United States: FERC Seeks Comment On Potential Modifications To Its Market Power Analyses

On September 22, 2016, the Federal Energy Regulatory Commission (FERC) issued a Notice of Inquiry (NOI) seeking comment on whether and, if so, how FERC might modify or enhance its methods for identifying and assessing market power in reviewing transactions under Section 203 of the Federal Power Act (FPA) and applications for market-based rate authority under  Section 205 of the FPA.  FERC also seeks comment on whether increased harmonization of its currently separate approaches to market power analysis under Sections 203 and 205 is warranted and feasible.  Certain of the potential changes, if adopted, would significantly alter FERC’s Section 203 and 205 analyses and could result in new burdens and benefits for affected entities.  Comments on the NOI will be due 60 days after publication of the NOI in the Federal Register.  After evaluating the comments on the NOI, FERC may or may not issue a notice of proposed rulemaking proposing revisions to its regulations regarding Section 203 and 205 filings.  We briefly address each of FERC’s requests for comment below.

Standardization of FERC’s “De Minimis” Effect Analysis Under Section 203

Section 203 applicants are not required to provide a full Competitive Analysis Screen if they can demonstrate that their proposed transaction will have only a de minimis effect on horizontal competition.  However, FERC’s regulations do not currently define or provide a threshold for de minimis effect.  FERC notes that it has received and accepted diverse representations of what de minimis effect means, and seeks comment on whether and, if so, how to more precisely define de minimis effect in Section 203 reviews, including (1) whether a specific threshold is appropriate, (2) what it would be and (3) how it would be calculated.

FERC also seeks comment on whether the so-called “2ab analysis” often used to demonstrate lack of impact on horizontal competition produces inaccurate results for certain transactions, such as partial acquisitions of competitors in the same market.  Specifically, FERC seeks comment on (1) whether it should continue to permit use of the “2ab analysis;” (2) whether the “2ab analysis” remains useful for some transactions but not others; and (3) whether FERC should develop an alternative abbreviated test for the effect of a proposed transaction on market concentration.

Addressing Competition Concerns in Connection with “Serial Merger Theory”

FERC has expressed concern in several contexts over the potential for relatively small serial acquisitions to create horizontal market power concerns over time, even if individual transactions do not raise red flags.  In the NOI, FERC requests comment on whether to consider incremental acquisitions in its competition analysis, including the de minimis effect analysis, as well as alternative methods for identifying competition concerns arising from incremental acquisitions.

Adding a Supply Curve Analysis to FERC’s Competitive Analysis Screen

FERC’s Competitive Analysis Screen—for Section 203 applications that require one—does not currently include a “supply curve analysis,” which involves overlaying a demand curve and a supply curve for the relevant market to assess whether a proposed transaction would give an entity the ability and incentive to exercise market power by withholding output from marginal generating units to raise prices to benefit baseload units and increase total profits.  Such an analysis—which applicants can provide as “alternative evidence” in the event of a Competitive Analysis Screen failure—is more granular than FERC’s “delivered price test,” which examines aggregate capacity rather than capacity segments (i.e., baseload, intermediate, and peaking).

In the NOI, FERC seeks comment on (1) whether requiring a supply curve analysis as part of the Competitive Analysis Screen could strengthen FERC’s ability to identify situations that might not require increased scrutiny based on FERC’s current approach, but where parties could “still have the ability and incentive to raise prices above competitive levels,” and (2) if so, what information should be required and what metrics evaluated.

Pivotal Supplier Screen Effectiveness in Section 205 Analysis and Potential Addition to Section 203 Analysis

FERC currently uses a “pivotal supplier analysis” screen—which evaluates an entity’s ability to exercise market power based on its uncommitted generating capacity at the time of annual peak demand in the relevant market—only in evaluating applications for market-based rate authority under Section 205.  In the NOI, FERC seeks comment on (1) the use, effectiveness, and areas for improvement or modification of the pivotal supplier screen in the market-based rate context, including whether to expand its scope from energy-only markets to capacity and ancillary services markets and whether modifications to the screen would create more burdens than benefits; and (2) whether adding a pivotal supplier screen would enhance FERC’s Section 203 analysis by enabling FERC to determine whether (i) a party is a pivotal supplier before a transaction, (ii) the transaction would render the party a pivotal supplier and (iii) the degree to which a party is a pivotal supplier would be affected by the transaction.  FERC also seeks comment on how, if it were to add pivotal supplier analysis to its Section 203 analysis, it should interpret pivotal supplier screen results in the Section 203 context.

