[BETA] Fortnightly

The Federal Energy Regulatory Commission (FERC) has set for hearing the proposed merger of Public Service Co. of Colorado (PSCC) with Southwestern Public Service Co. (SPS), directing that an initial decision be issued by January 31, 1997 (Docket No. EC96-2-000). The companies propose to interconnect by 2001 by constructing a 300-mile,

345-kilovolt transmission line, and to create a new registered holding company, temporarily called

"M-P New Co."

The FERC observed that the June 26 order does not reflect the outcome of its ongoing inquiry into its 30-year-old Commonwealth criteria for evaluating utility mergers. When the FERC does act in that inquiry, the parties and the presiding administrative law judge will be bound to take the new rules into account.

The FERC expressed concern about whether the proposed "hold harmless" provisions would adequately protect ratepayers, since they would expire before the parties become fully interconnected or the bulk of the merger savings are realized. The companies had proposed that for five years they would not seek a rate increase to recover any merger-related costs amortized during the first two years of postmerger operations and not offset by merger-related savings.

Citing concern about the merger's effect on bulk-power markets in the southwestern United States, the FERC also directed the parties to address whether the merger would affect competition, given transmission constraints on the SPS system.

Because it was unsure whether the merger would protect ratepayers from affiliate abuse, based on the proposed holding company structure, the FERC gave the applicants 15 days to choose between: 1) holding a hearing on the issue, or 2) abiding voluntarily by FERC policies on intracorporate transactions.

Commissioner William L. Massey, in a concurring opinion, raised the issue of impairment of effective state regulation. (The FERC decided not to explore that issue because the states had not raised it.) Massey observed that forming a holding company heightened the risk of such impairment because of the Mississippi Power & Light doctrine, which holds that state regulators setting retail rates have no authority to question the prudence of a FERC-approved allocation of capacity purchases among affiliates of a registered holding company system [Mississippi Power & Light Co. v. Mississippi, 487 U.S. 354 (1988)].

In the past, the FERC has said that shifting regulation from the states to the FERC does not diminish effective regulation; Massey called that conclusion "inappropriate." Massey believes the FERC should adopt the same approach toward impairment of effective state regulation as it does toward impairment of FERC regulation (em i.e., require the applicants to accept ameliorative conditions, or face a hearing. However, the FERC does not need to act in the PSCC/SPS case, Massey said, because the affected state commissions (PUCs) are free to impose conditions. The FERC should only act where a PUC has no authority to approve a merger and argues before the FERC that state regulation would be impaired.

Commissioner Vicky A. Bailey noted that while the order came at a "delicate time," parties should not "use a magnifying glass to try and read between the lines." FERC commissioners have not made up their