Allocation and Recovery (Dunkirk Reliability Order) issued August 16, 2012 in Case 11-E-0136, two Dunkirk units were mothballed, while mothballing at two others was avoided through a contract requiring NRG to offer their capacity into NYISO markets.

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The Petitioners also claim that the proposed transaction does not raise any vertical market power issues. Neither NRG nor GenOn nor any of their affiliates, the Petitioners explain, hold any ownership interests in any monopoly electric, transmission or delivery facilities or can exercise substantial influence over inputs, like fuel, into the production of generation supply. The affiliations between NRG and GenOn and power marketers and ESCOs can be adequately supervised under PSL §110, as provided for in the NRG and GenOn Light Regulation Orders. The Petitioners believe that they have satisfied the presumption established in the Wallkill Order.4 There, it was decided that PSL §70 regulation would not adhere to a transfer of ownership interests in parent entities upstream from the affiliates owning and operating New York competitive electric generating distribution facilities, unless there is a potential for harm to the interests of captive utility ratepayers sufficient to overcome the presumption. Consequently, they request that further review of the transaction be eschewed. The Supplemental Filing In their Supplemental Filing, the Petitioners begin by explaining that load serving entities in New York procure capacity through the New York Independent System Operator’s (NYISO) install capacity (ICAP) demand curve pricing methodology. Under the demand curve methodology, the Petitioners continue, prices rise whenever a plant is retired unless the retirement is offset by new resources or other factors. That upward pressure on prices, the Petitioners contend, is not evidence of market power but is instead a

4 Case 91-E-0350, Wallkill Generating Company, L.P., Order Establishing Regulatory Regime (issued April 11, 1994).

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feature of market design intended to reflect a structurally competitive market. The Petitioners argue the New York capacity market remains competitive even after the NRG-GenOn transaction is consummated. They calculate only a small increase in the Herfindagh-Hirschman Index (HHI) used to measure impacts of mergers on competitive markets. The Petitioners point out that, in the Sithe Ruling,5 a merger where the increase in HHI was comparable to NRG’s proposed acquisition of GenOn was treated under the Wallkill Presumption. The Petitioners emphasize that it was decided in the Sithe Ruling that the hypothetical potential for the exercise of horizontal market power through the withholding of capacity by the merged firm did not move the transaction outside the scope of the Wallkill Presumption. In the Ruling, the Petitioners continue, it was concluded that, after the merger was consummated, even a modest increase in capacity prices could be accomplished only through massive withholding readily detectable by “the NYISO as it performs its market monitoring function.”6 Similar findings, the Petitioners assert, were made in the Calpine Ruling, and in the LS Power Ruling where the merged firm held an 8.1% share of the New York market after the transaction was consummated.7 The Petitioners believe the same principles and analysis adhere to NRG’s acquisition of Bowline.

5 Case 04-E-1364, Sithe Energies, Inc., Declaratory Ruling on Review of Stock Transfers (issued January 14, 2005).

6 Sithe Ruling, p. 12. The post-merger firm held a 7% share of the market.

7 Case 07-E-1385, Calpine Corporation, Declaratory Ruling on Review of Stock Transfer and Acquisition Transactions (issued January 22, 2008); Case 08-E-0410, LS Power Development LLC, Declaratory Ruling on the Acquisition of Common Stock (issued May 27, 2008).

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The Petitioners also argue that there is no risk NRG will retire a unit in order to achieve higher capacity prices at its remaining units. The Petitioners contend that NRG evaluates plant retirements solely on a site-specific basis without considering the effect of the retirement on the capacity prices it would otherwise receive at other units. The Petitioners also reiterate that any increase in capacity prices that result from a retirement is a function of the natural operation of markets generally, with that function implemented in New York electric capacity markets through the NYISO’s demand curve methodology. Such a price increase, the Petitioners assert, is therefore not attributable to the exercise of market power. The Petitioners relate that they have obtained approval of the merger from the Department of Justice (DOJ), and expect approval from the Federal Energy Regulatory Commission (FERC) soon. According to the Petitioners, DOJ conducted a thorough review of the potential for market power as a result of the merger, and concluded there was no reason to pursue an investigation. The Petitioners assert that DOJ would not treat membership in NYISO as sufficient to mitigate market power that otherwise existed, and that the DOJ typically prefers structural remedies for market power problems, such as divestiture, over behavioral remedies, such as NYISO oversight. FERC, the Petitioners contend, also conducts a rigorous review of the effect mergers have on wholesale competition. FERC, the Petitioners continue, relies on an HHI evaluation, and, as NRG calculates it, the increase in HHI resulting from the NRG-GenOn merger in New York is insufficient to warrant further investigation under FERC’s usual procedures. The Petitioners also note that NRG’s analysis conducted in conformance with FERC’s requirements demonstrates the merger did not raise market power issues in any market in the U.S.

