The recent issuance of new guidelines by the Department of Justice (DOJ) and Federal Trade Commission (FTC) regarding the competitive impact of mergers has prompted the Federal Energy Regulatory Commission (FERC) to seek public input on its approach to examining horizontal market power concerns.
Section 203(a)(4) of the Federal Power Act requires FERC to approve a proposed disposition, consolidation, acquisition or change in control if it finds that the proposed transaction will be consistent with the public interest. FERC considers three factors when analyzing whether a proposed transaction is consistent with the public interest: (1) effect on competition, (2) effect on rates and (3) effect on regulation. In analyzing the first factor, the effect on competition, FERC employs the five-step framework set forth in the 1992 Horizontal Merger Guidelines issued by DOJ and FTC.1 There are four components to FERC’s competition analysis: (1) identify the relevant products, (2) identify customers who may be affected by the merger, (3) identify potential suppliers to each identified customer and (4) analyze market concentration using the Herfindahl-Hirschman Index (HHI) thresholds from the 1992 Guidelines.
On August 19, 2010, DOJ and FTC issued new guidelines as to how they will evaluate the competitive impact of mergers (2010 Guidelines). These 2010 Guidelines supersede the 1992 Guidelines and differ in a number of respects. First, the 2010 Guidelines modify the competition analysis screens by (1) raising the HHI thresholds for determining the level of existing market concentration; and (2) for “concentrated” markets, increasing the amount of post-merger changes in market concentration levels that are necessary to trigger significant concerns over competition and the ability to exercise market power. The 2010 Guidelines also place less emphasis on market definition and the use of prescribed formulas to gauge the effects of potential mergers in favor of a more fluid, fact-specific approach tailored to each transaction. The 2010 Guidelines also address the potential competitive effects arising from partial acquisitions and minority ownership.
FERC now seeks comment on whether and how it should revise its approach for assessing horizontal market power in its review of proposed merger and other transactions under Section 203 of the Federal Power Act to reflect the new 2010 Guidelines, as well as the effects, if any, the 2010 Guidelines should have on FERC’s analysis of horizontal market power issues when FERC grants entities with the authority to make wholesale sales of electricity at market-based rates. FERC is especially interested in comments addressing whether the fundamental differences between FERC’s review process and that of DOJ and FTC should affect the extent to which the 2010 Guidelines are adopted. FERC’s review process is public, with parties free to intervene and comment, and is based on a factual record shaped not only by the applicant, but by intervenors and subject to analysis by FERC staff. By contrast, FERC notes that the review process at DOJ and FTC is nonpublic and closed, and based on information submitted by the applicant and non-public information gathered by the DOJ and FTC staff, as well as the economic analysis performed by those staff.
Comments in Docket No. RM11-14-000 are due 60 days after publication of the Notice of Inquiry in the Federal Register.