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FERC's Full Plate

A look at issues facing the commission for the coming year.

Fortnightly Magazine - January 2012

would control in two particular balancing areas in the Carolinas after the merger. To be specific, two companies would agree to take their available surplus generation—the share not needed to serve their own combined loads, totaling 800 MW in summer and 225 MW in winter—and offer to sell it at incremental cost on a day-ahead basis to all other utilities serving native load customers in those two areas, for a term of eight years. The eight-year term is reckoned long enough to allow new generation capacity to be developed and placed in service to compete against the Duke-Progress fleet.

In effect, the virtual mitigation plan would simply buy off any other utility in the immediate area that might find itself harmed by the extra-competitive share of generation that Duke and Progress would control after the merger. The two merger partners defended the plan:

“[I]t is important for the commission to note that all of the comments submitted by parties who purchase wholesale power directly from the applicants in the [two balancing areas] support the mitigation plan.” (Answer of Duke Energy and Progress Energy, Dkt. EC11-60, filed Nov. 22, 2011.)

Nevertheless, the commission struck down the plan since it offered no guarantees that divested capacity would not be sold to buyers who already owned substantial market shares. (Dkt. EC11-60-001, Dec. 14, 2011, 137 FERC ¶ 61,210.)

Current merger policy at FERC would sanction such a deal, because the commission looks mainly at the Herfindahl-Hirschman Index, or HHI, representing the sum of the squares of the market shares of the merging companies, and examines only one relevant geographic market at a time, standing in isolation. Yet much has happened since 1996, when FERC first fashioned its current merger policy. Today, at least in RTO areas, the commission has access to granular transaction-level market data—data that reveals real-time, simultaneous and dynamic patterns and relationships in wholesale power prices between multiple geographic markets, drawn from market-clearing auctions that feature a simultaneous and security-constrained dispatch of capacity and load across all markets. And it’s this treasure trove of real market data—much richer in detail and complexity than a static counting of market shares—that has many industry experts suggesting that FERC should broaden its toolkit and re-think its merger policy statement to reflect the new Horizontal Merger Guidelines issued in August 2010 by the Department of Justice and the Federal Trade Commission. Those guidelines recommend a more open-ended examination to uncover dangerous market power, and a lesser emphasis on HHI numbers, which in fact could run a bit higher under the new DOJ-FTC guidelines without triggering market power concerns. (See, “Ten Cases to Watch,” item no. 3.)

PJM Independent Market Monitor Joseph Bowring explains:

“The detailed hourly information now available in these market means that many of the previously required assumptions can be replaced with actual, detailed market data covering actual unit operation, dispatch, prices, offers, imports, exports, and the transmission constraints that create local markets.” (Comments of PJM IMM, FERC Dkt. RM11-14, filed May 23, 2011.)

The Electricity Consumers Resource Council (ELCON) sees the new DOJ-FTC guidelines