138 FERC ¶ 61,109 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Jon Wellinghoff, Chairman; 

 Philip D. Moeller, John R. Norris, 

 and Cheryl A. LaFleur. 

Analysis of Horizontal Market Power under the 

Federal Power Act 

Docket No. RM11-14-000 

ORDER REAFFIRMING COMMISSION POLICY AND TERMINATING 

PROCEEDING 

(Issued February 16, 2012) 

1. On March 17, 2011, the Commission issued a Notice of Inquiry1

 seeking comment 

on whether, and, if so, how, the Commission should revise its approach to examining 

horizontal market power concerns under section 203 of the Federal Power Act (FPA) 2

 to 

reflect the Horizontal Merger Guidelines issued by the Department of Justice (DOJ) and 

Federal Trade Commission (FTC) (collectively, Antitrust Agencies) on August 19, 2010 

(2010 Guidelines). The Commission also sought comment on what impact, if any, the 

2010 Guidelines should have on the Commission’s analysis of horizontal market power 

in its electric-market based rate program under section 205 of the FPA.3

 Seventeen 

parties filed comments in response to the NOI.4

2. As discussed below, after reviewing the comments received, the Commission has 

decided to retain its existing policies regarding the analysis of horizontal market power 

when reviewing transactions under section 203 of the FPA and in its electric marketbased rate program. Accordingly, we will terminate the proceeding in Docket No. 

RM11-14-000. 

 

1 Analysis of Horizontal Market Power under the Federal Power Act, Notice of 

Inquiry, 76 Fed. Reg. 16,394 (Mar. 23, 2011), FERC Stats. & Regs. ¶ 35,571 (2011) 

(NOI). 

2

 16 U.S.C. § 824b (2006). 

3

 16 U.S.C. § 824d (2006). 

4

 A list of the commenters is provided in Appendix A. 
Docket No. RM11-14-000 - 2 - 

I. Background

A. Section 203

3. Under section 203 of the FPA, Commission authorization is required for public 

utility mergers and consolidations and for public utility acquisitions of jurisdictional 

facilities. Section 203(a) provides that the Commission shall approve such transactions if 

they are consistent with the public interest. The Commission has stated that it will 

consider three factors when analyzing a proposed merger: the effect on competition, the 

effect on rates, and the effect on regulation.5

 The Energy Policy Act of 2005 added the 

further requirement that the Commission determine whether a proposed transaction 

would result in cross-subsidization, and if so, whether the resulting cross-subsidization 

would be consistent with the public interest.6

 

4. The Commission adopted the five-step framework set out in the Antitrust 

Agencies’ 1992 Horizontal Merger Guidelines (1992 Guidelines)7

 as the basic 

framework for evaluating the competitive effects of proposed mergers.8

 The 

Commission also adopted an analytic screen (Competitive Analysis Screen), based on the 

1992 Guidelines and outlined in Appendix A of the Merger Policy Statement, which 

focuses on the first step in the analysis: whether the merger would significantly increas

concentration in relevant markets. The components to a screen analysis are as follows: 

e 

 5 Inquiry Concerning the Commission’s Merger Policy Under the Federal Power 

Act: Policy Statement, Order No. 592, FERC Stats. & Regs. ¶ 31,044 (1996) (Merger 

Policy Statement), reconsideration denied, Order No. 592-A, 79 FERC ¶ 61,321 (1997); 

see also FPA Section 203 Supplemental Policy Statement, FERC Stats. & Regs. ¶ 31,253 

(2007) (Supplemental Policy Statement). 

6

 Energy Policy Act of 2005, Pub. L. No. 109-58, 1289, 119 Stat. 594, 982-83 

(2005), codified, 16 U.S.C. 824b(a)(4). 

7

 U.S. Dept. of Justice & Federal Trade Commission, “Horizontal Merger 

Guidelines” (1992), as revised (1997) (1992 Guidelines). 

8

 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,118, 30,130. The 

five steps are: (1) assess whether the merger would significantly increase concentration 

and result in a concentrated market, properly defined and measured; (2) assess whether 

the merger, in light of market concentration and other factors that characterize the 

market, raises concern about potential adverse competitive effects; (3) assess whether 

market entry would be timely, likely and sufficient either to deter or counteract the 

competitive effects of concern; (4) assess whether the merger would result in increases in 

efficiency that cannot reasonably be achieved through the parties by other means; and 

(5) assess whether either party to the merger would fail without the merger, causing its 

assets to exit the market. Id. at 30,111. 
Docket No. RM11-14-000 - 3 - 

(1) identify the relevant products; (2) identify customers who may be affected by the 

merger; (3) identify potential suppliers to each identified customer (includes a deliver

price test (DPT) analysis, consideration of transmission capability, and a check against 

actual trade data); and (4) analyze market concentration using the Herfindahl-Hirschm

Index (HHI)

ed 

an 

uidelines. 9

 thresholds from the 1992 G 10

5. The Commission stated that the Competitive Analysis Screen is intended to 

identify mergers that clearly do not raise competitive concerns early in the process and 

that it believes that the screen produces a reliable, generally conservative analysis of the 

competitive effects of a proposed merger.11 The Commission acknowledged, however, 

that the screen is not infallible. Accordingly, the Commission stated that claims that the 

screen has failed to detect certain market power problems or disputes about the way that a 

particular analysis has been conducted can be raised by intervenors and Commission 

staff. The Commission also stated that intervenors may file alternative competitive 

analyses, accompanied by appropriate data, to support their arguments.12

B. Market-Based Rates

6. The Commission allows sales of electric energy, capacity, and ancillary services at 

market-based rates if the applicant and its affiliates do not have, or have adequately 

mitigated, horizontal and vertical market power.13 The Commission adopted two 

indicative screens, the wholesale market share screen and the pivotal supplier screen, to 

 9

 The HHI is a widely accepted measure of market concentration, calculated by 

squaring the market share of each firm competing in the market and summing the results. 

The HHI increases both as the number of firms in the market decreases and as the 

disparity in size between those firms increases. Both the Antitrust Agencies and the 

Commission use HHI to assess market concentration. 

10 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,119-20, 30, 

128-37. 

11 Id. at 30,119. 

12 Id. 

13 Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and 

Ancillary Services by Public Utilities, Order No. 697, FERC Stats. & Regs. ¶ 31,252, at 

P 1, 4, clarified, 121 FERC ¶ 61,260 (2007), order on reh’g, Order No. 697-A, FERC 

Stats. & Regs. ¶ 31,268, clarified, 124 FERC ¶ 61,055, order on reh’g, Order No. 697-B, 

FERC Stats. & Regs. ¶ 31,285 (2008), order on reh’g, Order No. 697-C, FERC Stats. & 

Regs. ¶ 31,291 (2009), order on reh’g, Order No. 697-D, FERC Stats. & Regs. ¶ 31,305 

(2010), aff’d sub nom. Montana Consumer Counsel v. FERC, 659 F.3d 910 (9th Cir. 

2011).
Docket No. RM11-14-000 - 4 - 

identify sellers that raise no horizontal market power concerns and can otherwise be 

considered for market-based rate authority.14 The wholesale market share screen 

measures whether a seller has a dominant position in the market in terms of the number 

of megawatts of uncommitted capacity owned or controlled by the seller, as compared to 

the uncommitted capacity of the entire market.15 A seller whose share of the relevant 

market is less than 20 percent during all seasons passes the market share screen.16 The 

pivotal supplier screen evaluates the seller’s potential to exercise market power based on 

the seller’s uncommitted capacity at the time of annual peak demand in the relevant 

market.17 A seller satisfies the pivotal supplier screen if its uncommitted capacity is less 

than the net uncommitted supply in the relevant market.18 Failing either screen creates a 

rebuttable presumption that the seller has horizontal market power.19 If a seller passes 

both screens, however, there is a rebuttable presumption that it does not possess 

horizontal market power. 

