Electric Mergers: Transmission Pricing, Market Size, and Effects on Competition

Fortnightly Magazine - June 1 1996
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The prospect of deregulation has induced a wave of mergers among electric utilities. Most of these mergers would fail an antitrust review because, by combining generation assets of interconnected utilities, they have substantially reduced potential competition in generation. In fact, one can predict that most mergers of utilities that operate within the same power pool or reliability region will be anticompetitive, even if they are not interconnected.

Mergers of interconnected utilities can, and generally will, create or exacerbate undue concentration of ownership in the market for the generation and sale of power, which will dampen competition upon deregulation.

The Federal Energy Regulatory Commission (FERC) so far has focused its review primarily on static cost savings. It has addressed competitive concerns only by imposing as a condition of approval that the merged utility file an open-access transmission tariff with a single-system rate for all companies under its direct or indirect control.

This approach fails to prevent undue concentration of generating assets, given an industry structure in which electric power transmission will be "unbundled," at least functionally, from power production and local distribution. It stands at odds with the policy objectives that underlie the FERC's recently issued rule (Order No. 888) on open-access transmission service, and with the proposals of federal legislators and a number of states.

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