134 FERC ¶ 61,191 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

[Docket No. RM11-14-000] 

Analysis of Horizontal Market Power under the Federal Power Act 

(March 17, 2011) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Notice of Inquiry. 

SUMMARY: In this Notice of Inquiry, the Federal Energy Regulatory Commission 

seeks comment on whether, and if so, how, the Commission should revise its approach 

for examining horizontal market power concerns in transactions under § 203 of the 

Federal Power Act to reflect the Horizontal Merger Guidelines issued by the Department 

of Justice and Federal Trade Commission on August 19, 2010 (2010 Guidelines), and 

what impact the 2010 Guidelines should have, if any, on the Commission’s analysis of 

horizontal market power in its electric market-based rate program. 

DATES: Comments are due [Insert date that is 60 days after publication in the 

FEDERAL REGISTER]. 

ADDRESSES: You may submit comments, identified by docket number by any of the 

following methods: 

 Agency Web Site: http://ferc.gov. Documents created electronically using word 

processing software should be filed in native applications or print-to-PDF format 

and not in a scanned format. 
Docket No. RM1-14-000 - 2 - 

 Mail/Hand Delivery: Commenters unable to file comments electronically must 

mail or hand deliver an original copy of their comments to: Federal Energy 

Regulatory Commission, Secretary of the Commission, 888 First Street, NE, 

Washington, DC 20426. 

FOR FURTHER INFORMATION CONTACT: 

Stephen J. Hug (Legal Information) 

Office of General Counsel – Energy Markets 

Federal Energy Regulatory Commission 

888 First Street, NE 

Washington, DC 20426 

(202) 502-8009 

Eugene Lee (Technical Information) 

Office of Energy Market Regulation 

Federal Energy Regulatory Commission 

888 First Street, NE 

Washington, DC 20426 

(202) 502-6195 

SUPPLEMENTARY INFORMATION:
134 FERC ¶ 61,191 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Analysis of Horizontal Market Power under the Federal 

Power Act 

Docket No. RM11-14-000 

NOTICE OF INQUIRY 

(March 17, 2011) 

1. In this Notice of Inquiry, the Federal Energy Regulatory Commission 

(Commission) seeks comment on whether, and if so, how, the Commission should revise 

its approach for examining horizontal market power concerns in transactions under § 203 

of the Federal Power Act (FPA)1

 to reflect the Horizontal Merger Guidelines issued by 

the Department of Justice (DOJ) and Federal Trade Commission (FTC) (together, the 

Antitrust Agencies) on August 19, 2010 (2010 Guidelines), and what impact the 2010 

Guidelines should have, if any, on the Commission’s analysis of horizontal market power 

in its electric market-based rate program under § 205 of the FPA.2

 

I. Background

A. Section 203

2. Section 203(a)(4) of the FPA requires the Commission to approve a proposed 

disposition, consolidation, acquisition, or change in control if it finds that the proposed 

 

1

 16 U.S.C. 824b. 

2

 16 U.S.C. 824d. 
Docket No. RM11-14-000 - 2 - 

transaction will be consistent with the public interest. In the 1996 Merger Policy 

Statement, the Commission set out the three factors it generally considers when analyzing 

whether a proposed § 203 transaction is consistent with the public interest: effect on 

competition, effect on rates, and effect on regulation.3

 In analyzing whether a proposed 

transaction will have an adverse effect on competition, the Merger Policy Statement 

adopted the Antitrust Agencies’ 1992 Horizontal Merger Guidelines (1992 Guidelines)4

and its five-step framework,5

 as well as the Appendix A analytic screen, based on the 

1992 Guidelines, to identify transactions that would not harm competition. The 

components to a screen analysis are as follows: (1) identify the relevant products; (2) for 

the purpose of determining the size of the geographic market, identify customers who 

may be affected by the merger; (3) for the purpose of determining the size of the 

geographic market, identify potential suppliers to each identified customer (includes a 

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

Act: Policy Statement, Order No. 592, FERC Stats. & Regs. ¶ 31,044, at 30,111 (1996), 

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

Statement). The Energy Policy Act of 2005 added the requirement that the Commission 

find that the transaction will not result in inappropriate cross-subsidization, unless the 

Commission determines that such cross-subsidization will be consistent with the public 

interest. 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). 

4

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

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

5

 Merger Policy Statement, FERC Stats. & Regs. at 30,118. The five steps are: 

(1) defining the markets; (2) evaluating whether the extent of concentration of the market 

raise concerns about potential adverse competitive effects; (3) assessing whether entry 

could counteract such concerns; (4) assessing any efficiency gains that cannot otherwise 

be gauged; and (5) assessing whether either party to the merger would fail without the 

merger, causing its assets to exit the market. 
Docket No. RM11-14-000 - 3 - 

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

against actual trade data); and (4) analyze market concentration using the HerfindahlHirschman Index (HHI)6

 thresholds from the 1992 Guidelines.7 

3. The Commission adopted the HHI thresholds set forth in the 1992 Guidelines to 

classify a market as unconcentrated, moderately concentrated, and highly concentrated, 

and to assess the competitive significance of the change in HHI resulting from a proposed 

transaction. The Commission, based on the 1992 Guidelines, classifies a market as 

unconcentrated if the post-merger HHI in the market is below 1,000 points and considers 

mergers that result in an unconcentrated market as unlikely to have adverse competitive 

effects, regardless of the change in HHI resulting from the merger. 

