A spate of newly announced deals, including Allegheny Energy’s proposed $9.27 billion acquisition of FirstEnergy, plus PPL’s takeover of E.ON US for $6.73 billion, has left the utility industry...
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.
prices delivered for natural-gas-fired generation. In the wholesale power market with a single market clearing price, an increase in the price of natural gas would directly translate to a higher profit margin for baseload generating units, particularly during high load periods when natural-gas power plants often set market-clearing prices. This fact also may trigger additional scrutiny by antitrust agencies, particularly in an organized market.
FERC has an analytical framework to assess whether a potential merger or acquisition should be approved. Although this framework may be viewed as complex, there are steps one can take to ensure success in gaining FERC approval. Use the checklist of questions provided in the box to assess FERC’s market-power analysis before making an acquisition decision.
1. Energy Policy Act of 2005 at §§ 1261 et seq., Aug. 8, 2005.
2. FERC Order No. 669, Transactions Subject to FPA Section 203, Dec. 23, 2005.
3. FERC determines that the market value from transactions between non-affiliates is the most effective and reasonable approach to determine which asset transfers require section 203 approval. See FERC Order 669, P. 113.
4. Order 669, PP. 164-170.
5. FERC requires an entity with MBR authority to file CIS when its net assets increase by 100 MW or more. 110 FERC ¶ 61,097, Reporting Requirement for Change in Status, Feb. 10, 2005.
6. Order on Rehearing and Modifying Interim Generation Market Power Analysis and Mitigation Policy, 107 FERC ¶ 61,018, April 14, 2004.
7. Fox-Penner, P. and Broehm R., “Deregulated Electricity Pricing in the U.S.: Dramatic New Rules From the FERC,” The Brattle Group, April 25, 2004.
8. Market share is measured by uncommitted capacity, which is calculated based on minimum daily peak load day for each of the four seasons. See 107 FERC ¶ 61,018 (2004), P 100.
9. 111 FERC ¶ 62,146 (2005).
10. Pinnacle West Capital Corporation, et al., (PWCC) in Docket No. ER00-2268, et al., May 13, 2004.
11. Request for Additional Information on Change in Status Filing for the Pinnacle West Companies, Docket Nos. ER00-2268-012, et al., Aug. 8, 2005.
12. Docket Nos. ER00-2268-015, et al., Jan. 20, 2006.
13. 115 FERC ¶ 61,055, April 17, 2006. The basis for the revocation is on the key input determining imports of competitive suppliers. The commission found that APS’s simultaneous import limit study for the APS control area did not comply with the FERC requirement set in Appendix E of its Triennial MBR Order (April 2004).
14. Supplemental Testimony and Exhibits of Williams Hieronymus on behalf of Exelon Corp., Exhibit J-17, Docket No. EC05-43, May 12, 2005.
15. Id., PP 15-22.
16. Fox-Penner P., Taylor, G., Broehm, R., and Bohn, J., “Competition in Wholesale Electric Power Markets,” Energy Law Journal, 2002, Volume 23, No. 2.
17. In the MBR circumstance, the applicant who fails either MSS or PSS must perform a DPT if a mitigation measure is not proposed.
18. Order No. 669, Dec. 23, 2005, PP. 140-145. A purchaser of such voting securities, however, must provide the commission copies of the Security Exchange Commission schedules required to be