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

Fortnightly Magazine - January 15 1999

its decision on the merger."

This danger is compounded because the FERC assembles market power data through a quasi-judicial public process, rather than by an informal confidential process, as at the Federal Trade Commission under the Hart-Scott-Rodino Act Antitrust Improvement Act of 1976. Former commissioner and now private attorney Mike Naeve, commenting for the Edison Electric Institute,fn8, explains: "FERC is under no obligation to protect the confidentiality or privilege of materials it collects when evaluating a merger." He adds, "Indeed, with limited staff resources ¼ FERC is motivated to disseminate [information] broadly ¼ so that utility customers can assist [it] in testing the veracity or comprehensiveness of the data."

Others concur. "The FERC is getting only a small part of the picture that is typically available to the Hart-Scott-Rodino agencies, and is setting up the intervenors to fail in their opposition," say the American Public Power Association and the Transmission Access Policy Study Group. "[The] FERC staff itself will have to shoulder the burden."

As PHB and WEPCO conclude, this marriage of public access and ex parte restrictions leads to a curious pass: "Neither applicants nor intervenors have any window into the staff's deliberations or ¼ analysis."

That comment ties up the full range of opinion: from "window of opportunity" to no window at all.

Market Power:

Can Any Deal Fail?

Except for speculation about retail competition and whether market share calculations should recognize generation devoted to native load (see next section), little constructive debate has emerged concerning the FERC's Appendix A screen, used to measure pre- and post-merger market shares and gauge anticompetitive effects. And that includes vertical gas/electric mergers, such as Enron/PGE, Duke/PanEnergy and Houston/NorAm, which seem to have encountered less trouble gaining approval than have the more traditional deals between two or more electric utilities. Moreover, a look at stock prices indicates that Wall Street favors the vertical deals over the horizontal (see table, Vertical Mergers: Wall Street's Favorite?).

Instead, the action has focused more on how to craft the so-called hold-harmless plans and other strategies aimed at mitigating anticompetitive effects for those mergers that fail the screen.

Consider the Allegheny/DQE merger, for example. It failed, apparently, when DQE balked at mitigation conditions forcing it to sell the Cheswick generating plant (and perhaps as much as 2,500 MW in total). The sale would minimize market share held by the post-merger company should the Midwest ISO eventually fail to develop a transmission tariff to minimize rate pancaking to a degree sufficient to open the market in western Pennsylvania to power imports from more distant sources.

DQE claimed it wouldn't object to selling the plant as much as it loathed uncertainty. It said the forced sale - if and when required - might simply take too long, exposing the company to open-ended risk and a loss of leverage with would-be plant buyers if the merger closing date should draw near with the divestiture deals still pending. (Note: DQE had announced in late September that the merger was dead, but on Dec. 16, FERC judge Bruce Birchman gave Allegheny until Jan. 15