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The Petitioners conclude that there is no material risk that the merger would increase the potential for NRG to exercise horizontal market power to the detriment of New York ratepayers. The Petitioners believe that, as a result, they qualify for the Wallkill Presumption.

DISCUSSION AND CONCLUSION Environmental Quality Review Under the State Environmental Quality Review Act (SEQRA), Article 8 of the Environmental Conservation Law, and its implementing regulations (6 NYCRR §617 and 16 NYCRR §7), we must determine whether the actions we are authorized to approve may have a significant impact on the environment. Other than our approval of the action proposed here, no additional state or local permits are required, so a coordinated review under SEQRA is not needed. We will assume Lead Agency status under SEQRA and conduct an environmental review. SEQRA requires applicants to submit a complete EAF describing and disclosing the likely impacts of the actions they propose.8 The Petitioners submitted a narrative and short-form EAF Part 1 that substantially comply with this requirement. The proposed action over which we have jurisdiction is the transfer of upstream ownership interests in GenOn and its 1,093 MW Bowline generation facility to NRG as the new indirect owner. The proposed action does not meet the definition of Type 1 or Type 2 actions listed in 6 NYCRR §§617.4, 617.5 and 16 NYCRR §7.2, so it is classified as an “unlisted” action requiring SEQRA review. After review of the petition, we conclude, based on the criteria for determining significance listed in 6 NYCRR §617.7(c), that there will be no changes to

8 6 NYCRR §617.6(a)(3).

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the operation of the electric generating facility underlying the proposed transfer that will result in adverse environmental impacts. Our Staff has completed the short-form EAF Part 2. As Lead Agency, we determine that the proposed action will not have a significant impact on the environment and adopt a negative declaration pursuant to SEQRA. Because no adverse environmental impacts were found, no public notice requesting comments is required or will be issued. A negative declaration concerning this unlisted action is attached. The completed EAF will be retained in our files. The Transfer The Petitioners request that the merger of GenOn into NRG be reviewed under the Wallkill Presumption. The Presumption, however, adheres only when a petitioner can demonstrate that a proposed transfer does not pose the potential for impacts adverse to the public interest. Under these circumstances, the proposed merger raises market power issues that must be examined in more detail than would be accomplished through the Presumption. As a result, the Presumption will not be applied, and the public interest will be considered pursuant to a more thorough PSL §70 review. Under PSL §70, our approval is required before any gas and electric corporation may transfer ownership interests in gas and electric plant. In conducting a review pursuant to §70 that pertains to lightly-regulated electric and gas corporations operating in wholesale electric markets, we examine any affiliations with fully-regulated utilities or power marketers that might afford opportunities for the exercise of market power or any other circumstances that might pose the potential for other transactions detrimental to captive ratepayer interests. The proposed transaction does not pose the potential for the exercise of vertical market power. Neither NRG, nor

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GenOn, nor their affiliates own or control electric delivery facilities in New York, other than NRG’s and GenOn’s interconnections, or exert a substantial influence over inputs, like fuel, into the production of generation supply within New York, other than the HVGC gas transportation facilities dedicated solely to serving the Bowline generation facility. While the Petitioners report affiliations between NRG and GenOn and power marketers and ESCOs, those affiliations can be addressed through PSL §110, as provided for in the NRG and GenOn Light Regulation Orders. As a result, those avenues for the undue exercise of vertical market power are foreclosed. The transaction, however, does pose the potential for the exercise of horizontal market power. This effect is seen primarily in New York electric capacity markets. Presently, there are three capacity markets in New York, with the largest, known as the New York Control Area (NYCA), consisting of the entire State. Two other capacity markets, in New York City and on Long Island, are nested within the NYCA. Two of the generating units NRG owns, at Arthur Kill and Astoria, are sited within the New York City markets while its Oswego, Dunkirk and Huntley facilities, along with Bowline, are participants in the NYCA markets. NRG is already the largest owner of market-based generation capacity in New York, and will become even larger upon the acquisition of Bowline, growing from a total size of about 3,923 MW to a size of 5,016 MW. Post-merger, NRG will hold 11.5% of the capacity in New York, more than any other market-based owner. Moreover, after the transaction, NRG can realize more profit from withholding generation capacity at its fleet of units, including Bowline, than the profits it could have realized from withholding prior to the transaction, without Bowline. This increase in profitability is sufficient to