7. A seller that fails either indicative screen has several procedural options. It has the 

right to present alternative evidence to rebut the presumption of horizontal market power, 

including a DPT.20 In the alternative, a seller may accept the presumption of market 

power and adopt some form of cost-based mitigation.21 Sellers use the results of the DPT 

to perform pivotal supplier and market share analyses. In addition, sellers use the results 

of the DPT to analyze market concentration using HHI. The Commission stated that a 

showing of an HHI less than 2,500 in the relevant market for all season/load periods for 

sellers that have also shown that they are not pivotal and do not posses a market share of 

20 percent or greater in any of the season/load periods would constitute a showing of a 

lack of market power, absent compelling contrary evidence from intervenors. The 

Commission stated that, as with the indicative screens, a seller may submit alternative 

evidence to rebut or support the results of the DPT, such as historical sales or 

transmission data.22 

 14 Id. P 13, 62. 

15 Id. P 43. 

16 Id. P 43-44, 80, 89. 

17 Id. P 35. 

18 Id. P 42. 

19 Id. P 44. 

20 Id. P 63; 18 C.F.R. § 35.37(c)(2) (2011). 

21 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 63; 18 C.F.R. § 35.37(c)(3) 

(2011). 

22 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 117. 
Docket No. RM11-14-000 - 5 - 

C. Notice of Inquiry

8. The NOI highlighted some features of the 2010 Guidelines and how those 

guidelines differ from the Commission’s process for reviewing mergers under section 

203 of the FPA. In particular, the Commission noted that the 2010 Guidelines modify the 

thresholds used to classify the relative concentration of a market and to assess the 

competitive significance of a post-merger change in HHI, as summarized in the table 

below.23 

HHI (Market Concentration) Thresholds 

Market 1992 Guidelines 2010 Guidelines 

Unconcentrated <1000 <1500 

Moderately Concentrated 1000-1800 1500-2500 

Highly Concentrated >1800 >2500 

 

HHI Changes Potentially Raising Significant Competitive Concerns 

Moderately Concentrated Markets >100 >100 

Concentrated Markets >50 >100, <200 

 

HHI Changes Presumed Likely to Enhance Market Power 

Concentrated Markets >100 >200 

9. In addition, the Commission explained that the 2010 Guidelines deemphasize 

market definition as a starting point for the Antitrust Agencies’ analysis and depart from 

the sequential analysis of the 1992 Guidelines. Instead, the 2010 Guidelines state that the 

Antitrust Agencies will engage in a fact-specific inquiry using a variety of analytical 

tools, including direct evidence of competition between the parties and economic models 

that are designed to quantify the extent to which the merged firm can raise prices as a 

result of the merger.24 The Commission further noted that the 2010 Guidelines address 

the potential competitive effects arising from partial acquisitions and minority ownership. 

Specifically, the Commission stated that the Antitrust Agencies’ analysis of partial 

acquisitions and minority ownership focuses on: (1) whether the acquiring company will 

be able to influence the competitive conduct of the target firm; (2) whether the partial 

acquisition will reduce the financial incentive to compete because losses from one owned 

firm are offset by gains at the other; and (3) whether the partial acquisition enables 

 23 NOI, FERC Stats. & Regs. ¶ 35,571 at P 12. 

24 Id. P 13. 
Docket No. RM11-14-000 - 6 - 

companies to access non-public competitive information that can lead to coordinated 

activity by the firms.25 

10. The NOI sought comment on whether the Commission should revise its approach 

for examining horizontal market power when analyzing proposed mergers or other 

transactions under section 203 of the FPA and when analyzing market-based rate filings 

under section 205 of the FPA to reflect the 2010 Guidelines. The Commission asked 

whether the Commission should, like the 2010 Guidelines, place less emphasis on market 

definition as the first step in its analysis and move away from the use of a sequential 

analysis for analyzing horizontal market power under section 203 of the FPA. 

Additionally, the Commission asked what elements of the 2010 Guidelines the 

Commission should adopt and sought comments on whether the Commission should 

adopt the HHI thresholds contained in the 2010 Guidelines. Finally, the Commission 

sought comment on what impact, if any, the 2010 Guidelines should have on the 

Commission’s analysis of horizontal market power in its electric market-based rate 

program.26 

II. Discussion

11. As further discussed below, after careful consideration of the comments submitted 

in response to the NOI, the Commission has decided to retain its existing approaches to 

analyzing horizontal market power under section 203 of the FPA and in its analysis of 

electric market-based rates under section 205 of the FPA. 

A. Section 203 Analysis

1. Comments in support of retaining the Commission’s Current 

Analysis

a. Market Definition and Market Concentration

12. A number of commenters argue that the Commission should continue to 

emphasize market definition and the calculation of market shares and market 

concentration as the first step in its analysis. EEI, EPSA, and Dr. Morris, a consultant 

 25 Id. P 14. The Commission noted that issues relating to partial acquisitions are 

among the issues before the Commission in Docket No. RM09-16-000. Id. P 14, n.27 

(citing Control and Affiliation for Purposes of Market-Based Rate Requirements under 

Section 205 of the Federal Power Act and the Requirements of Section 203 of the Federal 

Power Act, Notice of Proposed Rulemaking, FERC Stats. & Regs. ¶ 32,650 (2010) 

(Control and Affiliation NOPR)). 

26 Id. P 15-21. 
Docket No. RM11-14-000 - 7 - 

with Economists Incorporated, state that the Competitive Analysis Screen provides 

certainty to applicants and, as a result, produces better filings and assists applicants in 

determining whether their proposals raise competitive concerns and require remedies.27 

Dr. Morris adds that preparing a Competitive Analysis Screen is relatively inexpensive 

when compared with computer simulation models. Dr. Morris observes that, while the 

DOJ conducts competitive effects analyses and the models used by the agency have 

advanced, the modeling that DOJ uses has not yet provided more reliable information on 

the competitive effects of a merger than the market concentration screens used by the 

Commission.28 EEI states that the Commission’s methodology strikes the appropriate 

balance in identifying transactions that pose a threat of competitive harm while providing 

a streamlined process for approving ones that do not.29

13. Additionally, several commenters maintain that the analysis embodied in the 2010 

Guidelines is incompatible with the realities of the Commission’s process of reviewing 

mergers and other transactions under section 203 of the FPA. In particular, these 

commenters note that, unlike the procedures used by the Antitrust Agencies, proceedings 

under section 203 are required to be on-the-record and the Commission’s decision must 

be presented in a published order, subject to the requirements of reasoned decision 

making and the possibility of judicial review.30 Commenters also claim that it would be 

infeasible to conduct the type of analysis envisioned by the 2010 Guidelines in the 180-

day time period prescribed by Congress and that the Commission’s current methodology 

facilitates timely decisions by the Commission.31

14. Moreover, commenters explain that the Commission need not resort to the openended process embraced in the 2010 Guidelines to protect the public interest and that the 

