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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.
Fortnightly Magazine - January 1 2001

Modeling: As Yet Unresolved

The limitation of the traditional CAS method is that each destination market is modeled in isolation from other destination markets. The result is that the same capacity (e.g., cheap nuclear or hydro capacity) could be viewed as simultaneously "in" more than one destination market, thus potentially overstating or understating the competitive impacts of a merger.

In Order 642's preamble, FERC continues to express hope for computer modeling simulation analysis as a solution to this problem. Simulation analysis would account for opportunity costs and power flows in a dynamic power supply setting; it would simultaneously model all destination markets, and determine, at least conceptually, the impact of a merger on all destination markets in a setting that mirrors actual commercial markets. The fly in the ointment is the absence of consensus on how to perform these computer analyses. Instead of providing "how to" guidelines, FERC promises to convene a technical conference at some unspecified time. Nevertheless, FERC emphasizes that computer-based simulation models will form a useful tool for analyzing mergers in the future.

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3 See generally .

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6 See generally

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9 Pipeline Standards, 18 CFR Part 161, §250.16.

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11 approving a convergence merger based on the applicants' inability to affect prices profitably in the downstream electric markets.

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