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conclude that the transaction enhances the potential for the exercise of market power. The characteristics of NRG’s generators enhance the profitability incentive for using them to exercise market power. Most of NRG’s generation facilities run only infrequently and earn little net revenue in the energy markets. As a result, most of their revenues are earned in the capacity markets. By taking a generation facility out of service, through retiring, mothballing, or otherwise ceasing to operate it temporarily or permanently, NRG could exercise a particular kind of market power, through a withholding strategy. To execute a withholding strategy generally, the owner of multiple generation facilities must withdraw sufficient capacity from the market to raise the price for capacity enough so that it will earn additional profits from operations at its remaining generation units sufficient to offset the lost profit at its withheld unit. Simply refraining to offer existing capacity into the market or offering capacity at excessively high prices are strategies that are comparatively easy to detect. As discussed in the Sithe Ruling, the NYISO is likely to identify such a strategy as an exercise of market power and devise mitigation measures to prevent it. If a generation facility’s capacity were withheld through retirement or mothballing, however, the strategy would be more difficult to detect, especially for a facility that was already performing at a low profit margin. Retirement and mothballing decisions are complex because they depend upon many factors, but are made in particular based upon forecasts of future profitability. Absent a withholding scheme, a generation facility owner might decide to continue operation of a facility that is either earning little profit or is operating at a loss because the owner believes that in the future a return to

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profitability will occur. If, however, the owner forecasts that capacity or other prices will not increase sufficiently to result in a return to profitability, it will properly retire or mothball the facility. The potential for the exercise of market power arises if a multi-facility generation owner believes it can, through retiring or mothballing a facility, raise prices sufficient for it to earn substantially enhanced profits at its remaining facilities, especially if it can mothball one facility to the benefit of others. Under that strategy, if capacity prices do rise in the future, it may return the mothballed facility to service while retaining the excess profits it earned during the time it was mothballed. A retirement or mothballing implemented for the purpose of exercising this type of market power would raise prices to the disadvantage of consumers in an uneconomic fashion, even though, when such decisions grounded in the proper economics of a competitive marketplace, they are appropriate notwithstanding that capacity prices to consumers rise as a result. An analysis of the economics of retirement and mothballing options decisions confronting NRG demonstrates that it could likely realize additional capacity market revenues by exercising an option at one of its three upstate New York facilities to the benefit of the remaining two.9 The capacity market revenues it could realize from such a scheme are enhanced through its acquisition of Bowline. Where formerly it would

9 Although, as discussed in the Dunkirk Retirement Order, units at NRG’s Dunkirk facility are either mothballed or are currently operating under a contract, entered into to preserve electric system reliability, that requires NRG to offer Dunkirk capacity into the NYCA markets, nothing prevents the return of some or all of the units to free participation in capacity markets at a later time.

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have had no authority to decide to retire or mothball Bowline, once NRG acquires the facility, it may manipulate those options at Bowline to the benefit of its three other upstate facilities. Concomitantly, after the merger, NRG may retire or mothball one of its existing upstate facilities and earn greater profits through continuing to operate Bowline and the other two facilities than it would have earned prior to the merger from continuing operations at just the two facilities without Bowline, albeit this increase in profits after the merger is less than that resulting from retiring or mothballing Bowline itself. We find that the amount of additional profit NRG could earn as a result of the acquisition of Bowline is significant enough to create a greater incentive for NRG to engage in this type of withholding after the transaction than the incentive it had before. NRG maintains that the increase in market power is not meaningful. At some point, however, the potential for the exercise of market power resulting from the size of a combined firm post-merger is of sufficient concern that action is required to maintain a workably competitive market. Because NRG is already the largest supplier of market-based capacity in New York, and is proposing to become substantially larger still by acquiring the 1,039 MW Bowline facility, the risk the acquisition poses crosses the boundary from insignificant to significant. Also for this reason, the transaction is distinguishable from the transactions reviewed in prior Rulings under the Wallkill Presumption. As NRG concedes, the largest capacity market share considered in those Rulings was 8.1%, well below the 11.5% of the market it would control. As to NRG’s argument based on HHI comparisons, it is well known that such analyses are intended for use as an initial screen only and are not dispositive. Neither DOJ nor the