Commission has the experience necessary to determine what methodologies are 

appropriate for assessing market power in electricity markets.32 Modesto states that 

application of the Commission’s current analysis will better protect consumers from the 

anticompetitive effects of mergers.33 Similarly, APPA, NRECA, ELCON, and NASUCA 

state that the Antitrust Agencies’ efforts to revise their analysis and the changes 

embodied in the 2010 Guidelines are tied to the characteristics of markets with 

 27 Morris Comments at 21-22; EEI Comments 5-9; EPSA Comments at 7-8. 

28 Morris Comments at 21. 

29 EEI Comments at 6-8. 

30 Id. at 9-12; EPSA Comments at 5-6. 

31 EEI Comments at 12-14; EPSA Comments at 5-6; Morris Comments at 20. 

32 EEI Comments at 9, 14-15; EPSA Comments at 6-7. 

33 Modesto Comments at 4. 
Docket No. RM11-14-000 - 8 - 

differentiated products where, unlike markets for electricity, ascertaining the relevant 

market and assessing market concentration are less relevant for identifying competitive 

concerns.34 ELCON and NASUCA add that the Commission has already adopted an 

approach that reflects those changes that are most relevant to electricity markets by 

expressing a willingness to look beyond changes in HHI.35 APPA and NRECA state that 

while the Commission should consider whether some of the analytical tools described in 

the 2010 Guidelines would prove useful in the Commission’s merger analysis, these tools 

should not act as substitutes for market definition and market concentration.36 

15. A number of commenters argue that the Commission’s current analytical 

framework already permits the consideration of the evidence identified in the 2010 

Guidelines when appropriate. Mr. Cavicchi, Senior Vice President at Compass Lexecon, 

notes that the Commission has already acknowledged that the Commission should 

consider additional evidence of competitive effects where an applicant fails the 

Competitive Analysis Screen. Mr. Cavicchi asserts, however, that it would be 

appropriate in such circumstances to collaborate with the Antitrust Agencies to reduce the 

burden on the applicant.37 TAPS and TDU Systems state that the 2010 Guidelines 

highlight the need for the Commission to consider intervenor theories of competitive 

harm, regardless of whether the proposed transaction passes the Competitive Analysis 

Screen.38 

b. HHI Thresholds

16. A number of commenters argue that the Commission should retain its existing 

HHI thresholds. TAPS, TDU Systems, ELCON, and NASUCA caution the Commission 

against selectively incorporating particular aspects of the 2010 Guidelines, especially the 

HHI thresholds.39 These commenters state that the 2010 Guidelines should be viewed as 

a comprehensive whole and that the 2010 Guidelines’ relaxation of the HHI thresholds is 

merely one small element of a broader analytical overhaul. TAPS and TDU Systems 

further note that the Antitrust Agencies have different statutory obligations than the 

Commission and that, even before the Antitrust Agencies adopted the 2010 Guidelines, 

 34 APPA and NRECA Comments at 9-10; ELCON and NASUCA Comments at 4. 

35 ELCON and NASUCA Comments at 4. 

36 APPA and NRECA Comments at 2-3. 

37 Cavicchi Comments at 6-7 (citing Supplemental Policy Statement, FERC Stats. 

& Regs. ¶ 31,253, at P 65). 

38 TAPS and TDU Systems Comments at 16-17. 

39 Id. at 4, 6-7; ELCON and NASUCA Comments at 5. 
Docket No. RM11-14-000 - 9 - 

the Commission and the Antitrust Agencies implemented merger review in the context of 

the electric industry differently.40

17. Commenters also claim that the more relaxed HHI thresholds embodied in the 

2010 Guidelines are inappropriate in electricity markets. The New York Commission, 

ELCON, NASUCA, APPA, NRECA and Monitoring Analytics state that the 

Commission’s current thresholds remain appropriate because electricity markets are more 

susceptible to the exercise of market power—due to the large capital investments 

associated with entry, the lack of substitutable products, the lack of storage, and the 

relative inelasticity of demand—than many of the industries that the Antitrust Agencies 

review.41 APPA and NRECA add that there is no evidence that the current thresholds are 

too low, result in too many false positives, or that the electricity industry has undergone 

changes that warrant relaxing the Commission’s thresholds.42 TAPS and TDU Systems 

agree that there have been no changes supporting modification of the thresholds and that 

adopting the revised thresholds would undermine the Commission’s ability to fulfill its 

statutory mandate and to accurately assess the competitive impact of a merger.43 

Similarly, Modesto notes that the Commission faces challenges in identifying the scope 

of market power in analyzing section 203 applications and argues that relaxing the HHI 

thresholds would serve to frustrate those efforts by easing scrutiny over affiliates and 

companies whose relationship to the applicant company is not readily apparent.44 AAI 

states that lower thresholds may be appropriate in electric markets because the adverse 

effects of electric utility mergers are not likely to be mitigated by entry or efficiencies.45 

18. Berkeley argues that the Commission should not make any decision to change its 

HHI thresholds without first directing Commission staff to study consummated electric 

mergers in order to determine whether the current thresholds have been effective, and 

compare the results to alternative predictions of competitive impacts.46 

 40 TAPS and TDU Systems Comments at 6-7. 

41 New York Commission Comments at 3-4; ELCON and NASUCA Comments at 

4-5; APPA and NRECA Comments at 2; Monitoring Analytics Comments at 6. 

42 APPA and NRECA Comments at 2, 10-17. 

43 Id. at 11-12. 

44 Modesto Comments at 4-5. 

45 AAI Comments at 15. 

46 Berkeley Comments at 5. 
Docket No. RM11-14-000 - 10 - 

c. Other Aspects of the 2010 Guidelines

19. While, as noted below, EPSA supports the adoption of the HHI thresholds 

contained in the 2010 Guidelines, EPSA contends that the Commission should refrain 

from adopting other aspects of the 2010 Guidelines. In particular, EPSA states that the 

Commission should not adopt the 2010 Guidelines’ approach to partial acquisitions and 

minority ownership and that the Commission’s analysis should continue to focus on 

control. EPSA notes that the provisions of the federal antitrust statutes that the Antitrust 

Agencies are charged with enforcing apply to transactions involving one firm’s partial 

acquisition of a competitor and the minority position that may result, whereas the 

Commission has made clear that transactions that do not transfer control of a public 

utility do not fall within the meaning of the “or otherwise dispose” language of section 

203(a)(1)(A) and that the requirement to obtain the Commission’s approval under the 

“merge or consolidate” clause in section 203(a)(1)(B) depends upon whether the 

transaction directly or indirectly would result in a change of control over the facilities.47 

EPSA states that there is no justification for engaging in a case-by-case consideration of 

virtually every single direct or indirect acquisition of interests in a public utility and, as 

the Commission has previously recognized, requiring case-by-case approval under 

section 203 would be contrary to the intent of Congress that the Energy Policy Act of 

2005 increase investment in the utility sector while protecting customers.48 EPSA urges 

the Commission to move forward with a final rule in Docket No. RM09-16-000.49

2. Comments in Support of Adopting the 2010 Guidelines

a. Market Definition and Market Concentration

20. Several commenters argue that the Commission should adopt the 2010 Guidelines 

because the Competitive Analysis Screen may not accurately identify competitive 

concerns in all circumstances. FTC Staff and the PPL Companies state that over-reliance 

on measures of HHI, particularly in electricity markets, can yield conclusions that are too 

lenient or too restrictive in an assessment of market power.50 FTC Staff states that it 

believes that consideration of other types of evidence identified in the 2010 Guidelines 

would enrich the Commission’s analysis of mergers, including observations about the 

actual effect of consummated mergers, direct comparison based on experience, evidence 

of substantial head-to-head competition, and the potentially disruptive role of a merging 

 47 EPSA Comments at 10-11. 

48 Id. at 12 (citing Transactions Subject to Federal Power Act Section 203, Order 

No. 669, FERC Stats. & Regs. ¶ 31,200, at P 144 (2005)). 