Adding a Market Share Screen to FERC’s Section 203 Analysis

FERC’s current Section 203 analysis focuses, in part, on prospective changes in market concentration that would result from a proposed transaction.  Questioning whether it should adjust the Section 203 analysis to account for accumulation of market share over time through multiple transactions, or a combination of transactions and project development, FERC seeks comment on (1) potential benefits of a longitudinal examination of market share in its       Section 203 analysis; (2) whether there is a specific market share above which market power concerns should arise in a Section 203 review; (3) what that threshold should be; (4) whether market share analyses in the Section 203 context, if added, should be applied to capacity and ancillary services markets in addition to energy markets; and (5) whether an alternative market share screen would better address whether an entity has accumulated a dominant market position through serial acquisitions.

Treatment of Capacity Associated with Long-Term Firm Power Purchase Agreements

FERC also seeks comment on whether it should alter the way it accounts for capacity associated with long-term firm power purchase agreements (PPAs) in its Section 203 analysis when the purchaser under such a PPA proposes to acquire the relevant generating facility.  FERC’s current approach attributes such capacity to the prospective buyer’s pretransaction market share, meaning that such proposed acquisitions typically do not affect the prospective buyer’s market shares or horizontal competition.  FERC notes, however, that its current approach may not adequately account for changes in market concentration related to such transactions, especially when they occur close to the expiration of such PPAs.  Specifically, FERC seeks comment on whether and, if so, under what circumstances an alternative approach to evaluating capacity associated with long-term firm PPAs would increase the accuracy of FERC’s Section 203 analysis with respect to transactions involving such PPAs.

Requirement to Submit Certain Additional Transaction-Related Documentation

FERC also requests comment on whether, for transactions that require a full Competitive Analysis Screen, applicants should be required to submit additional documentation that could assist FERC’s review of the proposed transaction, including “consultant reports” or “other internal reports that assess the competitive effects” of a proposed transaction that are required by the Department of Justice or the Federal Trade Commission.  FERC also requests comment on the potential costs and benefits and issues of commercial sensitivity or confidentiality that such a requirement might create.

Blanket Authorizations Under Section 203 of the FPA

Following the Energy Policy Act of 2005, which changed the scope of transactions subject to FERC review under Section 203, FERC adopted blanket authorizations for certain transactions subject to Section 203 but for which FERC would not require a case-by-case review.  FERC notes that, since granting certain of these blanket authorizations, industry changes may have rendered some of them no longer appropriate, such as the blanket authorization under Section 203(a)(2) for a person that is a holding company solely with respect to one or more exempt wholesale generators (EWGs) to acquire the securities of additional EWGs, given that EWGs now comprise a significant portion of supply and that transactions involving EWGs could affect wholesale rates by affecting competition.

Accordingly, FERC seeks comment on (1) whether any of the existing blanket authorizations under Section 203 “may be overly broad or no longer appropriate;” (2) whether “classes of transactions” exist for which additional or different blanket authorizations or some other form of expedited review would be appropriate, including dispositions of securities with limited rights to governance of public utilities, such as passive investment transactions, or transfers of transmission facilities already consolidated into the existing transmission network of a public utility; and (3) whether reporting requirements would be appropriate, in lieu of or in addition to the requirement to file an application, in certain cases.

Transactions Subject to Only Section 203(a)(1)(B)

Unlike the other subsections of Section 203(a)(1), which include a $10 million transaction value applicability threshold, Section 203(a)(1)(B) requires public utilities to obtain FERC authorization to “merge or consolidate, directly or indirectly, [FERC-jurisdictional] facilities or any part thereof with those of any other person, by any means whatsoever,” with no minimum value threshold.  FERC notes that this has resulted in many applications for authorization of “transfers of low-value equipment” that do not raise concerns under FERC’s public interest analysis under Section 203.  Accordingly, FERC seeks comment on whether there are additional categories of transactions for which “abbreviated filing requirements” may be appropriate, including whether there are “categories of proposed transactions that are jurisdictional only under Section 203(a)(1)(B) that, by their nature, do not require the same level of scrutiny,” such as proposed transactions involving jurisdictional facilities below a minimum value threshold.

To the extent that such categories exist, FERC seeks comment “on ideas for facilitating expeditious processing of those transactions,” such as “abbreviated filing requirements,” possibly including requests for partial waiver of certain filing requirements; certifications that proposed transactions are consistent with the public interest (i.e., will not adversely affect competition, rate or regulation, and will not result in cross-subsidization); or alternative methods for expedited review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.