FTC Staff Comments on FERC Reforms To Promote Public Utility Competition

The Federal Trade Commission staff has advised the Federal Energy Regulatory Commission (FERC) that four measures may assist its evaluations of whether electric utility mergers will be anticompetitive and increase costs for consumers. The comments, made public today, were submitted by the staff of the Bureau of Economics of the FTC in response to a FERC request for suggestions on conducting competition analysis as part of electric utility merger reviews.

“In our view and experience, there is no good substitute for detailed competition analysis addressing the principal supply and demand considerations that shape pricing and output decisions in a market,” the FTC comment says. “Such an inquiry is likely to increase the accuracy of merger analysis and reduce the incidence of errors in decisions. Errors may include allowing an anticompetitive acquisition or blocking a neutral or procompetitive acquisition. Both kinds of errors may be costly to consumers,” the comment says. The staff suggested that the Horizontal Merger Guidelines, jointly developed by the FTC and Department of Justice, could assist FERC in evaluating a proposed merger.

The staff noted that the recent FERC initiative to require open access to electric transmission services would not, of itself, assure competition in all electricity markets. “Experience in the open access environment of the U.K. appears to have been sufficient to dispel the hope that open access will uniformly obviate market power concerns,” the staff comment says. “Although open access may lead to increased competition in most markets, FERC should still examine actual market concentration and competitive conditions in determining whether to allow each proposed acquisition,” the statement says.

The staff comment pointed out that open access to electric transmission systems would not ensure competition and lower costs for consumers unless transmission pricing is reformed. “Unless transmission rates are economically efficient, open access will not serve to give buyers, sellers and investors the right signals for developing new service alternatives, assessing where new plant and transmission lines should be located, or determining when entry is warranted,” the staff said. “Competitive conditions among generation suppliers will still have to be examined in the context of an open access environment.”

In addition, the staff recommend that FERC may want to model transmission flows for use in their merger analysis. This may be helpful in reducing the time and cost associated with FERC’s assessment of the relevant geographic market according to the comment.

These comments represent the views of the FTC’s Bureau of Economics and not necessarily the views of the Commission or any individual Commissioner.

Copies of the comments are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326- 2222; TTY for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(FTC File No. V96 008)