49 Id. at 13. 

50 FTC Staff Comments at 2; PPL Companies Comments at 5-8. 
Docket No. RM11-14-000 - 11 - 

party, unilateral and coordinated effects of a transaction, and the competitive effect of the 

transaction on dimensions of competition other than price.51 The PPL Companies argue 

that the Commission’s over-reliance on HHI thresholds has allowed applicants to tailor 

their applications to avoid triggering the HHI thresholds without truly addressing the 

likely anticompetitive effects of a proposed transaction. Therefore, they argue that the 

Commission should supplement its use of market concentration statistics with evidence 

of whether a merger may enhance or lessen competition.52

21. AAI argues that the Commission should supplement its analysis of market 

concentration by considering additional evidence of competitive effects. AAI maintains 

that the differences between the Commission’s review process and those of the Antitrust 

Agencies do not pose an impediment to adopting the 2010 Guidelines because all of the 

agencies tend to focus on competitive concerns and much of the information necessary to 

assess competitive effects, such as prices, identity of rivals, and capacity, are public.53 

AAI states, for example, that evidence could be used to ensure that the markets 

established by the DPT accurately reflect the potential impact of the merger, to 

corroborate the findings of the concentration analysis, and to determine whether merging 

parties have been or, absent the merger, would become head-to-head competitors.54 

22. Similarly, while acknowledging that many aspects of the 2010 Guidelines are 

inapplicable to electricity markets, Monitoring Analytics recommends that the 

Commission consider some of the additional evidence identified in the 2010 Guidelines, 

such as the actual effects observed in wholesale electricity markets, the competitiveness 

of isolated wholesale electricity markets with varying market concentration, and whether, 

absent the merger, the merging firms would have become substantial head-to-head 

competitors.55

23. The Brattle Group maintains that the Competitive Analysis Screen may not always 

yield conservative results because the DPT, by examining a merger’s effect on one 

market at a time, ignores whether suppliers may have a better opportunity to sell in 

markets where they may obtain higher prices. Thus, the Brattle Group maintains that the 

Commission should look beyond HHI, focus on whether a merger will change incentives 

such that there will be an increase in market price, and not wait for a merger to fail the 

screen to implement a case-specific theory of competitive harm. The Brattle Group 

 51 FTC Staff Comments at 2, 4-7. 

52 PPL Companies Comments at 16. 

53 AAI Comments at 5-7. 

54 Id. at 15-17. 

55 Monitoring Analytics Comments at 2-5. 
Docket No. RM11-14-000 - 12 - 

encourages the Commission not to abandon the use of market concentration statistics, but 

to set out guiding principles in assessing merger effects based on a theory of competitive 

harm tailored to the realities of the market at issue at an early stage of the review.56 

24. Several commenters ask the Commission to refine its approach to defining the 

relevant geographic market. Mr. Cavicchi argues that the Commission should pay close 

attention to market definition. While Mr. Cavicchi states that the Commission’s current 

approach to defining markets is suitable in many instances, it could be enhanced by 

drawing on additional electric system data that is often readily available. For example, he 

states that an analysis of market pricing data for the purposes of delineating geographic 

markets can be extremely informative in some situations.57 The PPL Companies also 

state that the Commission should clarify that applicants must use direct evidence to 

establish the relevant markets that they propose.58 The Brattle Group states that the 

Commission should improve how the DPT model screens for potential suppliers by 

taking into account each potential supplier’s opportunity costs.59

25. Monitoring Analytics states that the Commission should refine its approach to 

assessing market definition in organized markets by using actual information about 

market participants and operations instead of using approximations of seasonal 

geographic markets that assume the model of individual utility territories to define the 

market. Monitoring Analytics further states that it recommends that the Commission use 

market definitions based on actual operational substitutability and residual supplier 

analysis to examine the relative importance of the merging firms based on pre- and postmerger positions in every relevant market.60

26. Dr. Morris recommends that the Commission review its position on destination 

markets because the Commission has issued some inconsistent rulings on submarkets and 

because facts change over time. According to Dr. Morris, the Commission has acted 

inconsistently by accepting a study of a submarket where only one of the merging parties 

had assets in some cases, but not in others.61 Therefore, Dr. Morris asks the Commission 

to clarify that parties do not need to analyze submarkets in Regional Transmission 

 56 Brattle Group Comments 5-10. 

57 Cavicchi Comments at 5-6. 

58 PPL Companies Comments at 11-12. 

59 Brattle Group Comments at 10-11. 

60 Monitoring Analytics Comments at 2-3. 

61 Morris Comments at 25-27 (citing USGen New England, Inc., 109 FERC 

¶ 61,361 (2004); FirstEnergy Corp., Application for Authorization of Disposition of 

Jurisdictional Assets, Docket No. EC10-68 (filed May 11, 2010)).
Docket No. RM11-14-000 - 13 - 

Organizations (RTO) when only one of the merging parties owns generation in that 

submarket. Additionally, Dr. Morris states that the Commission should consider whether 

PJM Interconnection-East and Southwest Connecticut still need to be considered separate 

destination markets for DPTs in light of recent developments that have reduced 

constraints in these areas.62 While he expresses support for the Commission’s analysis as 

a general matter, Dr. Morris states that the Commission could consider both the relevant 

market and alternate relevant markets created by regional and local constraints. 

b. HHI Thresholds

27. A number of commenters argue that the Commission should adopt the 2010 

Guidelines’ HHI thresholds. In particular, Dr. Morris, Mr. Cavicchi, Entergy, the PPL 

Companies, EPSA, and EEI claim that the Commission should adopt these thresholds 

because they reflect the substantial experience of the Antitrust Agencies, which indicates 

that a merger will not enhance market power below these levels. They also argue that 

ongoing oversight of the electric markets by the Commission and market monitors 

provide protections against any perceived danger arising from adopting these 

thresholds.63 Dr. Morris adds that adopting these thresholds is appropriate because, 

according to Dr. Morris, the Commission rigidly applies its HHI thresholds and the HHI 

thresholds contained in the 2010 Guidelines more accurately reflect the likelihood of 

anticompetitive effects than the Commission’s current thresholds.64 Mr. Cavicchi argues 

that data compiled by the Antitrust Agencies clearly shows that the majority of merger 

challenges in various industries’ markets (other than petroleum markets) have been 

focused on markets where post-merger HHIs have been greater than 2,400.65 

c. Other Aspects of the 2010 Guidelines

28. The PPL Companies also propose the following modifications to the 

Commission’s analysis: (1) focus exclusively on available economic capacity because 

only those firms with available economic capacity could defeat any attempts by the 

merged firm to increase prices or reduce output;66 (2) consider the merger’s impact on the 

supply curve;67 (3) consider initiating a separate proceeding to examine reforms and 

 62 Id. at 26. 

63 Id. at 23-24; Cavicchi Comments at 3; Entergy Comments at 1-2; PPL 

Companies Comments at 14-16; EPSA Comments at 8-9; EEI Comments at 17-19. 

