Will financiers dominate the market?
Mike Beck is a member of PA Consulting’s Management Group, and Craig Hart is a principal consultant with PA.
The recent approval by the Federal Energy Regulatory Commission (FERC) of its "interim" market power screen and policies on investor-owned utilities (IOU) affiliate transactions is changing the market dynamics for buying and selling generation assets. Yet, while the market test has drawn plenty of comments and complaints, the long-term effects are still uncertain.
One possible consequence will be a decrease in the number of buyers in the market. IOUs that fail the market power test stand to lose their market-based rate authority, a threat that is likely to dampen their ardor to purchase generation assets. And fewer buyers in the market will serve onlyto further stoke the fire that has been accelerating the purchase of generation assets by financial players.
The recent purchase of a dozen or so of Centerpoint Energy's Texas plants by a consortium of private equity funds marks the latest, and certainly the largest, generation asset acquisition by a financial player. The consortium, whose members include Kohlberg Kravis Roberts & Co. (KKR), The Blackstone Group, Hellman & Friedman LLC, and the Texas Pacific Group, paid $3.6 billion for a portfolio of assets with an aggregate net generating capacity of 14,153 MW.