[BETA] Fortnightly

Applicants can only hope that a prompt review won't be even more difficult

By a unanimous vote, on December 18, 1996, the Federal Energy Regulatory Commission (FERC) issued Order No. 592, stating how it intends to evaluate utility mergers. The anticipation has ended, yet those hoping for a new approach and a quicker review are bound to be disappointed.

Order 592 is a "Policy Statement." As such, it only announces intentions; it imposes no new obligations and is not subject to judicial review until implemented in a specific case. It is, according to the FERC, a document that merely "updates and clarifies" the "procedures, criteria and policies" for determining whether mergers in the electric utility industry are consistent with the public interest under Section 203 of the Federal Power Act (FPA). %n1%n

Nevertheless, the FERC truly has improved the merger review process in at least one key respect: It no longer intends to apply all six factors of its 30-year-old Commonwealth test %n2%n to gauge whether a merger is consistent with the public interest. Instead, it will limit review to merger impacts in just three areas: 1) rates, 2) regulation, and 3) competition. %n3%n

"Competition," the commission says, "is now the best tool to discipline wholesale electric markets and thereby protect the public interest."

Beyond this winnowing of public interest criteria, the FERC has promised to speed up the process, acting on two fronts. First, where possible, it will decide merger cases on a summary basis (em acting on written submissions rather than formal hearings (em but only if it finds no "problems" with the paperwork. Second, the FERC has urged applicants to negotiate to avoid trial-type adjudication. In fact, its optimism for these two tactics underlies the FERC's promise to issue a final decision on "complete" merger applications within 12 to 15 months. (The commission expects to open a rulemaking docket with more specific ideas to improve the hearing process.)

Of course, the FERC intends that utility mergers should remain consistent with the Energy Policy Act of 1992 %n4%n and the commission's recent open-access transmission rule, Order No. 888, %n5%n both of which seek to promote competition in wholesale electric markets. To this end, the commission has discarded as too mechanistic its traditional "hub-and-spoke" method for determining how a proposed utility merger will affect competition. Instead, the FERC says it will introduce a new approach based upon the Horizontal Merger Guidelines issued in 1992 by the U.S. Department of Justice and the Federal Trade Commission. %n6%n

This change leads directly to what is perhaps the one genuinely new aspect (and certainly one of the most important) of the FERC's merger policy (em the decision to adopt an "analytic screen" to expedite its review of mergers. For those mergers that pass through the screen, the FERC will presume no competitive harm and will ordinarily conduct no further analysis on that issue.

Here lies the key to the FERC's new merger policy. Nevertheless, the commission itself recognizes that the Merger Guidelines "do not provide a specific recipe." It adds: "[A]pplying the Guidelines to