Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Score a Deal? 20-Odd Mergers in Search of a Policy

Fortnightly Magazine - January 15 1999

mid-May. It planned to close on its sale of the Pilgrim nuclear station to Entergy by early 1999. And, according to spokesman Peter Dimond, Commonwealth Energy was expected to close by about Christmas on its sale to Southern Energy of some 984 megawatts in nonnuclear generating resources, Canal unit 1 (oil-fired), its 50 percent interest in Canal unit 2 (oil/gas), Wyman unit 4 (oil), five diesel generators on Martha's Vineyard and interests in 16 purchased power contracts.

When asked, Dimond confirmed that the sale would make Commonwealth Energy a "wires-only" company. What does that mean for FERC merger policy?

Consolidation:

Consumer Benefits?

According to the New York Public Service Commission, utility mergers can produce efficiencies "which redound to the benefit of consumers." In a recent order setting up a process to auction off generating plants for Consolidated Edison, the PSC endorsed merger guidelines that take a somewhat benign view toward a large market share:

"We recognize the potential efficiencies inherent in single ownership of multiple generation stations."

The PSC urged a balance between concern over undue market power and the benefits to ratepayers accruing from large-scale ownership, both through "higher auction prices and lower generation production costs."fn7

In comments filed in August in the FERC rulemaking docket, Edison Electric Institute also urged a relaxed view toward industry consolidation:

"As a significant number of companies will have divested some or all of their generation assets, mergers of transcos or 'wires' businesses may come before the Commission. Mergers of wires companies, which will remain subject to price and access regulation, should raise virtually no significant market power problems and indeed should be viewed positively."

Sempra Energy would make merger review easy. Forget generation capacity, forget market share, says Sempra, in comments filed with the FERC. Just approve any and all mergers in which the parties will have divested all generation and entrusted their transmission lines to an independent system operator or institution similar to an ISO.

Speaking last year at an electric industry forum held in San Diego, former state regulator Charles J. Ciccheti implied that the FERC was on the wrong track. "Mergers," he suggested, "are about gaining customers. They are not about gaining market share in the generation segment." Ciccheti then added, "This is ironic because the FERC attempts to assess the latter and virtually ignores the former."

Whether or not the FERC has it right, the cases often turn on individualized "hold-harmless" plans proposed by the parties or the commission staff to mitigate any undue market power. This fact makes the process more subjective, as noted in comments from William Hieronymus, managing director for the consulting firm Putnam, Hayes & Bartlett Inc., and Walter Woelfle, director of legal services for Wisconsin Electric Power Co. They identify a troublesome tradeoff between standardization and flexibility.

"Applicants," they note, "have a single 'bite at the apple.'" Without concrete guidelines, "they face second-guessing by intervenors or commission staff." Indeed, say Hieronymus and Woelfle, "if the staff were to use an alternative interpretation ¼ applicants are unlikely even to know about it until the commission issues