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

Fortnightly Magazine - January 15 1999

potential market share (by underestimating how much electricity AEP could export economically to the SPP).

Economics professor William Shepherd also testified for the CSW Customer Group. Shepherd hints that the 250-MW reservation will do more than just link the two systems.

Describing the 250-MW path, Shepherd notes, "This appears to be an arbitrary figure ¼ That AEP has lots of low-cost capacity and CSW has a capacity shortage, suggests that the merged company would have a great incentive to transfer as much AEP capacity as they need."

Shepherd's point is countered, however, by Hieronymus:

"Understand that exactly the same theoretical competitive 'injury' would have occurred without a merger if CSW had arranged 1) a 250-MW firm purchase from an unaffiliated AEP, and 2) the firm 250-MW transmission path through Ameren to facilitate the power purchase. Such a transaction would not even be subject to commission review."

Charles Liebold, a consultant with GDS Associates, shows how the link would create problems with parallel flows, undercutting AEP's market power analysis: "Only about 5 percent of the AEP-to-CSW transfer follows the entire contract path ¼ loop flows ¼ may cause other systems to adjust their posted ATC values."

New Century Energies questions why AEP and CSW should rely on a firm, private path to link their two systems, when that company won approval for its merger only after agreeing to hold an open process to plan and build the tie line between PSC of Colorado and SWEPCO. Otherwise, "the proposed interconnection could be situated, operated and controlled in such a way as to adversely affect competition."

The Bigger Question:

Whither Open Access?

Some parties that have filed comments in the FERC's rulemaking case point out that if Order 888 was working, and if transmission access was truly open, then the market power screen wouldn't be needed.

A similar theme arose in the AEP merger case in October, just before the FERC decided to set the case for a hearing.

In a late-filed motion asking the merger parties for more data on ATC and transmission interruptions, Enron Power Marketing Inc. and Electric Clearinghouse urged the commission to pay just as much attention to transmission access and pricing as to generation market share. They suggested that because of preferences for native load, the companies could adopt a transmission pricing structure that could discriminate against them and yet remain "almost impossible to detect."

AEP and CSW fought back, however. They argued that Enron's attack was really an indictment of the FERC's policy to reserve network transmission service for native load. As the merger applicants explained:

"The claims of transmission 'dominance' are not challenges to [our] actions. They are ¼ a broader challenge to current FERC policy regarding retail unbundling."

Nevertheless, these complaints about native load don't seem to go away. In their rulemaking comments, APPA and the Transmission Access Policy Study Group placed the blame for an ineffective policy squarely on the FERC:

"[T]he failure of functional unbundling ¼ would come as no surprise to experienced antitrust enforcers in the Department of Justice and the Staff of the