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News Analysis

Fortnightly Magazine - January 15 1998

it required adoption of necessary record-keeping procedures to protect the commission's ability to regulate the new company.

Market Power: A State-Specific Issue?

Do state PUCs offer a logical forum in which to consider issues of market power posed by a proposed utility merger?

Such issues appeared to play a key role in Missouri, when the state public service commission authorized the merger of Union Electric Co. and CIPSCO Inc. The PSC required, however, that Union Electric join in the formation of an independent system operator for the region's transmission system that is consistent with guidelines established by the Federal Energy Regulatory Commission. (Union Electric is a Missouri energy utility and CIPSCO is the corporate parent of Central Illinois Public Service Co., an Illinois energy utility.) The proposed merger will include the formation of a new entity, Ameren Corp., as a federally regulated utility holding company.

To address concerns regarding barriers to market entry and the exercise of horizontal market power, the Missouri commission required Union Electric to produce a detailed study of the state's "electric markets and submarkets" as well as develop models and indices to test market performance. The commission said that after reviewing the work it would consider taking action to mitigate market power before establishing statewide retail competition. %n5%n

In similar fashion, the Oregon Public Utility Commission appeared particularly concerned with new market developments when it approved the proposed merger of Portland General Electric Co. into Enron Corp.

Under the approved merger plan, Enron and the utility's corporate parent, Portland General Corp., will merge with Enron as the surviving corporation. As a result of negotiations between the merging companies and the commission's staff Enron has agreed to guarantee "monetary compensation and benefits" to Oregon ratepayers of $141 million. %n6%n

Telecommunications: A Different Animal?

In the telecommunications field, the proposed merger of two of the country's largest local exchange carriers, NYNEX and Bell Atlantic Corp., set off alarms at several East Coast PUCs.

With efforts under way to revamp the local telephone market, market-power issues received a full hearing. But other local concerns such as the potential loss of corporate headquarters also were addressed.

Regulators in Maine, Vermont and New York approved the merger, but imposed similar conditions designed to protect the interests of ratepayers in the region. The conditions address concern over how the merger might affect the development of competition in the local exchange market, a high-profile regulatory effort already under way in each state.

Both the Maine commission and the Vermont Public Service Board required, as a condition to the merger, that the New England Telephone and Telegraph Co., by Sept. 30, 1997, should satisfy the "competitive checklist" laid out in section 271 of the Telecommunications Act of 1996. The checklist was designed to test whether a Bell operating company has opened its system to competition enough to justify its entry into the interLATA toll market. The list requires a carrier to offer interconnection services and access to local facilities. %n7%n

The New York Public Service Commission reserved the authority to reduce rates beyond those currently established