They were heralded as “landmark” or “watershed” moments in the industry—a series of deals completed during the last few months in which utilities sat down and negotiated with environmentalists on...
A Welcome Truce in the Electricity Wars
Let's enjoy this brief period of diminished acrimony before implementation of this landmark law.
overhead? In addition, some insist that the repeal of PUHCA allows states to enact their own laws controlling holding companies.
Section 1289 of the law requires FERC to accelerate the time period for merger reviews, including affiliate issues, according to criteria it must develop. This certainly will pressure FERC to approve smaller and less controversial mergers more quickly, but as markets consolidate further and mergers threaten the already besieged market designs in transmission-short RTOs, it is hard to tell whether this will make mergers easier. The idea is to require FERC to articulate some bright-line standards that ensure rapid merger approval, and to approve mergers quickly if they meet these criteria. But my own view, as a fairly busy practitioner in this area, is that these criteria will be somewhat conservative and inherently unsuited to very large mergers, which tend to raise unique economic and policy questions.
In my opinion, economies of scope and scale (including related financial drivers) are as large as they've ever been in the electric industry, and consolidation was likely to have ratcheted up anyway with or without PUCHA. The results of PUHCA's demise will invite some experimentation between new types of mergers, such as bank acquisitions of utilities, with much higher political and operational risks than the usual utility-utility combinations.
There is, without doubt, an enormous amount of work left to do in electric policy. The industry is farther from a sustainable fuel and emissions trajectory than ever before. The grid is expanding, but it is nowhere near its potential to harness the power of better demand-side technology. Natural gas is awfully expensive, and each region of the country seems to cycle from capacity glut to nerve-wracking near-shortage.
Nevertheless, there has not been a time in recent memory when so many segments of the industry looked at a piece of legislation and unanimously claimed that some progress had been made, a few problems had been fixed, and little major damage had been done. Let's hope Congress can build on this success with new policies that address energy efficiency, environmental issues, and the redesign of our national grid. Until then, we all can enjoy a brief period of diminished acrimony over deregulation and get ready to focus on the many rules FERC must issue to implement this landmark law. When we do, the truce no doubt will end-but at least we'll have enjoyed a moment of respite.
See EEI Survey of Transmission Investment, Historical and Planned Capital Expenditures (1999-2008), May 2005.
See Peter Fox-Penner, “Rethinking the Grid: Avoiding More Blackouts and Modernizing the Power Grid Will Be Harder Than You Think,” The Electricity Journal , March 2005, pp. 28-42; Jesse Berst. Smart Grid Newsletter at www.smartgridnews.com.
In fairness, I should note that the bill gives accelerated depreciation for new transmission investment as well as incentive rates, which I have noted. While these provisions can be helpful, they do not necessarily stimulate new technologies or new industry-wide design approaches, but rather greater investments in present-generation technologies and designs. The bill also provides many pockets of support for