4. The Commission classifies a market as moderately concentrated if the post-merger 

HHI ranges from 1,000 to 1,800. Under the Commission’s standards, a merger in a 

moderately concentrated market that involves an increase in HHI of more than 100 points 

is considered to potentially raise significant competitive concerns. The Commission 

currently classifies a market as highly concentrated if the post-merger market’s HHI 

exceeds 1,800 and considers mergers that result in a change in HHI that is greater than 

 6

 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. See infra P 10, 12. 

7

 Merger Policy Statement, FERC Stats. & Regs. at 30,119-20, 30,128-37. 
Docket No. RM11-14-000 - 4 - 

50 points as potentially raising significant competitive concerns. If the change in HHI 

exceeds 100 points, the merger is presumed to create or enhance market power. 

5. The Commission revised its regulations to reflect the adoption of the 1992 

Guidelines in the analysis of horizontal market power in § 203 transactions. Section 2.26 

of the Commission’s regulations states: 

(a) The Commission has adopted a Policy Statement on its 

policies for reviewing transactions subject to section 203. 

That Policy Statement can be found at 77 FERC 61,263 

(1996). The Policy Statement is a complete description of the 

relevant guidelines. Paragraphs (b)-(e) of this section are only 

a brief summary of the Policy Statement. 

. . . 

(c) Effect on competition. Applicants should provide data 

adequate to allow analysis under the Department of 

Justice/Federal Trade Commission Merger Guidelines, as 

described in the Policy Statement and Appendix A to the 

Policy Statement.8

6. The Commission described the 1992 Guidelines as a well-accepted standard 

approach for evaluating the competitive effects of mergers but noted that the 1992 

 8

 18 CFR 2.26. 
Docket No. RM11-14-000 - 5 - 

Guidelines “are just that – guidelines. They provide analytical guidance but do not 

provide a specific recipe to follow.”9

 In addition, the Commission noted analytic 

challenges in applying the 1992 Guidelines to the electric power industry, “because the 

industry is evolving very rapidly and because the industry has some unique features.” 

The Commission explained that an analysis that follows the 1992 Guidelines still requires 

many assumptions and judgments to fit specific fact situations.10 In the Supplemental 

Policy Statement, the Commission noted that the Antitrust Agencies use “informal and 

non-public processes for reviewing transactions,” in contrast to the public process used 

by the Commission.11 The courts have also acknowledged that the Commission’s 

standard of review is whether a transaction is “consistent with the public interest,” and 

that the Commission was not intended to enforce antitrust policy in conjunction with the 

Antitrust Agencies.12

7. The Commission subsequently issued Order No. 642, which stated that, consistent 

with the 1992 Guidelines, applicants that failed the competitive screen could submit 

evidence to assist the Commission in evaluating the following factors to show that the 

proposed transaction would not have an adverse effect on competition: (1) the potential 

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

 9

 Merger Policy Statement, FERC Stats. & Regs. at 30,118. 

10 Id. 

11 FPA Section 203 Supplemental Policy Statement, FERC Stats. & Regs. 

¶ 31,253, at P 69-70 (2007), order on clarification, 122 FERC ¶ 61,157, at P 15 (2008). 

12 Northeast Utilities Service Co., 993 F.2d 937, 947 (1st Cir. 1993). 
Docket No. RM11-14-000 - 6 - 

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.13

B. Market-Based Rates

8. With respect to the Commission’s analysis of horizontal market power in its 

market-based rate program, the Commission employs two preliminary screens – the 

wholesale market share indicative screen and the pivotal supplier indicative screen – and 

failure of either screen results in a rebuttable presumption of horizontal market power. 

The intent of the indicative screens is to identify those sellers that raise no horizontal 

market power concerns and can otherwise be considered for market-based rate 

authority.14 

9. The Commission has traditionally employed a 20 percent threshold for the 

wholesale market share screen (a seller with a market share of less than 20 percent passes 

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

Order No. 642, FERC Stats. & Regs. ¶ 31,111, at 31,898 (2000) (1992 Guidelines sec. 

0.2 Overview). These factors are codified at 18 CFR 33.3(f). The 2010 Guidelines retain 

these steps, but place less emphasis on them. 

