Forget the mega merger as a means to acquire new power plants. FERC’s new rules may offer a better path.
Romkaew Broehm Ph.D. is senior associate at The Brattle Group. Contact her at email@example.com. The author thanks Dr. Peter Fox-Penner and Gary Taylor for their comments. All errors and views are the author’s alone and do not necessarily represent the views of The Brattle Group or its clients.
Predictions of a U.S. electric merger wave heated up last summer, when the Energy Policy Act of 2005 (EPACT) repealed the 1935 Public Utility Holding Company Act (PUHCA), thereby allowing acquisition of electric utility companies by foreign firms, domestic non-utilities, or other non-contiguous utilities.1 Factors including demand growth for electricity, re-regulation, potential profitability of baseload power plants caused by high natural-gas prices, and competitive pressures have made the electric utility industry, particularly power generation, more attractive for investment and take-over activities.
Starting Feb. 8, 2006, any electric utility asset transfer with a value exceeding $10 million is subject to Federal Energy Regulatory Commission (FERC) approval.2 Until recently, a utility asset transfer with a value of $50,000 has been subject to FERC approval. Section 203 of Federal Power Act (FPA) raises the threshold value of the transaction from $50,000 to $10 million. Will this increase in the minimum-threshold value be perceived as a lowering of regulatory hurdles, thereby spurring more electric utility plant acquisitions?