On February 16, 2012, the Commission issued an order retaining its existing policies concerning the analysis of horizontal market power in connection with transactions under section 203 of the Federal Power Act. The Commission declined to revise its policies to incorporate the Department of Justice and Federal Trade Commission’s August 19, 2010 Horizontal Merger Guidelines (the “2010 DOJ/FTC Guidelines”), as previously contemplated by its March 17, 2011 Notice of Inquiry (“NOI”). The Commission also terminated the related rulemaking proceeding in docket number RM11-14-000. The Commission is currently considering one high-profile merger between Duke Energy Corporation and Progress Energy Inc. that could have reaped benefits from a change in the Commission’s policy (see December 19, 2011 edition of the WER).
The 2010 DOJ/FTC Guidelines differ from the current Commission process for reviewing mergers pursuant to section 203. Specifically, the guidelines use different thresholds than the Commission to classify a relatively significant concentration of market and to assess the “competitive significance” of a post-merger change in the Herfindahl-Hirschman Index (“HHI”). Additionally, the 2010 DOJ/FTC Guidelines focus on a fact-specific inquiry and use various analytical tools to determine the extent which the merged entity can raise prices. In its NOI, the Commission asked for comments on whether the Commission should move away from the use of “a sequential analysis” to analyze horizontal market power, and what impact the 2010 DOJ/FTC Guidelines should have on horizontal market power in the FERC market-based rate program.
Some commenters claimed that the Commission’s current HHI thresholds are “appropriate” due to the susceptibility of electricity markets to exercise of market power, and these commenters also argued that there have been no changes supporting a modification. Some commenters supported adopting the 2010 DOJ/FTC Guidelines and the more relaxed HHI thresholds.
The Commission ultimately determined that its five-step framework to address the competitive effect of a proposed transaction, including the HHI-based competitive analysis screen, provides an important tool for the Commission to evaluate mergers. The Commission stated that its current approach is “flexible enough to incorporate the theories set forth in the 2010 [DOJ/FTC] Guidelines, while still retaining the certainty that the current approach provides.” The Commission reiterated that it may consider arguments that a proposed transaction raises competitive concerns that are not captured by the competitive analysis screen. The Commission also declined a suggestion by commenters to modify their analysis to focus only on available economic capacity, stating that both available economic capacity and economic capacity remain useful measures.
The Commission also determined not to modify its current market power analysis used for market-based rate applications. The Commission noted that the HHI threshold for market-based rate analysis is consistent with the 2010 DOJ/FTC Guidelines.
A copy of the Commission’s order is available here.