FERC Authorizes Vistra's Acquisition Of Crius Energy, Closing Imminent
FERC Denies Argument Retail Supplier Customers With Early Termination Fees Are "Captive" For Purposes Of Merger Analysis
July 9, 2019 Email This Story Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
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FERC has authorized the application of Vistra Energy Corp. to acquire Crius Energy Corporation.
FERC's authorization was the final regulatory approval required for the transaction.
Crius said that the parties expect to close the Vistra transaction on July 15, 2019, subject to the satisfaction or waiver of other customary closing conditions
Vistra Energy Corp. said in an 8-K that it, "has agreed to close its previously announced acquisition (the
'Acquisition') of two wholly owned subsidiaries of Crius Energy Trust ('Crius') that indirectly own the Crius business on or around July 15, 2019, subject
to the satisfaction or waiver of the outstanding conditions to closing described in that certain Purchase Agreement, dated as of February 7, 2019 (as
amended from time to time, the 'Purchase Agreement'), by and among the Company, Vienna Acquisition B.C. Ltd., Crius and Crius Energy Commercial
Trust. Such agreement follows the receipt of regulatory approval of the Acquisition by the Federal Energy Regulatory Commission on July 8, 2019, which
was the final regulatory condition to closing the Acquisition. There can be no assurance that any of the outstanding conditions to closing will be satisfied or waived or that other events will not intervene to delay or
result in the failure to consummate the Acquisition"
In approving the transaction, FERC denied a protest from Public Citizen
Among other things, Public Citizen had alleged that the acquisition of Crius by Vistra (the "Proposed Transaction") will result in cross
Public Citizen alleged that in a February 2019 presentation to investors,
"Vistra explicitly references the financial benefits that shareholders will receive from the
cross-subsidization between Vistra’s generation assets and Crius’ retail customers."
Public Citizen had alleged that, "[i]t is clear from Vistra’s own presentation to investors that the
purpose of the merger with Crius is to take advantage of the new financial opportunities
of integrating the company’s [Commission]-jurisdictional generation assets with Crius’
household retail customers" and had alleged that, "the whole point of acquiring Crius is to exploit
Public Citizen also alleged that some of Crius’ retail customers are captive
customers. Public Citizen alleged that an investigation by the Attorney General for the
Commonwealth of Massachusetts determined that a number of household customers were
locked into three-year retail electricity contracts with Crius, and that a customer seeking
early termination of the long-term contract would be subject to a "punitive" financial
penalty. Public Citizen alleged that, "[i]t is reasonable to conclude that any household
customer locked into any sort of long-term contract that subjects the customer to an early
termination fee deems that customer 'captive' to the retail supplier, as the customer lacks
a reasonable opportunity to 'switch' to another supplier or to default utility service."
Public Citizen had asserted that as part of an evidentiary documentation of the Proposed
Transaction’s impact on cross-subsidization, FERC, "should require detailed
reporting on the terms of conditions of retail electricity supply contracts for all Vistra and
Crius retail accounts in order for the Commission to ascertain, by state and RTO service
territory, the number of retail customers the Applicants have committed to long-term
contracts that feature early-termination penalties or auto-renewal."
FERC, however, found that the Proposed Transaction will not result in the cross-subsidization of a non-utility associate company by a utility company, or in a pledge or encumbrance of utility assets for the benefit of an associate company.
"Applicants state that the Proposed Transaction does not involve any franchised public utility with captive customers. Applicants also represent that, based on facts and circumstances known to them or that are reasonably foreseeable, the Proposed Transaction will not result in, at the time of the Proposed Transaction or in the future, cross-subsidization of a non-utility associate company or pledge or encumbrance of utility assets for the benefit of an associate company," FERC said
"We reject Public Citizen’s claim that the Proposed Transaction will result in cross-subsidization. Neither Vistra nor Crius are affiliated with any entities that have captive
customers, so there is no potential for any captive customers to be affected by the
Proposed Transaction," FERC said
"The Commission has previously rejected the argument that retail
customers in a retail choice state were 'effectively' captive if they chose to continue to
buy power from their local franchised utility, explaining that 'it is not the role of this
Commission to evaluate the success or failure of a state’s retail choice program.' The
Commission’s regulations state that captive customers are 'wholesale or retail electric
energy customers served by a franchised public utility under cost-based regulation.'
Retail customers in retail choice states are 'not served under cost-based regulation, since that term indicates the absence of retail choice,'" FERC said
"Applicants state that neither Vistra nor Crius are affiliated with any franchised public utilities, and their retail electricity suppliers operate only in those states with retail choice such that their customers are able to choose their retail electricity supplier. Therefore, the Proposed Transaction cannot lead to inappropriate cross-subsidization as there are no benefits transferred from captive customers to an associate company," FERC said
Public Citizen had also alleged that in a February 2019 presentation to investors, Applicants
implied that the Proposed Transaction will have an adverse impact on rates, as the
company, "boasts that a result of the transaction will give its shareholders the 'highest
margin opportunity' from integrating Vistra’s existing FERC-jurisdictional generation
assets with the combined 'VST Retail' operations."
FERC found that the Proposed Transaction will
not have an adverse effect on rates.
"As stated by Applicants, all wholesale sales of
electric energy, capacity, and ancillary services by the Crius Public Utilities will continue
to be made at market-based rates after the consummation of the Proposed Transaction,
and none of Applicants or their affiliates has any electric transmission customers or
wholesale requirements customers whose rates could be affected by the Proposed
Transaction. As a result, we reject Public Citizen’s argument that the Proposed
Transaction will adversely affect rates. Further, any argument that the Proposed
Transaction could have an effect on retail rates is outside the scope of this proceeding, as
retail rates are not within the Commission’s jurisdiction," FERC said
FERC found that the Proposed Transaction will not have an adverse effect on competition