FERC rejects adoption of antitrust merger policy

The Federal Energy Regulatory Commission on Thursday, Feb. 16, decided against revising its policies for reviewing utility mergers.

Since March 2011, FERC had been weighing whether to adopt merger guidelines created by the antitrust regulators at the Department of Justice and the Federal Trade Commission a year earlier.

FERC was in the earliest stage of considering a change -- known as a notice of inquiry -- and had not proposed any specific changes. The inquiry asked for public comment on whether to adopt the new DOJ and FTC changes.

FERC Chairman Jon Wellinghoff said Thursday that switching to the antitrust guidelines, as they would have been applied to utility deals, meant a loosening of FERC's merger rules. "We didn't think it was appropriate to loosen them up," he told reporters after FERC's decision was announced.

Although the antitrust regulators gave themselves several new tools that could be used to block mergers, they also raised the concentration thresholds for measuring whether a merger would be anticompetitive. By itself, raising the thresholds would give merging parties a better chance of winning approval for deals. FERC was worried that increasing the market screens based on the Herfindahl-Hirschman Index, or HHI, would give merging parties too much leeway to argue that a deal should be approved. HHI is calculated by tallying the market shares of all the firms in a specific market.

Previously, regulators considered a market with an HHI of 1,800 or more (out of a possible 10,000) to be highly concentrated. Under the DOJ/FTC revisions, the threshold for a highly concentrated market was raised to 2,500. Before the revision, a merger that raised the HHI in a highly concentrated market by more than 100 points was viewed as anticompetitive. The revised guidelines now stipulate that it takes a 200-point change to be anticompetitive.

FERC can block mergers deemed anticompetitive under the HHI test unless the parties convince the agency that the transaction won't have anticompetitive effects; that entry by competitors is likely; that harmful effects will be offset by efficiencies; or that one of the parties to the deal is a failing firm.

The prospect of change had divided power industry players. Large utilities generally favored adoption of the new antitrust thresholds, while smaller players and consumer advocates opposed such a loosening.

The Edison Electric Institute, the trade group for major shareholder-owned utilities such as NextEra Energy Inc., the parent of Florida Power & Light Co., and PG&E Corp., the owner of Pacific Gas and Electric Co., favored raising the HHI thresholds but opposed adoption of the new analysis tools that give antitrust regulators new ways to challenge deals. EEI argued that FERC would be unable to complete more open-ended merger reviews and still meet its statutory 180-day timetable for ruling on deals.

Conversely, the Electricity Consumers Resource Council and the National Association of State Utility Consumer Advocates oppose raising the HHI thresholds because they would "dilute" FERC's current market power analysis.

The American Public Power Association and the National Rural Electric Cooperative Association said raising the current thresholds would compound an already permissive regime. "The commission's existing thresholds rarely find market power," they wrote. "There is no evidence that the thresholds are too low."