64 Morris Comments at 23. 

65 Cavicchi Comments at 3. 

66 PPL Companies Comments at 13-14. 

67 Id. at 17-19. 
Docket No. RM11-14-000 - 14 - 

clarify the criteria to simplify the calculation of Simultaneous Import Limits (SIL);68 and 

(4) after the Commission adopts these changes to its analysis, consider and seek 

comments on whether changes to the Commission’s procedures are necessary, such as 

permitting limited discovery and informal technical conferences upon motion of an 

intervenor or having separate staff investigate and comment on a proposed transaction.69 

29. As an initial matter, AAI asks that the Commission more formally coordinate with 

the Antitrust Agencies, in a manner similar to the current relationship between the 

Federal Communications Commission and the Antitrust Agencies, to ensure greater 

consistency in remedies, analysis, and findings. AAI also reviewed analyses filed with 

the Commission between 1997 and 2004, which revealed a high degree of variation in 

concentration results for the same market, even when these analyses were performed by 

the same experts.70 According to AAI, its analysis suggests that the Commission may 

want to consider initiating an inquiry into the modeling methods, data sources, and 

assumptions used in the Competitive Analysis Screen and that the Commission may want 

to take steps to build a more complete record in merger proceedings by including certain 

types of information discussed in the 2010 Guidelines. AAI further asserts that the 

Commission should consider crafting filing requirements to ensure that the Commission, 

intervenors, and the public have sufficient evidence to conduct competitive effects 

analysis, which is essential when determining if a merged firm is likely to exercise 

market power and, if so, what the appropriate remedy should be.71 

30. While APPA and NRECA state that the Commission should continue to 

emphasize market definition and the calculation of market shares and market 

concentration as the first step in its analysis, they state that the Commission should adopt 

additional tools, such as diversion ratios and critical loss analysis, to help it in its 

analysis, to the extent possible. However, they emphasize that these tools should not be a 

substitute for the Commission’s existing analysis, including the Competitive Analysis 

Screen.72 

31. Several commenters argue that the Commission should adopt the 2010 Guidelines’ 

approach to analyzing monopsony power (buyer market power). Noting that the 

Commission has previously acknowledged that an evaluation of buyer market power may 

be appropriate in some instances, AAI suggests that the Commission should take the 

 68 Id. at 19-20. 

69 Id. at 20-23. 

70 AAI Comments at 10-14. 

71 Id. at 17-18. 

72 APPA and NRECA Comments at 22. 
Docket No. RM11-14-000 - 15 - 

following approaches when evaluating such issues: (1) the Commission should avoid 

relying on market power mitigation measures in organized markets to address buyer 

market power issues raised in merger cases; (2) the Commission’s standard, as in the 

2010 Guidelines, should be whether the merged firm will be able to impose worse terms 

on its trading partners; and (3) the Commission should distinguish between mergers that 

are likely to create or enhance monopsony power and those mergers where the presence 

of seller market power in an upstream market may serve as an opposing force to buyer 

market power in a downstream market, which may be procompetitive in some 

circumstances.73 Similarly, FTC Staff argues that the Commission should take into 

account sections 8 and 12 of the 2010 Guidelines, which relate to powerful buyers and 

monopsony power. FTC Staff explains that section 8 relates to the ability of powerful 

buyers to forestall the adverse competitive effects flowing from a merger and that, under 

this section, the Antitrust Agencies examine the choices available to such buyers, how 

these choices would change due to the merger, and whether the negotiating strength of 

some buyers impact the competitive effects of a merger on other buyers. FTC Staff 

further explains that section 12 of the 2010 Guidelines addresses the competitive effects 

of mergers of competing buyers and focuses on alternatives available to suppliers when a 

merger reduces the number of buyers.74

32. AAI, FTC Staff, APPA, and NRECA urge the Commission to analyze partial 

acquisitions in a manner consistent with the 2010 Guidelines. In particular, AAI 

contends that, in light of the 2010 Guidelines’ discussion of partial acquisitions, the 

Commission should revise its analysis to ensure that the Commission fully considers the 

potential adverse effects of partial ownership by avoiding bright-line tests, evaluating any 

evidence that would help establish a competitive concern surrounding the transaction, 

and, if evidence points to a potential competitive concern, determining the degree to 

which the private investor at issue will have control, participation, or other influence over 

decisions that affect competitive strategy.75 Similarly, FTC Staff notes that the 2010 

Guidelines indicate that the Antitrust Agencies will consider all ways in which a partial 

acquisition may affect competition and focus in particular on the acquiring party’s 

influence over the competitive conduct of the firm, reductions in the incentives of the 

acquiring and target firms to compete with each other, and access by the acquiring firm to 

non-public information.76 Likewise, APPA and NRECA argue that the Commission 

should revise Part 33 of its regulations to require section 203 applications involving 

partial acquisitions to address the three potential adverse competitive effects identified in 

 73 AAI Comments at 22-23. 

74 FTC Staff Comments at 8. 

75 AAI Comments at 20-21. 

76 FTC Staff Comments at 9. 
Docket No. RM11-14-000 - 16 - 

section 13 of the 2010 Guidelines and should require applicants to demonstrate that the 

acquisitions do not present these anti-competitive concerns or to propose mitigation 

measures.77

33. FTC Staff also argues that the Commission should consider embracing aspects of 

the 2010 Guidelines addressing the competitive effects of entry and efficiencies. FTC 

Staff explains that the 2010 Guidelines recognize that easy, rapid, and substantial entry 

into the relevant market could discipline market power and that efficiencies generated by 

a merger could enhance competition by spurring innovation, reducing costs, or improving 

quality. FTC Staff notes, however, that it expects that, given the characteristics of the 

energy industry, reliance on entry to address adverse competitive effects will be rare and 

that efficiencies of a merger should only carry weight to the extent that they would not be 

achieved absent the merger.78 

3. Commission Determination

34. After carefully considering the comments that were submitted, the Commission 

has decided to retain its existing approach for analyzing horizontal market power under 

section 203 of the FPA. More specifically, and as further discussed below, the 

Commission will retain the five-step framework for assessing the competitive effects of a 

proposed transaction, with the first step consisting of the Competitive Analysis Screen, 

because we find that the approach remains useful in determining whether a merger will 

have an adverse impact on competition. 

35. As the Commission has previously stated, the Competitive Analysis Screen is 

intended to provide a standard, generally conservative check to allow the Commission, 

applicants, and intervenors to quickly identify mergers that are unlikely to present 

competitive problems.79 Based on the comments that we have received, we believe that 

the Competitive Analysis Screen remains an important tool for evaluating mergers on the 

basis of their effect on market structure and performance while also providing analytic 

and procedural certainty to industry at a relatively low cost. 

36. While several commenters argue that the Commission is overly rigid in its 

application of the Competitive Analysis Screen, we believe that the current approach is 

flexible enough to incorporate theories set forth in the 2010 Guidelines, while still 

retaining the certainty that the current approach provides. The Commission has 

 77 APPA and NRECA Comments at 25. 

78 FTC Staff Comments at 8. 

79 Revised Filing Requirements Under Part 33 of the Commission’s Regulations, 

Order No. 642, FERC Stats. & Regs. ¶ 31,111, at 31,879 (2000) (Filing Requirements 

Rule), order on reh’g, Order No. 642-A, 94 FERC ¶ 61,289 (2001). 
Docket No. RM11-14-000 - 17 - 

previously made clear that it will consider other evidence of anticompetitive effects 

beyond HHI. As noted above, in the Merger Policy Statement the Commission stated 

that questions about whether the screen has accurately captured market power arising 

from a merger may be raised through interventions and by Commission staff.80 The 

Commission reaffirmed this policy in the Filing Requirements Rule81 and the 

Supplemental Policy Statement. In the Filing Requirements Rule, the Commission 

clarified that applicants with screen failures could address market conditions beyond the 

change in HHI “such as demand and supply elasticity, ease of entry and market rules, as 

well as technical conditions, such as the types of generation involved,”82 and identified 

four factors it would consider if a merger applicant fails the Competitive Analysis 

Screen.83 In the Supplemental Policy Statement, the Commission stated that it will 

consider a case-specific theory of competitive harm, which includes, but is not limited to, 

an analysis of the merged firm’s ability and incentive to withhold output in order to drive 

up prices. The Commission added that it would consider theories of competitive harm 

raised by intervenors, even if an applicant passes the Competitive Analysis Screen.84 

37. Not only has the Commission stated that it will look beyond the HHI screens, the 

Commission has done so in practice. For example, in FirstEnergy Corp, the Commission 

found that a proposed merger would not have an adverse effect on horizontal competition 

despite three screen failures because these failures occurred in off-peak periods during 

which the applicants had a relatively low market share.85 In addition, in response to 

commenters that argued that the applicants’ proposal would provide the applicants with 

the ability and incentive to raise prices, the Commission considered the fact that any 

withholding strategy could be detected by the relevant market monitor and that the 

Commission had previously found that companies would not be able to profitably 

withhold output where the generating units at issue are baseload units.86 In National 

 80 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,119. 