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Federal Trade Commission (FTC) relies upon HHI calculations as a rigid determinant, nor shall we use them in that way.10 Our experience with wholesale electric markets informs us that a detailed analysis going beyond simplistic HHI calculations standing alone is generally necessary to evaluate potential market power problems. For the reasons discussed, including the size of market share and the enhancement to withholding profitability that will result from the transaction,11 the HHI analysis NRG presents is not persuasive. As a result, we conclude that NRG’s acquisition of GenOn and its Bowline facility enhances the potential for the exercise of horizontal market power. That potential, however, can be mitigated so that the transaction may proceed upon conditions. Those conditions will check NRG’s ability to exercise market power through implementing a retirement or mothballing option at Bowline. To prevent NRG from pursuing an uneconomic retirement at Bowline for the purpose of exercising market power, we require that, before NRG may retire that facility, it must first offer the facility for sale at auction pursuant to a request for proposals (RFP) process, while continuing operations during the time the RFP process is pending. The facility must be sold to the qualified buyer that submits the best bid in response to the RFP, an outcome that would prevent NRG from exercising a

10 DOJ and FTC state, in their Horizontal Merger Guidelines (August 10, 2010), that the “purpose of these [HHI] thresholds is not to provide a rigid screen to separate competitively benign mergers from anticompetitive ones” (p. 23), and that the “Guidelines should be read with the awareness that merger analysis does not consist of uniform application of a single methodology” (p. 3).

11 The profitability analysis depends in part on data NRG submitted subject to confidentiality protection and so the resulting analysis cannot be released to the public here.

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retirement option for the purpose of exercising market power. On the other hand, if no qualified buyer could be found through the RFP, it would demonstrate that selection of the retirement option is founded upon market conditions, and NRG could then proceed with its retirement. If NRG were to propose to mothball Bowline, however, requiring it to offer the facility for sale would deprive it of the normal business opportunity to return the facility to service at a later time if the mothballing were implemented for economic reasons instead of for the purpose of exercising market power. To avoid imposing a mitigation measure that would interfere with a normal business practice, and because another remedy can adequately protect ratepayers from the potential for the exercise of market power, the RFP mitigation measure will not be imposed upon a proposal to mothball Bowline. An appropriate mothballing mitigation measure begins with our Retirement Order,12 which already requires generation owners like NRG to provide six months’ notice prior to mothballing a facility like Bowline. During that time period, we examine any effects on reliability that would result if the facility were mothballed, and devise any measures needed to mitigate reliability impacts. If NRG were to propose to mothball Bowline, it shall file with its mothballing notice a detailed justification demonstrating, with it bearing the burden of proof, that the mothballing was undertaken for economic purposes. NRG’s demonstration would then be reviewed within the six month time period. NRG should not find this condition burdensome, as it asserts it already performs such an analysis and would only

12 Case 05-E-0889, Policies and Procedures Regarding Generation Unit Retirements, Order Adopting Notice Requirements for Generation Unit Retirements (issued December 20, 2005).

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retire or mothball a facility when the analysis shows continuation of operations cannot be economically justified. If, however, the demonstration NRG submits was found inadequate to show mothballing is justified for economic reasons, additional relief is needed. Upon such a finding, NRG may reverse the proposed mothballing, withdraw its mothballing notice, and continue the facility’s participation in capacity markets. It may also proceed with mothballing notwithstanding such a finding, but only if no qualified bidder can be found after it offers the Bowline facility for sale through an RFP process upon the same conditions, including sale to a qualified winning bidder, as are imposed if a Bowline retirement were proposed. Before NRG may implement a retirement or mothballing option at its upstate Huntley or Oswego facilities,13 it must similarly provide a detailed economic analysis demonstrating that the decision is made for economic reasons, on the same basis as for mothballing Bowline.14 If, following our review of the filing, we find the demonstration is inadequate to show the retirement or mothballing of an upstate unit is justified for economic reasons, NRG shall proceed with retirement or mothballing only after offering the affected facility for sale through an RFP process upon the same conditions, and subject to

13 If NRG were to return generation units at Dunkirk to capacity markets either upon reversing their mothballing or after expiration of its existing reliability contract, the condition adopted here for the Huntley and Oswego units will also apply thereafter to those Dunkirk units that return to market.

