Constellation, Exelon Agree to Restrict Buyers of Divested Plants Under Agreement with IMM

Constellation Energy and Exelon have agreed, under a settlement with the PJM independent market monitor, to not sell three units to be divested as part of their planned merger to competitors previously identified as owning three percent or more of the installed capacity in the overall PJM market, in the PJM MAAC sub-market, or in the PJM 5004/05 sub-market.

Specifically, under this provision, the merged Constellation-Exelon entity will not sell the three divested plants (Brandon Shores, CP Crane and HA Wagner) to any of the following companies or any of their direct or indirect subsidiaries: American Electric Power Company; FirstEnergy Corp.; GenOn Energy, Inc.; Edison International; Dominion Resources, Inc.; Public Service Enterprise Group Incorporated; Calpine Corp.; and PPL Corporation.

Furthermore, Constellation and Exelon have committed, in addition to their settlement with the IMM, that their proposed sale of 500 MW in the PJM 5004/5005 market (which is an additional element of their market mitigation proposal) will not include sales to any of the ineligible buyers listed above. Furthermore, the companies are committing that the 500 MW energy sale will not be made to the same entity that purchases the divested generation.

If the settlement is made binding on the merged company in orders approving the settlement, such action would, "alleviate the Market Monitor's concerns about the effects of the merger on PJM markets," the IMM said.

Also as part of the settlement, the merged company agreed to several "behavioral" conditions regarding plant operations and bidding. The term applicable to the behavioral commitments will be ten years from the date of the closing of the merger; provided that, at any time during such term, if the merged company believes that there is an extraordinary change in circumstances that calls into question whether certain of the commitments made should still be required, then the merged company shall work in good faith with the IMM to develop an appropriate and mutually agreeable amendment to the settlement. Examples of such changes are elimination of the RPM capacity market or elimination of a single market clearing price energy market structure.

Such behavioral conditions include a requirement that the merged company, absent "catastrophic failure or significant regulatory changes which make continued operation of the unit uneconomic," will not give notice to retire a unit unless, (1) it has offered such unit into the most recent base residual RPM auction at the Market Seller Offer Cap, and (2) the unit does not clear in that auction.

Furthermore, absent catastrophic failure or significant regulatory changes which make continued operation of the unit uneconomic, the merged company will provide to PJM and the IMM 18 months written notice before retiring any generating unit; provided, however, that if after such announcement, PJM determines that there are no reliability issues associated with the retirement of the unit which would cause PJM to request that the company enter into a reliability must run agreement, then the company may, at its option and in its sole discretion, accelerate the retirement date. The IMM agrees that this provision shall not apply to one Exelon generating unit which did not clear in the two most recent base residual auctions and which has been identified to the IMM.

Aside from special provisions regarding uprates, the merged company agrees, for all of its generating units, to calculate its RPM auction Market Seller Offer Caps, as that term is defined in Attachment DD of the PJM Tariff, using the methodologies set forth in Attachment DD of the PJM Tariff. Should the company wish to uprate a unit, and the uprate would not materially change the operational characteristics of the unit, such uprate will be subject to the PJM Market Seller Offer Caps, as defined in Attachment DD for existing units.

Should the company wish to uprate a unit, and the uprate would materially change the operational characteristics of the unit (e.g., uprating a simple cycle combustine turbine unit to a combined cycle unit), at least six months before offering the uprated capacity in an RPM base residual auction, the company shall provide to the IMM a proposed offer for the amount of MW associated with the uprate. The offer will reflect the company's view of the future likely energy and ancillary services revenue offset, estimated actual costs, and required return on investment, of the proposed uprate. Such offer will be subject to the PJM Market Seller Offer Caps, as defined in Attachment DD. If the IMM does not approve the offer, the company will have no obligation to offer the proposed uprate into a PJM capacity auction; provided, however, that the company will have the right to seek approval from FERC, and if FERC grants its approval, the company may submit the proposed offer in PJM capacity auctions notwithstanding the lack of IMM approval.

For all non-nuclear units owned or controlled by the company, the company's post-merger market-based offers will be consistent with the physical capabilities of the units – e.g., actual unit minimum and maximum (no block loading), ramp rates and minimum run times.

For all peakers owned or controlled by the company, the company maximum market-based offers as of the date of the closing of the merger and for the term of the settlement will be developed as follows: (1) unit costs determined daily in accordance with the PJM Cost Development Guidelines as set forth in PJM Manual No. 15, plus (2) the higher of ten percent of such costs or the applicable percentage of cost permitted under the PJM Tariff to the extent a unit is a frequently mitigated unit, plus (3) an adder not to exceed $1.00/MWh

No unit or part of a unit will be offered as "Max Emergency" for more than one week except as necessary to comply with environmental restrictions or if otherwise approved by the IMM.

Each nuclear unit for which the company has the authority to determine offers will be self-scheduled/must run at Economic Maximum ("Ecomax") unless reduced in response to negative prices, physical limitations of the unit, or transmission limitations.