81 Filing Requirements Rule, FERC Stats. & Regs. ¶ 31,111 at 31,897. 

82 Id. 

83Id. at 31,898. The four factors listed by the Commission are: (1) the potential 

adverse competitive effects of the merger; (2) whether entry by competitors can deter 

anticompetitive behavior or counteract adverse competitive effects; (3) the effects of 

efficiencies that could not be realized absent the merger; and (4) whether one or both of 

the merging firms is failing and, absent the merger, the failing firm’s assets would exit 

the market. 

84 Supplemental Policy Statement, FERC Stats. & Regs. ¶ 31,253 at P 60, 65. 

85 FirstEnergy Corp, 133 FERC ¶ 61,222, at P 49 (2010). 

86 Id. P 50. 
Docket No. RM11-14-000 - 18 - 

Grid, the Commission found that a proposed transaction would not have an adverse 

impact on competition, despite the presence of screen failures, because the applicants 

lacked the ability to withhold output due to provider of last resort obligations and to the 

applicants’ obligations under long-term power sale agreements in the relevant geographic 

markets.87 

38. Given this flexibility and the benefits of the Competitive Analysis Screen, we 

decline to adopt the 2010 Guidelines as the framework for the Commission’s analysis of 

horizontal market power. We reiterate, however, that the Commission may consider 

arguments that a proposed transaction raises competitive concerns that have not been 

captured by the Competitive Analysis Screen. Likewise, while applicants must continue 

to provide a Competitive Analysis Screen, we will also consider any alternative methods 

or factors, if adequately supported. Further, we note that the Commission has various 

procedural methods to obtain additional information where appropriate.88

39. In addition, the Commission declines to adopt the HHI thresholds contained in the 

2010 Guidelines. As the Commission has previously stated, the Competitive Analysis 

Screen is intended to be “conservative enough so that parties and the Commission can be 

confident that an application that clears the screen would have no adverse effect on 

competition.”89 In light of the purpose of the Competitive Analysis Screen, we agree 

with commenters who state that more stringent thresholds are appropriate, especially 

given the distinctive characteristics of electricity markets. We also agree with 

commenters that it is an inappropriate application of the 2010 Guidelines to selectively 

incorporate the HHI thresholds from the 2010 Guidelines without other aspects and that 

doing so could undermine the Commission’s ability to accurately assess the competitive 

effects of a merger. While a number of commenters claim that the Commission should 

adopt the 2010 Guidelines’ HHI thresholds because the thresholds reflect the experience 

of the Antitrust Agencies, we note that the Antitrust Agencies administer antitrust law 

across multiple industries. In contrast, the Commission has extensive experience with 

electrical markets and shapes its analysis to reflect the realities of those markets. Based 

on that experience, we will retain the current HHI thresholds. 

40. With respect to the PPL Companies’ request that we clarify the calculation of 

SILs, we note that the Commission recently issued an order providing further direction 

and clarification on the performance and reporting of such studies in connection with 

 87 National Grid, plc, 117 FERC ¶ 61,080, at P 26-28 (2006). 

88 See, e.g., 18 C.F.R. § 33.10 (2011) (stating that the “Director of the Office of 

Energy Market Regulation . . . may, by letter, require the applicant to submit additional 

information as is needed for analysis of an application filed under this part”). 

89 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,119. 
Docket No. RM11-14-000 - 19 - 

market-based rate filings.90 The Commission believes that the direction provided in that 

order can also assist with the preparation of SIL studies for section 203 purposes and 

ensure that applicants have the guidance necessary to prepare SIL studies consistent with 

the Commission’s requirements. At present, we see no need to modify the requirements 

with respect to the preparation of SIL studies. Our experience is that studies that are 

performed consistently with the Commission’s current requirements provide reasonably 

accurate and conservative estimates of the supply of electricity that can be simultaneously 

imported into a given geographic market. 

41. With regard to the 2010 Guidelines’ analysis of partial acquisitions and minority 

ownership we note that the Commission’s existing approach to control is not contrary to 

the approach set out in the 2010 Guidelines. For instance, the Commission has found that 

a minority interest can confer control over the acquired company and has conditioned its 

approval of such transactions on restrictions limiting the ability to exercise control.91 

The Commission has also imposed certain restrictions on information sharing as a 

condition of its approval under section 203 in order to remedy competitive concerns 

arising from a partial acquisition.92 We also note that issues relating to partial 

acquisitions are among the issues before the Commission in Docket No. RM09-16-000.93 

 

42. Turning to the suggestion that the Commission should incorporate the 2010 

Guidelines’ discussion of monopsony power, we note that in the Merger Policy Statement 

the Commission stated that “an analysis of monopsony power should be developed if 

appropriate” and that “[l]ong-term purchases and sales data for interconnected entities . . . 

could be used to assess buyer concentration in the same way that seller concentration is 

calculated.”94 The Commission left open the possibility that buyer market power created 

by a merger may need to be evaluated to find that a transaction is consistent with the 

90 See Puget Sound Energy, Inc., 135 FERC ¶ 61,254 (2011). 

91 See Entegra Power Group, LLC, 125 FERC ¶ 61,143, at P 40 (2008) (imposing 

conditions to prevent possible control of multiple public utilities in the same relevant 

geographic market through the acquisition of minority ownership interests that would 

create market power).

92 See Mach Gen, LLC, 127 FERC ¶ 61,127, at P 37 (2009) (conditioning approval 

of a partial acquisition on the commitment to not share information regarding (a) planned 

maintenance windows, (b) outages, (c) marketing strategies, (d) contracts, (e) volumes, 

(f) prices, or (g) other operational data). 

93 Control and Affiliation NOPR, FERC Stats. & Regs. ¶ 32,650. 

94 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at P 80. 
Docket No. RM11-14-000 - 20 - 

public interest. As we have done in the past,95 we will continue to consider the issue of 

buyer market power on a case-by-case basis. 

43. We note that, while Dr. Morris asks the Commission to clarify that it will consider 

alternative relevant markets that are created by regional and local constraints, the 

Commission has previously done so when provided with evidence in support of the 

existence of such a market. The Commission will remain flexible in its approach and will 

reevaluate whether a previously recognized submarket continues to exist if the evidence 

shows that the persistent transmission constraints that led to the recognition of that 

submarket are no longer present. We clarify that we will not require applicants to submit 

a DPT for an identified submarket if the applicants do not have overlapping generation 

within the submarket and lack firm transmission rights to import capacity into that 

market. 

44. With respect to commenters’ suggestions that the Commission use actual 

operational data in defining markets or that the Commission should consider opportunity 

costs in market definition, we are not persuaded to require section 203 applicants to 

provide that information on a generic basis. While we recognize that the Commission’s 

current methodology may not precisely capture market conditions in all circumstances, 

we continue to believe that the DPT provides an appropriate method for determining 

suppliers in a market and is a well-established test for the electric industry. Further, we 

are concerned that information about actual market information may not be equally 

available to all applicants and, therefore, will not require all applicants to craft their 

analyses using such data. Nevertheless, the Commission will consider adequately 

supported alternative analyses based on such data. 

