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FERC takes fresh look at how it evaluates market power

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FERC takes fresh look at how it evaluates market power

FERChas decided to reevaluate the way it has been looking at market power whenconsidering requests for merger approvals or for the authority to sell power,capacity and ancillary services at market-based rates.

CommissionerTony Clark said during the agency's Sept. 22 open monthly meeting that thecommission has been working on market power issues "in bits and pieces anda little bit under the surface" for some time. It has decided to now"tee up" some of the issues involved so they can be discussed in anopen and transparent way, he said.

Tothat end, FERC issued a noticeof inquiry seeking comment on a number of potential changes andimprovements that the commission may later incorporate into a notice ofproposed rulemaking. Those changes deal with the tools FERC uses to evaluatemarket power when considering requests for approval of mergers and othertransactions governed by Section 203 of the Federal Power Act and formarket-based rate authority pursuant to Section 205.

FERCnoted that its market power analyses for the two types of requests differ, andsaid while some of those differences may be justified, others may not. Theagency therefore is considering harmonizing the two analyses in certainrespects and looking into whether several additional types of analyses thathave not been required previously could aid the commission's reviews.

Mostof the contemplated changes deal with FERC's Section 203 analysis. Forinstance, the agency is contemplating establishing a simplified analysis fortransactions that are unlikely to raise market power concerns but adding asupply curve analysis to evaluations.

Thecommission also asked whether the current pivotal supplier analysis applied inmarket-based rate cases has been effective or needs to be improved. Inparticular, the NOI seeks comment on whether a wholesale load proxy is aneffective metric in examining whether a supplier is pivotal in the study area.FERC is also considering adding a similar analysis to Section 203 evaluations.

FERCfurther said it might add a market share analysis and modify how capacityassociated with long-term power purchase agreements should be considered whenevaluating Section 203 transactions.

Inaddition, FERC requested comment on whether it should define more preciselywhen a proposed transaction's impact is de minimis, and if so, how thatthreshold should be calculated. The commission has never defined de minimis noridentified a threshold that it would consider sufficient to meet therequirement, but has accepted various representations made by applicantsregarding the issue.

Thecommission also is wondering whether it should develop a test for determiningwhen a proposed transaction meets that definition.

Inaddition, FERC is seeking comment on its scope of review under Section 203,including whether certain existing blanket authorizations may be overly broador otherwise no longer appropriate and if further blanket authorizations orabbreviated filing requirements would be appropriate for certain classes oftransactions.

Moreover,FERC wants feedback on whether it should mimic Department of Justice andFederal Trade Commission requirements and oblige Section 203 applicants toinclude consultant reports and other internal reports pertaining to thecompetitive effects of a proposed transaction requiring a full competitiveanalysis screen.

Finally,the NOI seeks comment on whether certain categories of jurisdictionaltransactions may qualify for abbreviated filing requirements.

Duringthe meeting, Commissioner Cheryl LaFleur said she is particularly interested inhearing comments on potentially requiring the submission of merger-relateddocuments that are currently submitted to the DOJ and FTC. She stressed theneed to carefully weigh the benefits of the extra information for the agency'sanalysis against any confidentiality and other concerns.

CommissionerColette Honorable said on a more general level, the agency wants to know if"we're looking at the right things; what, in terms of our methodology, hasoutlived its usefulness, are we being consistent, and are there [other] toolsout there that we should be focused on now."

Afterthe FERC meeting, Chairman Norman Bay said no particular transaction or concernprompted the commission review. Instead, he maintained that the move is justpart of the agency's effort to continue to improve, both as an organization andin the way it is doing things.

Commentson the NOI are due 60 days from its publication in the Federal Register.(RM16-21)