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Mergers and the Public Interest: Saving the Savings for the Poorest Customers

Fortnightly Magazine - June 15 2000

that a company seeking approval of a proposed merger not only demonstrate that efficiency savings will arise, but that those savings will be "passed on" to consumers. Part of the "passing on" analysis is to consider the potential adverse impacts of the proposed merger that might offset or eliminate the benefits of the merger to particular markets.

 

Are Mergers a Raw Deal for Consumers?

The Consumer Federation is the latest group blaming industry consolidation and market power abuses for the failures of deregulation.

Excessive consolidation among participants in the deregulating electricity markets is part of the reason competition hasn't delivered on its promises, according to an April 18 report from the Consumer Federation of America.

The CFA's report urges the Federal Energy Regulatory Commission to take a "very cautious approach to mergers," and follows a petition filed in December at the FERC that asked for a two-year moratorium on utility mergers. In that earlier petition, the American Public Power Association and the National Rural Electric Cooperative Association argued, "There is not yet evidence that the market can sustain the impact of large-scale utility mega-mergers."

The CFA cites the conflicting goals of market participants, market manipulation, and ineffective policy responses by regulators for threatening system reliability and hindering consumer savings. The non-profit association of 260 consumer groups recommends that the FERC deny requests for merger approval or market-based rates to utilities that don't participate in an approved RTO. It also urges that FERC review the existing market-based rates of any utility that is not part of an RTO, and revoke market-based rates for any vertically integrated utility deemed capable of exercising market power.

"With little experience in a competitive market, institutions undeveloped, and rules ill-defined, it is extremely dangerous to allow large numbers of competitors to be eliminated. ... Policymakers run the risk of establishing a competitive structure without competitors. After the fact fixes are extremely difficult and onerous." CFA concludes, "An ounce of prevention is worth a pound of cure."

The CFA's report, "Mergers and Open Access to Transmission in the Restructuring Electric Industry" can be found at www.consumerfed.org/electmkt.pdf.

- R.R.J.

In the proposed merger pending before the Colorado PUC, CEAF/CC identified distinct adverse impacts of the merger for the low-income market. In addition, CEAF/CC conveyed to the PUC how these adverse impacts would more than offset any savings passed on to low-income consumers. Thus, from the vantage point of the low-income market, the merger, as proposed, did not comply with the passing-on requirement.

In merger situations where the potential for such adverse impacts has been found, programmatic responses to mitigate these impacts have proven an appropriate condition of the mergers. PSCO likewise agreed to implement programmatic responses to redress potential harms created by the merger. The merger settlement reached between CEAF/CC and PSCO ensures that benefits of the merger will be passed on to the low-income market just as they are with other markets, without being offset by merger-induced problems. Here we examine the legal and policy basis for PSCO's commitments.

Poor Ratepayers: Justifying A Separate Class

The first