Constellation in Settlement Talks With DOJ Over Calpine Deal
(Bloomberg) -- Constellation Energy Corp. is hashing out a settlement with the US Justice Department to pave the way for the closure of its landmark $16.4 billion acquisition of closely held Calpine Corp., a deal that would create the country’s largest power fleet.
The department’s antitrust division had been weighing whether to challenge the transaction in recent months, according to people familiar with the matter. Representatives of the companies were set to meet with antitrust chief Gail Slater in early November to argue their case against a lawsuit, but the meeting was canceled after the companies made a more robust proposal to resolve the Justice Department’s concerns about competition in power markets, said the people, who asked not to be named discussing confidential deliberations.
The companies had already offered to divest four of Calpine’s power plants in Pennsylvania and Delaware as part of a separate agreement with the Federal Energy Regulatory Commission that was reached in July. That arrangement, however, didn’t allay the DOJ’s concerns and the companies came back with a sweetened offer in recent weeks, the people said.
Justice Department officials have also expressed concerns about competition in other parts of the country, the people said. The negotiations include the sale of additional plants, the people said, without providing further details. In June, Constellation said it received approval for the deal from state regulators in Texas and New York.
Final Hurdle
Justice Department clearance is the last remaining hurdle before the companies can close the deal, which they have said they plan to do by the end of the year.
Constellation said “we continue to engage constructively in the Department of Justice process,” and declined to comment on the specifics of the process. Calpine didn’t immediately respond to a request for comment.
A DOJ spokesperson declined to comment on the Department’s ongoing enforcement efforts but said “our focus remains on core pocketbook issues — especially affordability and fair pricing in critical sectors that matter to families the most.”
The FERC agreement was aimed at resolving concerns that the combination of Constellation and Calpine would hurt competition in the largest US power grid, which is operated by PJM Interconnection LLC, by giving one company too much control over power generation. Akin to an air traffic controller, PJM manages a sprawling web of high voltage lines that move electricity primarily from large generators to homes and businesses in 13 states spanning from Illinois to the Eastern Seaboard. This system serving nearly a fifth of the country’s population is one of seven power markets where generators compete on a daily basis to supply the grid. Without the sale of the four plants, the deal would raise “market power concerns,” by combining direct competitors, FERC said in its decision to accept the companies’ offer.
Power Prices
The negotiations are taking place as rising power prices are becoming an increasingly hot political subject. Utility bills are taking a bigger bite out of consumers’ budgets, and were a key issue in the November elections that led to strong results for Democratic candidates. While President Donald Trump campaigned last year on a pledge to lower voters’ energy expenses, US electricity costs rose 5.1% in the year through September and he downplayed affordability concerns this week. In PJM, where Constellation has a significant presence, prices in a bellwether annual auction surged 22% this year to a record high.
The deal has also generated opposition from public interest and environmental groups, among others. Government watchdog Public Citizen and other organizations said the tie-up would exacerbate “Constellation’s ability, incentive, and propensity to exercise market power in PJM” by withholding power supply from PJM energy markets for direct sale to data centers.
The companies said when they announced the deal in January the transaction would better allow them to meet the increasing power demands across the US and FERC said when it approved the deal in July it found no evidence to support Public Citizen’s concerns.
Constellation is expanding as energy consumption in the US is forecast to climb at the fastest pace in decades, driven by data centers running artificial intelligence operations, as well as the electrification of homes and cars and a shift away from fossil fuels in manufacturing. Total electricity use in the US is expected to increase more than 32% over the next five years, according to a report from consulting firm Grid Strategies LLC.
“Post transaction, we’re the biggest fleet in the country,” Constellation Chief Executive Officer Joseph Dominguez said when the company announced the deal in early January. “We’ll generate more electricity than any company in the US.”
AI Boom
As the AI boom took center stage this year, Constellation and other independent power producers including NRG Energy Inc., Vistra Corp. and Talen Energy Corp. went on the biggest shopping spree in years for plants to feed data centers that will need as much power as some cities. It’s cheaper and faster to buy a fleet than to build one as wait times for gas plants stretch into years and costs have soared. Data center operations have also added billions in costs to grid operators like PJM.
Constellation operates natural gas, hydroelectric and solar power facilities and the biggest US nuclear fleet, with a total 32.4 gigawatts of capacity. Buying Calpine would add 79 plants in 22 states with a generating capacity of 27 gigawatts, including the biggest US gas plant portfolio.
Its stock price has been on a tear since the beginning of year, increasing about 63% largely on optimism that the emergence of AI would continue boosting power consumption. Late last year Constellation inked a deal with Microsoft Corp. that will see it restart the long-dormant Three Mile Island nuclear power plant, that will power the software giant’s massive data centers.
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