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Perspective

Fortnightly Magazine - June 15 1997

on disposition of control, "however such disposition might be effected."

It made no difference, the FERC said, that the subject of the change of control was "paper assets," such as contracts for the sale of electricity, rather than wires and transformers and other traditional public utility facilities (em both were jurisdictional assets. For future guidance, the Commission indicated that it would expedite its review of deals that would not pose major concerns, such as the merger of a marketer into a nonutility. It promised to modify its procedures, reduce the length of the comment period and expedite its decision in those cases. However, it warned that it would pay closer attention to transactions that could foster abuses of market power. Examples are horizontal mergers between vertically integrated utilities and mergers between two marketers or between a power marketers and an entity having control over fuel, transportation or other inputs to electric generation.

Do Marketers Matter?

The FERC had a chance to show off its new procedural determination in the second of the April 30 trilogy, the Morgan Stanley case. In dealing with the merger between Morgan Stanley, a great Wall Street investment banking firm, and financial services conglomerate Dean Witter, Discover & Co., the FERC ruled that section 203 applied to the merger but then proceeded to grant approval without much ceremony. Neither firm even resembled a public utility. They had sought a disclaimer of jurisdiction or, in the alternative, approval of the merger under section 203. The FERC refused to issue the disclaimer but approved the merger.

It did so in record time. The Commission took little more than a month from the filing to final action (em virtually instantaneous service in the FERC world. Because neither of the merging companies (nor their affiliates) owned transmission facilities nor a territorial franchise, the proposed "disposition of jurisdictional facilities" raised no concern over market power in generation or transmission. As a power marketer, Morgan Stanley Capital Group Inc. had neither captive customers nor market power (both prerequisites to the right to sell electricity at unregulated rates). The merger would produce no invidious rate effects, the FERC held.

But the FERC did not linger long over the real question: Should a merger be subject to FERC's section 203 scrutiny simply because the paper assets of a power marketer were involved? The FERC claimed jurisdiction because Morgan Stanley Capital Group, some two tiers down in the corporate hierarchy below the level at which the merger was taking place, had received authority in 1995 to do business as a power marketer charging market-based rates. This factor was the only link to a public utility in the entire case. Nevertheless, said the Commission, section 203 approval was required.

Was the transfer of control over mere paper assets what Congress had in mind in 1935 when it enacted section 203? The Commission would give its answer to that question in NorAm, the last of the April 30 trilogy.

The NorAm case began when NorAm Energy Services, a power marketer, filed a routine notice of change in its status.