By Michael Menzhuber, J.D., LL.M.
The FTC and the Department of Justice Antitrust Division have filed a comment with the U.S. Federal Energy Regulatory Commission (FERC) regarding market power in wholesale electricity markets, the FTC and Department of Justice have announced.
The agencies’ comment responds to FERC’s request for comments on how it assesses market power with respect to mergers and electricity sales at market-based rates (MBR), which it evaluates under sections 203 and 205 of the Federal Power Act (FPA). Noting the substantial evolution of electricity markets in the last 20 years, along with the fact that it has been at least 10 years since FERC adopted its current approach to MBR authority and nearly 20 years since it adopted its current approach to mergers, the agencies believe it is appropriate for FERC to re-examine its approach to merger and MBR applications.
FERC’s current approach to merger analysis under section 203 focuses on market shares and concentration. The agencies recognized that this type of evidence can be a useful starting point but believe that it would be more appropriate for FERC to conduct a more thorough competitive analysis, including the use of a supply curve analysis.
With respect to whether the acquisition of small or partial interests in another firm should trigger a fuller market power analysis, the agencies set out additional reasons, beyond the concerns that they expressed regarding structural analysis in electricity markets generally, not to rely on a simplified market structure analysis such as the "2ab" statistic.
In their comment regarding how FERC should analyze power purchase agreements (PPAS) under section 203, the agencies believe that FERC should adopt an analytic framework that more accurately captures how PPAs may affect competition in merger and MBR applications. With respect to section 203 application information, the agencies support an approach that would better enable FERC to obtain the information necessary to undertake a thorough analysis of the merger.
The agencies concluded that by updating its approach to assessing market power, FERC would: (1) bring its analytical approach more in line with the underlying economics of market power in electricity markets; and (2) reduce the likelihood of inconsistent or conflicting outcomes by following an approach more in line with the agencies’ analysis.
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