45. Regarding AAI’s request that the Commission formally coordinate with the 

Antitrust Agencies, we note that Commission staff has had discussions with staff from 

the Antitrust Agencies regarding several mergers.96 We acknowledge that coordination is 

valuable and will continue to coordinate with staff from the Antitrust Agencies in the 

future, as appropriate, on a case-by-case basis. Accordingly, we find no need to initiate a 

more formal coordination procedure with the Antitrust Agencies. Further, we will 

decline to initiate further formal general inquiry into the procedure for merger review, the 

modeling methods used and data sources relied upon in those models, or the hypothetical 

results that may arise if the Commission had relied on alternative methodology. 

However, the Commission may perform any of the above inquiries on a case-by-case 

basis. 

 95 See NSTAR, 136 FERC ¶ 61,016, at P 51-52 (2011). 

96 See Duke Energy Corp., Notice of Proposed Communication with Department 

of Justice, 135 FERC ¶ 61,213, (2011); Exelon Corporation, Notice of Proposed 

Communication with Department of Justice, 136 FERC ¶ 61,161 (2011). 
Docket No. RM11-14-000 - 21 - 

46. Additionally, we will decline to adopt the PPL Companies’ suggestion to modify 

our analysis to focus exclusively on available economic capacity. We believe that both 

the economic capacity and available economic capacity measures remain useful. While 

we have acknowledged that one measure may be more relevant in certain circumstances, 

we continue to believe that requiring applicants to provide analyses using both economic 

capacity and available economic capacity will ensure that the Commission has a more 

complete record on which to make its determination of whether the proposed transaction 

will have an adverse effect on competition.97 

B. Electric Market-Based Rate Program

1. Comments in Support of Retaining the Current Analysis

47. TAPS, TDU Systems, APPA, and NRECA support retaining the Commission’s 

current analysis because the Commission’s analysis of HHI is already consistent with the 

2010 Guidelines and the Commission does not yet have sufficient experience with the 

existing standards to warrant changing its analysis.98 APPA and NRECA add that the 

Commission’s analysis of horizontal market power in its electric market-based rate 

program is not directly tied to the Antitrust Agencies’ merger guidelines and there is no 

evidence that the thresholds used by the Commission are too high and are denying 

market-based rate authority to public utilities that should have it.99 Similarly, TAPS and 

TDU Systems state that there is no reason to change the Commission’s threshold for the 

market share screen and that the 2010 Guidelines actually discard the presumption that 

merging firms are significant direct competitors if their combined market share is at least 

35 percent in recognition of the fact that a merger can present market power concerns 

even if the market share of the combined companies is less than 35 percent.100 

48. Additionally, Monitoring Analytics, ELCON, and NASUCA state that the 

thresholds for the market share, pivotal supplier, and market concentration analyses 

remain appropriate because the electricity markets are still characterized by significant 

barriers to entry, limited substitutes, lack of storage, and inelastic demand.101 Modesto 

believes that the continued application of the Commission’s current market-based rate 

 97 Kansas City Power and Light Co., 113 FERC ¶ 61,074 at P 30-32, 35 (2005). 

98 TAPS and TDU Systems Comments at 12-14; APPA and NRECA Comments at 

26-28. 

99 APPA and NRECA Comments at 28. 

100 TAPS and TDU Systems Comments at 12-13. 

101 Monitoring Analytics Comments at 8-9; ELCON and NASUCA Comments at 

5-6. 
Docket No. RM11-14-000 - 22 - 

analysis will better protect consumers than embracing the 2010 Guidelines.102 Finally, 

EPSA states that the Commission should refrain from adopting the 2010 Guidelines’ 

analysis of partial acquisitions and minority ownership. 

2. Comments in Support of Modifying the Current Analysis

49. AAI maintains that the Commission should consider bringing its market-based rate 

analysis in line with the 2010 Guidelines for the same reasons that it argues the 

Commission should conform its analysis under section 203 to the 2010 Guidelines. AAI 

argues that there are a number of problems with the indicative screens that challenge the 

goal of consistent and transparent competition policy. Specifically, AAI states that both 

the pivotal supplier and market share screens address unilateral effects scenarios, which 

ignore the complex dynamics among firms in oligopoly markets that determine price and 

output levels, and are bright-line tests that determine whether an applicant is presumed to 

have market power as opposed to whether the firm has the ability and incentive to 

exercise it.103

50. FTC Staff states that the same types of information that are discussed in the 2010 

Guidelines are useful in the determination of whether a supplier already has market 

power, although the inquiry may be somewhat different than in the merger context. FTC 

Staff states that market definition in a non-merger matter seeks to identify customer 

alternatives at the competitive price. According to FTC Staff, a failure to ensure that 

customer alternatives are analyzed at the competitive price can result in a serious error, 

such as defining the market too broadly if customers are searching more widely for 

alternatives in response to an already supracompetitive price. FTC Staff claims that the 

proper application of the 2010 Guidelines in the context of market-based rate reviews 

will help avoid such errors.104

51. Dr. Morris contends that the wholesale market share screen is flawed, as 

approximately 75 percent of traditionally vertically-integrated utilities outside of an RTO 

fail the screen in their own balancing authority area regardless of the competitive 

conditions in that area. Accordingly, he recommends replacing the wholesale market 

share screen for utilities outside of RTOs or, in the alternative, allowing applicants that 

fail the wholesale market share screen to conduct a screen comparing the wholesale load 

to be served during the next three years in a market to the number of available suppliers 

in the area. He states that the Commission would need to specify the number of suppliers 

that are necessary to obtain workably competitive prices and would grant market-based 

 102 Modesto Comments at 4-5. 

103 AAI Comments at 25-26. 

104 FTC Staff Comments at 10. 
Docket No. RM11-14-000 - 23 - 

rate authority if there are a sufficient number of suppliers. He notes that his own research 

has indicated that three suppliers are sufficient to drive competitive rates down to the 

level achieved by cost-based regulation.105 

52. EPSA argues that the Antitrust Agencies’ decision to increase the HHI thresholds 

contained in the 2010 Guidelines warrants a corresponding increase in the threshold used 

for the wholesale market share indicative screen from 20 percent to 30 percent, or, at the 

very least, to 25 percent. EPSA claims that the Antitrust Agencies’ decision to increase 

the HHI threshold from 1,800 to 2,500 has eliminated the basis for the Commission’s 

objections to the use of a market share threshold higher than 20 percent. EPSA states that 

any further proposed changes to the Commission’s market-based rate analysis should be 

explored in depth in a separate proceeding or supplemental NOI.106

53. The PPL Companies state that the Commission should not modify the indicative 

screens, but state that there are some aspects of the reforms adopted in the 2010 

Guidelines that would merit consideration where there has been an initial screen failure, 

such as a fact-specific analysis of relevant markets, a focus on available economic 

capacity, and any reforms the Commission adopts for the determination of SILs in the 

section 203 context.107

3. Other Issues

54. Mr. Reutter argues that, if the Commission modifies its market-based rate analysis 

to reflect the HHI thresholds contained in the 2010 Guidelines, the Commission should 

adopt the same criteria for gas storage facilities that request market-based rate 

authority.108 

4. Commission Determination

55. The Commission will not modify the current market power analysis utilized for 

electric market-based rate applications to reflect the 2010 Guidelines.109 The 

 105 Morris Comments at 28-30. 

106 EPSA Comments at 13-16. 

107 PPL Companies Comments at 24-26. 

108 Reutter Comments at 1-2. 

109 Since the Commission is not modifying its market-based rate analysis to reflect 

the HHI thresholds contained in the 2010 Guidelines, Mr. Reuter’s request that if we did 

make such a change we adopt the same criteria for gas storage facilities that request 

market-based rate authority is moot. 
Docket No. RM11-14-000 - 24 - 

Commission’s market-based rate analysis is not explicitly tied to the Antitrust Agencies’ 

merger guidelines and commenters fail to identify any feature within those guidelines that 

warrant a change to the program. We note that the HHI threshold used by the 

Commission in the market-based rate analysis (2,500) is already consistent with the 

thresholds recently adopted in the Antitrust Agencies’ 2010 Guidelines (also 2,500). 

