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

Fortnightly Magazine - January 15 1999

The parties eventually abandoned the deal, but the case was not without impact. The FERC decided to leave the question of retail competition to the Maryland Public Service Commission, which then punted the issue.

As attorney Sara Schotland (Cleary, Gottlieb, Steen & Hamilton) later described it in comments filed on behalf of the Electric Consumers Resource Council in the Conectiv case, "surprisingly, [the] Maryland PSC ¼ flouted its implicit commitment to examine ¼ retail competition."

Schotland continued, "FERC cannot duck the effect of this or other mergers on retail markets."

The FERC later affirmed its stance in the FirstEnergy case, also involving a combination of neighboring utilities that might otherwise have competed for the same retail customers. The commission said it could not investigate retail markets, even if asked to do so by state regulators, unless the state lacked legal authority to review the issue itself.

Since then, the Public Utilities Commission of Ohio consistently has argued that the FERC should consent to review retail competition if asked by a state. Nevertheless, the FERC denied Ohio's plea in its Nov. 10 order requiring a hearing to review the pending merger between American Electric Power Co. and Central and Southwest Corp. But the FERC did take up a request for retail review from the Missouri PSC, which said it lacked jurisdiction.fn12

The National Rural Electric Co-operative Association opposes the FERC policy. In its comments in the merger rulemaking, NRECA considers the reality of politics: "[I]t is unlikely that state regulators will often take the political risks associated with admitting a lack of sufficient authority." NRECA adds, "Thus, ¼ when a state lacks interest, authority or adequate resources ¼ the retail effects of a proposed merger are essentially beyond the scope of any governmental review."

AEP: The Biggest Utility?

If a merger between neighbors can attract opposition, consider the reverse - a merger between utilities so distant they hardly operate on the same plane. That describes the pending deal between AEP and CSW - a merger seen not so much as "vertical" or "horizontal" as "radical."

In their protest against the deal, filed June 30, NRECA and the American Public Power Association describe the proposal as "unprecedented in size and scope - a difference in kind, not just degree."

If approved, the AEP merger would create the largest electric utility in the country: $30 billion in assets; $11 billion in annual revenues; 4.7 million customers in 11 states stretching from Virginia northwest to Michigan and southwest to Texas.

The protest called it "non-horizontal," noting that the FERC's competitive analysis would bear "no necessary relation" to the actual operations of the merged company.

"The result," say APPA and NRECA, "could be an electric utility on steroids, bulking up for bulk's own sake."

In their application, filed at the FERC on April 30, the merger applicants don't disagree. However, they see an advantage in their unique geographic relationship: "Since [we] currently have no more than a de minimus presence in each other's markets ¼ the merger should not have more than a negligible effect on [our]