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Fortnightly Magazine - June 15 1997

%n7%n It advised the Commission that its corporate parent planned a merger/restructuring with Houston Lighting and Power Co. Although HL&P is an electric utility, it operates only in the ERCOT region of Texas. %n8%n It is not interconnected with an interstate grid, so it does not qualify as a "public utility" under the Federal Power Act. The only "public utility" in the case was NorAm Energy Services, which would emerge from the deal as a second-tier subsidiary of a new holding company, a first-tier

subsidiary of the same corporation that had owned it at the outset.

NorAm argued that its status as a power marketer warranted a different treatment than that accorded a traditional utility merger. The Commission demurred, however. "[T]he statute makes no such distinction," it replied. The wholesale power sales contracts and books and records that a power marketer owns, the FERC said, are jurisdictional facilities under section 203. Thus, the planned merger between NorAm's parent and Houston Industries would amount to a transfer of control over "section 203 assets."

In addition, said FERC (quoting from its Enova-Pacific order), "[T]he Commission may disregard corporate form and regard a parent and its subsidiaries as a unit in order to determine whether statutory mandates would be frustrated by the proposed transaction."

Having concluded it had jurisdiction, the FERC withheld any ruling on the merits of the NorAm merger. That ruling, it said, would have to abide a formal review of the transaction. The decision to treat the merger this way leaves unanswered the question of what, if any, public policy was served by the exercise of the FERC's jurisdiction.

Conclusion: Reductio ad Absurdum

From a technical standpoint, the Commission's analysis of the issues in these three orders seems unobjectionable. FERC's discussion of the legislative history of section 203 did not distort it. Power marketers have indeed been considered "public utilities." The Commission's treatment of marketers' contracts as jurisdictional assets has never been seriously questioned. One can hardly quarrel with the FERC's notion that a sound national energy policy warrants review of "convergence" mergers between traditional, vertically integrated public utilities and other major energy concerns, such as natural gas pipelines and distribution companies. %n9%n

Less convincing, however, is the Commission's reason for asserting its jurisdiction over less traditional alliances. Why should a merger be subject to detailed FERC review when the deal has no real connection to the energy industry except for a power marketer lodged in the lower tiers of the corporate structure? Even in the absence of section 203 review, the FERC enjoys ample control over power marketers by virtue of its right to revoke their authority to do business at market-based rates, without which they cannot exist. The FERC has indicated it will exercise this authority if a marketer acquires an interest in power production inputs or engages in unauthorized dealings with affiliated electric utilities, among other reasons. Why is it necessary to take the additional step of subjecting power marketers to section 203 review when their corporate families align with a nonutility?

The Commission's attempt to answer these questions