56. With respect to the use of the indicative screens, we will retain the current 

thresholds. While EPSA argues that the Antitrust Agencies’ decision to raise the 

threshold for a highly concentrated market undercuts the Commission’s reasoning in 

retaining the existing threshold for the market share screen, we disagree. In Order No. 

697, the Commission found that a conservative approach at the indicative screen stage of 

the Commission’s analysis is appropriate because a seller is presumed not to possess 

horizontal market power if the seller passes both of the screens.110 The Commission has 

found that a 20 percent threshold is appropriate because a firm with a 20 percent market 

share is not likely to be a “fringe” firm that is not a significant factor in the market,111 and 

in markets characterized by relatively low elasticity of demand, such as markets for 

electricity, market power is more likely to be present at lower market shares than in 

markets with high demand elasticity.112 As the Commission has noted in the past, the 20 

percent threshold strikes the appropriate balance between having a conservative but 

realistic screen and imposing undue regulatory burdens.113 Thus, while the Commission 

mentioned the 1992 Guidelines in its discussion in Order No. 697, the Antitrust 

Agencies’ decision to modify its thresholds does not warrant a concomitant change to the 

market share screen in the Commission’s electric market-based rate program, as the 

Commission’s reasoning was tied to the nature of the Commission’s review of marketbased rate filings and the physical and economic characteristics of markets for electricity. 

Also, while EPSA points to a recent Commission order114 as support for the idea that the 

20 percent threshold is too low and results in “false positives,” EPSA fails to point to 

anything in that order that shows that the indicative screens resulted in a “false positive” 

and that the applicants’ filing did not warrant further scrutiny and the consideration of 

additional evidence. 

57. The Commission disagrees with AAI’s assertion that the indicative screens are 

flawed because they focus only on unilateral effects. While the pivotal supplier screen 

focuses on the ability of a seller to exercise market power unilaterally, as the Commission 

 110 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 89. 

111 AEP Power Marketing, Inc., 108 FERC ¶ 61,026, at P 96 (2004). 

112 Id.; Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 89.

113 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 90-91. 

114 BE Louisiana, LLC, 132 FERC ¶ 61,118 (2010). 
Docket No. RM11-14-000 - 25 - 

observed in Order No. 697, the market share screen focuses on both “unilateral market 

power and the ability of a seller to effect coordinated interaction with other sellers.”115 

Additionally, while AAI criticizes the screens on the basis that they do not focus on the 

ability and incentive to exercise market power, the Commission has previously found and 

reiterates here that requiring sellers to submit screens that focus on the sellers’ potential 

(i.e., ability) to exercise market power is consistent with the Commission’s obligation to 

set policies that ensure that rates remain just and reasonable.116 

58. Further, with respect to Dr. Morris’s argument that the Commission should modify 

the market share screen because traditional vertically-integrated utilities outside of an 

RTO typically fail the screen, we note that Dr. Morris does not provide evidentiary 

support for this claim. Moreover, the Commission addressed and rejected a similar claim 

in the Order No. 697 proceeding.117 Additionally, even assuming that Dr. Morris’s 

assertion is accurate, the fact that a particular class of market participant often fails the 

market share screen does not mean that the screen is flawed. The screen is intended to be 

a conservative measure to identify those sellers that may raise market power concerns 

and merit additional scrutiny; it is not intended to ensure that a particular class of market 

participant routinely passes the Commission’s analysis. Moreover, the alternative 

analysis that Dr. Morris proposes is a contestable load analysis, which the Commission 

has previously rejected.118 There is no evidence that market conditions have changed 

such that the Commission should now accept this analysis. 

59. As far as the suggestion that the Commission should consider fact-specific 

evidence of competitive harm or that the Commission should consider additional 

evidence when determining the relevant geographic market, we believe that the 

Commission’s current analysis provides adequate flexibility to consider such arguments 

when raised by an applicant or an intervenor. The Commission has stated that an 

applicant that fails one of the indicative screens may submit alternative evidence, 

including a DPT or actual historical sales data, to rebut the presumption of market power. 

Thus, to the extent that an applicant has additional evidence regarding the competitive 

situation in a market, it is free to present that to the Commission and the Commission will 

 115 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 65. 

116 Id. P 70; see also Westar Energy, Inc., 123 FERC ¶ 61,123 at P 22 (2008). 

117 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 82, 93 (rejecting the 

argument that a threshold of 20 percent was inappropriate due to the fact it is difficult for 

investor-owned utilities outside of RTOs/ISOs to fall below the threshold because the 

Commission already allowed applicants to deduct native load and had decided elsewhere 

in the order to increase the permissible deduction). 

118 See, e.g., id. P 66-67. 
Docket No. RM11-14-000 - 26 - 

consider that evidence on a case-by-case basis.119 The Commission has further stated 

that intervenors may present alternative evidence, such as historical sales or transmiss

data, to support or rebut the results of the indicative screens.

ion 

120 In addition, in Order No. 

697, the Commission stated that it would continue to allow sellers and intervenors on a 

case-by-case basis to show that some other geographic market should be considered as 

the relevant market in a particular case. 

The Commission orders: 

 The proceeding in Docket No. RM11-14-000 is hereby terminated. 

By the Commission. 

( S E A L ) 

Nathaniel J. Davis, Sr., 

Deputy Secretary. 

 

 119 See, e.g., Dogwood Energy, LLC, 135 FERC ¶ 61,089 (2011); Shell Energy 

North America (US), L.P., 135 FERC ¶ 61,090 (2011). 

120 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 70; see, e.g., AEP Power 

Marketing, Inc., 124 FERC ¶ 61,274, at P 34-36 (2008). 
Docket No. RM11-14-000 - 27 - 

Appendix A: List of Commenters 

Short Name or Acronym Commenter

AAI American Antitrust Institute

APPA American Public Power Association

Berkeley Carl Danner, Henry Kahwaty, Keith Reutter, 

and Cleve Tyler of the Berkeley Research 

Group

Brattle Group Romkaew Broehm, Peter Fox-Penner, Oliver 

Grawe, and James Reitzes of The Brattle Group 

Cavicchi A. Joseph Cavicchi

EEI Edison Electric Institute

ELCON Electricity Consumers Resource Council

EPSA Electric Power Supply Association

Entergy Entergy Services, Inc.

FTC Staff Staff of the Federal Trade Commission

Modesto Modesto Irrigation District 

Monitoring Analytics Monitoring Analytics, LLC 

Morris Dr. John Morris 

NASUCA National Association of State 

Utility Consumer Advocates 

NARECA National Rural Electric Cooperative Association 

New York Commission New York State Public Service Commission 

PPL Companies PPL Electric Utilities Corporation; Louisville 

Gas & Electric Company; Kentucky Utilities 

Company; LG&E Energy Marketing, Inc.; PPL 
Docket No. RM11-14-000 - 28 - 

EnergyPlus, LLC; PPL Brunner Island, LLC; 

PPL Holtwood, LLC; PPL Martins Creek, LLC; 

PPL Montour, LLC; PPL Susquehanna, LLC; 

Lower Mount Bethel Energy, LLC; PPL New 

Jersey Solar, LLC; PPL New Jersey Biogas, 

LLC; PPL Renewable Energy, LLC; PPL 

Montana, LLC; PPL Colstrip I, LLC; and PPL 

Colstrip II, LLC. 

Reutter Keith Reutter 

TAPS Transmission Access Policy Study Group 

TDU Systems Transmission Dependent Utility Systems