Tales of bad faith, cold feet and price manipulation.
Lollipops"/fn1/ and "loopholes." "Islands" and "peninsulas." Utilities have invented a colorful new lexicon to explain what's...
For the partners in a utility merger, the celebration must wait. After opening the most delicate of dialogues, and then negotiating the price and closing the deal, the merger partners must yet gain the approval of regulators. The application may lie sealed in its FedEx pouch, safely on its way to Washington. But long before that, corporate counsel will have reminded the weary negotiators of three daunting facts:
1) The Federal Energy Regulatory Commission (FERC) will review the merger to determine if it is consistent with the "public interest."
2) The FERC's merger policies have kept the industry jumping for nearly a decade.
3) Some Commissioners now believe that the FERC's merger policies may need a tuneup to face the post-EPAct (Energy Policy Act of 1992) world.
Experienced utility executives will remember the 80's, when the FERC aggressively and successfully used its merger approval authority to force merging utilities to file "open-access" transmission tariffs.1 The story was simple: The FERC resorted to merger conditions in the 1980s as a crude tool when it found it had no other means of forcing generic transmission tariffs on a reluctant industry.
Today's executives, driven by business realities that the FERC itself has accelerated, are again opting for the benefits and efficiencies of merger. And, after passage of EPAct and the advent of the FERC Mega-NOPR,2 some might think that the FERC would close the book on using its "conditioning authority" to reshape the industry. Think again.
A FAMILIAR RACE
It may be too soon to view aggressive use of merger policy as a relic of FERC history. In fact, Chair Moler has promised two restless Commissioners (em Hoecker and Massey (em that after finalizing the transmission Mega-NOPR, the FERC will turn its attention to merger standards. From the perspective of Massey and Hoecker, attention to merger policy is overdue. As early as last summer, in the Midwest Power Systems and Iowa-Illinois Gas Co. merger proceeding, the Commissioners offered a concurring opinion that the FERC's merger policy was out of date and should be reexamined "in parallel with our open-access rulemaking."3
While careful to point out that they do not have a "distaste for mergers," Hoecker and Massey clearly are worried that the size and market power of merged companies will lead to unacceptable concentrations "in the number of generation and transmission alternatives that remain in the wake of [a] merger." Massey, for example, contends that the public-interest standard currently applied by the FERC is "frankly, not a very high standard," and that the FERC's existing analysis is not "particularly rigorous." Accordingly, he suggests a "generic reevaluation of [FERC's] merger policy," with the goal of enhancing competition.4
Notwithstanding Massey's critique, it must be noted that the FERC's current public-interest
calculus does consider whether the merger would "harm competition." Although not strictly bound by antitrust principles, the FERC currently applies to its merger reviews the standards traditionally invoked under section 7 of the Clayton Act, "to give understandable content to the broad statutory concept of the public interest."5 In general terms, these traditional antitrust principles require a