14 If NRG either temporarily or permanently remove a facility from operation in a manner that is the equivalent to retirement or mothballing, but it not identified as such, we reserve the right to classify such an action as a retirement or mothballing and impose the appropriate relief.

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the same alternatives, as imposed on proposals to retire or mothball Bowline, respectively. Since the enhancement to profitability that could be realized from implementing a retirement at Bowline is greater than the enhancement to profitability due to the merger that could be realized from a retirement or mothballing at one of the remaining NRG upstate facilities, requiring a more stringent condition before implementing a retirement at Bowline is reasonable. Moreover, because NRG is acquiring all of GenOn’s assets in a nationwide transaction, it must take ownership of Bowline to realize the nationwide benefits the transaction is expected to yield. As a result, NRG may see an incentive to improperly enhance the profitability of the facilities it owned prior to the merger through removing from the market a facility that formerly competed with it, by shutting down Bowline rather than assuming ownership responsibilities. Consequently, under these circumstances, the more stringent RFP market power mitigation condition is needed to forestall the potential that a new owner acquiring a facility as a component of a larger transaction might find exercising market power through a retirement is preferable to undertaking itself the effort the prior owner was willing to expend to continue operations. These conditions, which will appropriately protect ratepayers from the enhanced market power attending the NRG- GenOn transaction, take effect as of the date of this Order and will remain in effect until we modify them, with the following exceptions. The NYISO has been considering establishing a new capacity zone in eastern New York since issuance of its 2007 State of the Market Report.15 The NYISO could tariff such a new

15 Potomac Economics, Ltd. (Independent Market Advisor to the New York ISO), 2007 State of the Market Report – New York ISO (David B. Patton, Ph.D., 2007) pp. xvi-ii, 114.

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zone, which will be located primarily in the Hudson Valley sometime in 2013, through making a filing with FERC. With the new zone, the markets for Bowline capacity in the Hudson Valley would likely be separated from the NYCA markets where the three NRG upstate facilities sell their capacity. Therefore, the retirement and mothballing condition imposed upon those three facilities -- beginning with a filing demonstrating that any retirement or mothballing is pursued for economic reasons -- would no longer be necessary. On the other hand, if a Hudson Valley zone were created, the New York City capacity markets would be nested within that zone, thereby connecting the capacity market for Bowline more tightly to the capacity markets for NRG’s two New York City facilities.16 As a result, to prevent the exercise of market power through retirement or mothballing withholding, it would be appropriate to subject those two facilities to the retirement and mothballing filing, review and other requirements that are imposed on NRG’s upstate New York facilities prior to the creation of a Hudson Valley zone. Consequently, if a new Hudson Valley zone is created, revisions to the market mitigation measures imposed on NRG would be necessary, assuming existing circumstances otherwise continue. To recognize the impacts attending the new zone, as of the date it takes effect, the conditions imposed on retirement and mothballing at NRG’s three upstate facilities will expire, unless, prior to that time, we find, in an appropriate proceeding, that the conditions should continue.

16 The NYISO is currently studying, among other options, forming a Hudson Valley consisting of NYISO zones G, H, I, and J. New York Independent System Operator, Inc., Proposal for New Capacity Zone Impact Analysis, Installed Capacity Working Group (September 11, 2012), p. 6.

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Concomitantly, also as of the date the new zone takes effect, the filing and economic review conditions will commence to adhere to NRG’s two New York City facilities, unless NRG submits a filing, with the burden of proof upon it, demonstrating to our satisfaction that that condition is not needed. This approach appropriately protects captive ratepayers from the potential for the exercise of market power by NRG that is likely to arise upon the creation of a Hudson Valley zone, while affording us sufficient flexibility to engage in further review if circumstances change. Other than the potential for the exercise of horizontal market power that can be mitigated through the conditions discussed above, this transaction does not otherwise pose the potential for risks adverse to captive ratepayer interests. NRG is an experienced generation facility operator, appears sufficiently capitalized, and has stated it can continue operating the Bowline facility through its existing management team and by retaining appropriate on-site personnel. Therefore, the transaction is approved, subject to the conditions discussed above. After the transaction is consummated, lightened regulation of NRG will continue as described in the NRG and GenOn Light Regulation Orders.17 NRG is reminded that, under light regulation, it and the entities controlling operations at Bowline facility remain subject to the PSL with respect to matters such as enforcement, investigation, safety, reliability, and system improvement, and the other requirements of PSL

17 The PSL 66(6) annual report requirement that pertains to lightly regulated entities is under review pursuant to the Notice Soliciting Comments issued June 3, 2011 in Case 11-M- 0294; any revisions to the requirement adopted in that proceeding will adhere to the owner of the Bowline facility.

