PJM Market Power Analysis: ArcLight's Proposed Acquisition Raising Concerns

Strategic Insights -

Monitoring Analytics, LLC, the independent market monitor for PJM Interconnection, L.L.C., has submitted comments to the Federal Energy Regulatory Commission (FERC) regarding the proposed acquisition of Middletown Energy Center by ArcLight Infrastructure Partners. The analysis reveals that ArcLight already holds significant market power in the PJM Capacity Market and the PJM energy market, and the proposed acquisition would increase its market power, albeit by a relatively small amount. Despite the Applicants' market power analysis showing only a small increase in the Herfindahl-Hirschman Index (HHI), the Market Monitor emphasizes the importance of considering the implications of ownership consolidation in the PJM market and the gaps in market power mitigation rules for the PJM energy, capacity, and ancillary services markets.

Key Takeaways:

  • ArcLight is a pivotal supplier in the aggregate PJM energy market and local energy markets, and any sale of capacity from a competitor to ArcLight would increase its market power.
  • The proposed acquisition would result in a relatively small increase in HHI, but this does not ensure that the transaction does not increase market power.
  • The Commission must evaluate merger and acquisition requests on a transaction-by-transaction basis, taking into account the overall context of the proposed transaction.
  • The Market Monitor believes that consideration of the impact of the Transaction on market power is critical to determine whether the transaction is in the public interest, particularly where competitive markets are relied upon to ensure just and reasonable rates.
  • The Market Monitor does not oppose the Transaction subject to proposed behavioral conditions that would protect the market from market power and help ensure competitive behavior.
  • The broader question for the Commission's merger policy is whether any transactions that result in incremental increases in market power in the PJM Capacity Market, or any PJM market, without clear behavioral conditions should be approved as consistent with the public interest, given the fact that the PJM Capacity Market is already characterized by endemic market power.

Statistics:

  • ArcLight has 11,986 MW of capacity in PJM, making it the fifth largest owner of capacity.
  • The proposed acquisition would result in an HHI increase of 3, from 544 to 547, for the PJM RTO as a whole in the 2026/2027 auction.
  • ArcLight has announced another planned acquisition not yet filed with the Commission.

Sources:

  • 18 CFR § 385.211 (2024)
  • PJM Open Access Transmission Tariff
  • PJM Operating Agreement
  • PJM Reliability Assurance Agreement
  • Monitoring Analytics, LLC, 2025 Quarterly State of the Market Report for PJM
  • Public Citizen, Inc. v. FERC, 7 F.4th 1177, 1193-1195 (2021)
  • Shell Energy N. Am. (US), L.P. v. FERC, 107 F.4th 981, 986-987 (DC Cir. 2024)
  • ArcLight Capital Partners, "ArcLight Acquires Advanced Power, A Leading Power Infrastructure Developer," Press Release (July 24, 2025)