Duke Energy named Lynn J. Good group executive and president – commercial businesses. AGL Resources announced John W. Somerhalder II, the company’s president and CEO,...
FERC's Merger Policy: Still Founded on Market Power
But the fly in the ointment is computer modeling, where no one yet agrees on how to mirror the real world.
A promise made is a promise kept, even in the halls of government.
And so it was that in mid-November, after a four-year wait, the Federal Energy Regulatory Commission (FERC) issued Order 642, its new final rule on filing requirements for mergers involving public utilities. 1 With the new rule, effective Jan. 29, the commission at last honored the pledge it had made back in December 1996, when it had issued a new "policy statement" 2 indicating a desire to change its approach.
Order 642 announces no policy departures. On the face, it simply establishes filing requirements to support applications for mergers and other asset transactions that are subject to FERC's jurisdiction under Section 203 of the Federal Power Act. Nevertheless, in its preamble the order does offer valuable guidance on how the commission will look at future mergers with major competitive consequences. Order 642 also is important for what it does not do.
Order 642 rejects certain parties' requests for a merger "moratorium," and leaves unchanged the FERC's requirements concerning a merger's impact on ratepayers and on federal and state regulation. Order 642 also announces that competition-related showings will not be required for transactions to join a regional transmission organization (RTO), sell transmission facilities, or accomplish internal corporate reorganizations. FERC also reaffirms its policy of not evaluating a merger's effect on retail competition unless a state lacks authority under state law and "asks us to do so."
Overall, the order provides plain guidelines for the preparation of merger applications, and a quite lucid summary of FERC's underlying merger policy. Order 642 should improve the quality of merger applications, and thus ensure that all considerations relevant to the public interest implications of a merger are brought to the surface, fully discussed by interested parties, and fully evaluated by FERC in reaching its ultimate decision.
Horizontal Deals: Measuring "Downstream" Impacts
The new rule reaffirms the use of the Competitive Analysis Screen (CAS), as set forth in "Appendix A" of FERC's 1996 merger policy statement. Among other things, the CAS analyzes which suppliers can participate as sellers within a given destination market-both before and after the proposed merger-to allow the commission to weigh the effect of the deal on wholesale power markets. One key question for the FERC in issuing Order 642 was to decide how to define and categorize destination markets, and how to measure impacts on those markets.
The destination markets that must be evaluated in the CAS consist at least of the service areas of those utilities directly and indirectly connected with the merging companies, and those areas in which the merging companies historically have traded electricity. Declaring that energy companies are entering new geographic markets, Order 642 adds the new requirement that applicants identify any destination markets where they reasonably may be perceived as potential competitors. Applicants are excused from submitting a CAS only if they can demonstrate that their merger would have no more than competitive impacts.