The Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") (the "Agencies") submitted comments to FERC on possible changes to its assessment of market power under sections 203 and 205 of the Federal Power Act ("FPA").
In a recent memorandum, Cadwalader attorneys explored the basis of the Agencies' comments, highlighting the following six recommendations that were offered to improve FERC's market power analysis:
- add a supply curve analysis to FERC's examination of mergers under section 203;
- account for transmission constraints when defining a geographic market to assess market power;
- make the section 205 market power analysis as consistent as possible with the section 203 analysis;
- account for incremental acquisitions (including partial acquisitions of assets, such as acquiring additional capacity, or financial interests in another firm);
- take a more flexible approach to assessing the competitive effects of PPAs; and
- require that section 203 applicants submit certain merger-related documents.
Observing that it has been nearly ten years since FERC established its approach to market-based rate authority and nearly twenty years since FERC adopted its current approach to mergers, the Agencies asserted that significant intervening changes in the electricity markets justified significantly revamping FERC's way of assessing market power. The Agencies also suggested that FERC become less reliant on market share and market concentration tests in favor of additional types of evidence more capable of detecting market power in the electricity markets.
Commentary / Mark R. Haskell
In their comments, the DOJ and FTC noted that FERC's current approach overlooks the reality of today's electricity markets by too narrowly focusing on structural screens (i.e., market share and market concentration). The Agencies recommended FERC de-emphasize its traditional reliance on structural measures and include a broader inquiry into the ability of market participants with relatively small market share to exercise market power.
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.