On December 14, 2011, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) rejected a market power mitigation filing by Duke Energy Corporation (“Duke”) and Progress Energy Inc. (“Progress”) (together the “Applicants”) in connection with their proposed merger. On September 30, 2011, FERC conditionally approved the proposed merger between the two companies, but required them to mitigate concerns about horizontal market power (“Merger Order”). (See October 7, 2011 edition of the WER) The Applicants had proposed a “virtual divestiture” under which it would make limited amounts of energy available to the market for a period of eight years. The December 14 Order rejected that proposal because it did not satisfy the Commission’s concerns about the market concentration effects of the merger. In a companion order, FERC rejected the applicants’ joint open access tariff and joint dispatch agreement.
In the December 14 Order, FERC found “the Mitigation Proposal does not remedy the Proposed Transaction’s adverse effects on competition, including screen failures, identified in the Merger Order.” FERC indicated that the merger transaction remains conditionally authorized, subject to Commission approval of market power mitigation measures that successfully remedy the screen failures identified in the Merger Order. FERC held that “until Applicants correct the adverse effects of the Proposed Transaction, the Commission cannot unconditionally authorize it.” FERC held the mitigation plan was based on a flawed assumption that two new buyers with no existing market share will each purchase one-half of the available energy and therefore would not cure the screen failures. FERC also found that the proposal unduly restricted the pool of eligible buyers. “Applicants propose to offer AEC [Available Economic Capacity] Energy under restrictive terms that will reduce the pool of eligible buyers, and provide a product that buyers may not even want.”
Although the Commission rejected the mitigation proposal, the rejection was without prejudice to Applicants proposing new mitigation measures that remedy the screen failures identified in the Merger Order. The Commission indicated that until Applicants correct the adverse effect of the Proposed Transaction, the Commission cannot unconditionally authorize it. Commissioner LaFleur issued a separate statement on December 15, 2011, stating “the proposal did not adequately remedy the negative effects on competition previously identified by the Commission.”
A copy of the Commission’s Order is available here.
A copy of Commissioner LaFleur’s statement is available here.