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Articles 1 and 4, to the extent discussed in the NRG and GenOn Light Regulation Orders and other previous Orders.18 Included among those requirements are the obligations to conduct tests for stray voltage on all publicly accessible electric facilities,19 to give notice of generation retirements,20 and to report personal injury access pursuant to 16 NYCRR Part 125.

The Commission orders: 1. The merger and acquisition transaction between NRG Energy, Inc. and GenOn Energy, Inc. described in the petition filed in this proceeding and in the body of this Order is approved, subject to the conditions discussed in the body of this Order. 2. This proceeding is closed. By the Commission,

(SIGNED) JEFFREY C. COHEN Acting Secretary

18 See, e.g., Case 11-E-0351, Stony Creek Energy LLC, Order Granting Certificate of Public Convenience and Necessity, Providing for Lightened Ratemaking Regulation and Approving Financing (issued December 15, 2011).

19 See Case 04-M-0159, Safety of Electric Transmission and Distribution Systems, Order Instituting Safety Standards (issued January 5, 2005).

20 Case 05-E-0889, Generation Unit Retirement Policies, Order Adopting Notice Requirements For Generation Unit Retirements (issued December 20, 2005).

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CASE 12-E-0359 - NRG Energy, Inc., Plus Merger Corporation, and Genon Energy, Inc. - Joint Petition for a Declaratory Ruling that Public Service Law §70 Does Not Apply to a Proposed Transaction, or in the Alternative, for Approval of the Proposed Transaction Pursuant to §70..

NOTICE OF DETERMINATION OF NON-SIGNIFICANCE

NOTICE is hereby given that an Environmental Impact Statement will not be prepared in connection with the approval by the Public Service Commission of the transfer of ownership interests in GenOn Energy, Inc., the upstream owner of the 1,093 MW Bowline generation facility located in West Haverstraw, N.Y., based on our determination, in accordance with Article VIII of the Environmental Conservation Law, that such action will not have a significant adverse affect on the environment. The exercise of this approval constitutes an "unlisted" action, as is defined in 6 NYCRR §617.2(ak). Based on our review of the record, we find that the transfer of upstream ownership interests in the Bowline generation facility to NRG Energy, Inc. will not have a significant adverse environmental impact. A change in the identity of the owner of the upstream interests will not cause any physical alterations to the Bowline generation facility, or to the facility’s surroundings. The address of the Public Service Commission, the Lead Agency for the purposes of the environmental quality review of this project, is Three Empire State Plaza, Albany, New York 12223-1350. Questions may be directed to Leonard Van Ryn at (518) 473-7136 or at the address above.

JEFFREY C. COHEN Acting Secretary APPENDIX A

THE NRG SUBSIDIARIES OPERATING IN NEW YORK

1. Arthur Kill Power LLC (867 MW in Staten Island) – Case 96-E-0897, Consolidated Edison Company of New York, Inc., Comprehensive Order Approving Transfer of Generating Facilities and Making Other Findings (issued June 17, 1999).

2. Astoria Gas Turbine Power LLC (512 MW in Queens) – Case 96-E-0897, Consolidated Edison Company of New York, Inc., Comprehensive Order Approving Transfer of Generating Facilities and Making Other Findings (issued June 17, 1999).

3. Dunkirk Power LLC (530 MW in Dunkirk) – Case 99-E- 0616, NRG Energy, Inc., Order Providing For Lightened Regulation (issued June 7, 1999).

4. Huntley Power LLC (380 MW in Tonawanda) – Case 99-E- 0616, NRG Energy, Inc., Order Providing For Lightened Regulation (issued June 7, 1999).

5. Oswego Harbor Power LLC (1,634 MW in Oswego) – Case 99-E-0974, NRG Energy, Inc., Order Providing For Lightened Regulation (issued October 21, 1999).