(June 2012) Northeast Utilities closes Nstar acquisition; NextEra announces $600 million stock offering; PPL acquires AES power plants; plus debt and...
The New Art of Plant Acquisition
Forget the mega merger as a means to acquire new power plants. FERC’s new rules may offer a better path.
interesting to see what transpires when Exelon submits its CIS filing at FERC.
Despite FERC’s requirements and guidelines on these two filings, its market-power analyses are screening tests. 16 They allow FERC to streamline the requisite work. However, they are not perfectly accurate, i.e., one test may identify a market-power concern that does not exist, while the other test may identify no market-power concern when, in fact one does exist. The failure of either screen does not mean that an applicant has undue market power, but rather that additional analysis is needed to reveal a correct conclusion. To rebut the presumption of market power, the applicant would need to file additional analyses, or propose mitigation measures. 17
Questions on Acquisitions
A list of what one might consider in assessing the degree of difficulty in gaining FERC regulatory approval can assist in weighing FERC’s competitive screens in plant acquisition decision-making (see “Before You Do the Plant Deal,” p. 72). For example, does the potential acquisition convey control of management or operation of the assets?
The concept of control is essential in a market-power evaluation. In some circumstances, banks or investment ventures may be deemed to have control over a public utility due to their lending activities, which in turn allows them to hold the public utility’s securities. They therefore may be required to obtain FERC’s approval under section 203.
Nevertheless, in FERC’s recent Order 669, the commission granted blanket authorization, exempting certain types of transactions from the section 203 filing requirements. These include acquisition of non-voting securities, and voting securities that comprise less than 10 percent of all outstanding voting securities. 18
A second question to consider: Is the potential acquisition located in the same geographic market or contiguous area as any of the acquirer’s existing power plants?
Many buyers are exempt from a full-fledged DPT analysis. According to FERC’s Order 642, if buyers and sellers do not operate in overlapping markets, they do not need to submit a DPT analysis. Examples of these cases include AIG Global Investment Group and El Paso Corp. 19
Also, if the potential acquisition is located in the same geographic market, what is the size of the transaction? If the potential acquisition is located in the same geographic market as the acquirer’s existing power plant but the size of the acquisition is de minimis, the transaction also is exempt from the full DPT analysis. 20 For example, when Onondaga Cogeneration Limited Partnership requested FERC approval for the transfer of its ownership of Onondaga Cogeneration Facility—a 91-MW dual fuel combined-cycle merchant energy facility located in New York—to Teton Funding LLC, it did not submit the DPT analysis. It argued that competition would not be negatively affected by the transaction, as the combined capacity of Onondaga, Teton, and its affiliates would be de minimis, totaling approximately 875 MW in the New York Independent System Operator markets, which contains 36,527 MW of total generating capacity. 21
However, in the case where an applicant is considered a larger supplier in the market, some analysis should be considered to demonstrate that