The Federal Energy Regulatory Commission has approved the merger of Brooklyn Union Gas Co. and neighboring Long Island Lighting Co., although concerns emerged about potential vertical market power. A new holding company, temporarily called HoldCo, will run the merged corporation.
At the same July 16 meeting, FERC indirectly sanctioned the merger of Texas-based Valero Energy Corp. with PG&E Corp., the holding company (created Jan. 1, 1997) for California-based Pacific Gas & Electric Co.
LILCO + Brooklyn Union. The FERC found no horizontal market power concerns in the merger of natural gas distribution company Brooklyn Union with electric utility LILCO (Docket No. EC97-19-000). By the time the deal is complete, Brooklyn Union will not have ownership or control of generation.
Vertical market power concerns were identified, however, due to the combination of the intrastate gas operations of Brooklyn Union with the gas and electric operations of LILCO. The FERC said LILCO already possessed the incentive and the ability to discriminate against gas-fired generators, enabling LILCO to exercise market power in the downstream electric market. The question is whether the merger would increase the ability to engage in that behavior.
The FERC noted this merger was only the second it had reviewed with potential vertical market power. In each case, the merging entities owned or controlled significant resources in either upstream gas or downstream electric markets that are in close proximity.