14 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 62, 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). 
Docket No. RM11-14-000 - 7 - 

the screen).15 The Commission stated that the use of such conservative thresholds at the 

indicative screen stage of a proceeding is warranted because the indicative screens are 

meant to identify those sellers that raise no horizontal market power concerns, as well as 

those that require further examination.16 The Commission reasoned that a 20 percent 

threshold for the wholesale market share screen struck the proper balance between 

identifying sellers that may present market power concerns, while avoiding the risk of 

“false negatives” and imposing undue regulatory burdens on sellers. Several protesters 

argued that the 20 percent threshold was too low in light of the 1992 Guidelines’ 

statement that firms with 35 percent or more market share have market power. The 

Commission rejected these arguments, stating that a market with five equal-sized firms 

with 20 percent market shares will have an HHI of 2,000, which is above the HHI 

threshold used in the 1992 Guidelines for a highly-concentrated market,17 and that market 

power is more likely to be present at lower market shares in markets for commodities 

with low demand price-responsiveness, like electricity, than in markets with high demand 

elasticity.18 

 15 AEP Power Marketing, Inc., 97 FERC ¶ 61,219, at 61,969 (2001); AEP Power 

Marketing, Inc., 107 FERC ¶ 61,018, at P 8, 102 (April 14 Order), order on reh’g, 

108 FERC ¶ 61,026 (2004). 

16 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 62. 

17 As explained further below, the Antitrust Agencies use HHI as a method of 

classifying a market based on its level of concentration. See infra P 12. Under the 1992 

Guidelines, a market with an HHI above 1,800 is considered to be highly concentrated. 

1992 Guidelines sec. 1.5. 

18 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 80, 89-93. 
Docket No. RM11-14-000 - 8 - 

10. Sellers that fail either indicative screen may rebut the presumption of market 

power in one of several ways, including by submitting a DPT analysis. The DPT defines 

the relevant market by identifying potential suppliers based on market prices, input costs, 

and transmission availability, and calculates each supplier’s economic capacity and 

available economic capacity for each season and load condition. The results of the DPT 

can be used for pivotal supplier, market share, and market concentration analyses. In 

analyzing market concentration in this context, the Commission uses an HHI threshold of 

2,500.19 In rejecting arguments that it should, consistent with the 1992 Guidelines, adopt 

an HHI threshold of 1,800, the Commission noted that the Department of Justice had 

previously advocated an HHI threshold of 2,500 for analyzing whether to grant marketbased pricing for oil pipelines and that the Department of Justice had further stated that 

the Commission could reasonably conclude that an entity participating in a market with 

an HHI threshold of less than 2,500 had a rebuttable presumption that it did not have 

market power.20 

II. The 2010 Guidelines

11. The 2010 Guidelines set forth how the Antitrust Agencies will evaluate the 

competitive impact of mergers, focusing on whether a merger results in anticompetitive 

effects such as “encouraging one or more firms to raise price, reduce output, diminish 

 19 Id. P 110-111; April 14 Order, 107 FERC ¶ 61,018 at P 110-11. 

20 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 110 (citing Comments of the 

U.S. Department of Justice in response to Notice of Inquiry Regarding Market-Based 

Ratemaking for Oil Pipelines, Docket No. RM94-1-000 (Jan. 18 1994)). 
Docket No. RM11-14-000 - 9 - 

innovation, or otherwise harm customers as a result of diminished competitive constraints 

or incentives.”21 The 2010 Guidelines replace the 1992 Guidelines and explain several 

changes to the analysis set forth in the 1992 Guidelines. 

12. Specifically, the 2010 Guidelines raise the HHI thresholds used by the Antitrust 

Agencies to classify a market as unconcentrated, moderately concentrated, or highly 

concentrated. The 2010 Guidelines modify the thresholds adopted in the 1992 Guidelines 

for the purpose of classifying a particular market and assessing the significance of a postmerger change in HHI, as summarized in the table below. 

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 

13. In addition, the 2010 Guidelines place less emphasis on market definition and the 

use of a prescribed formula for considering the effects of a merger than 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 

 21 2010 Guidelines sec. 1. 
Docket No. RM11-14-000 - 10 - 

extent to which the merged firm can raise prices as a result of the merger.22 Section 6.3 

of the 2010 Guidelines provides additional guidance as to how the methods in the 2010 

Guidelines can be tailored to analyze markets involving relatively undifferentiated 

products. In particular, § 6.3 of the 2010 Guidelines identifies factors that may indicate 

that a merged firm may find it profitable to unilaterally suppress output in a market 

involving relatively undifferentiated products.23 

14. The 2010 Guidelines also address the potential competitive effects arising from 

partial acquisitions and minority ownership.24 The proposed analysis of a partial 

acquisition focuses on three principal effects: (1) whether the acquiring company will be 

able to influence the competitive conduct of the target firm;25 (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;26 and (3) whether the partial acquisition enables 

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

activity by the firms.27 

 

(continued...) 

22 Id.

23 Id. sec. 6.3. 

24 Id. sec. 13. 

25 The 2010 Guidelines state that a voting interest in the target firm or specific 

governance rights, such as the right to appoint members to the board of directors, can 

permit such influence. Id.

26 The 2010 Guidelines state that acquiring a minority position in a rival might 

significantly blunt the incentive of the acquiring firm to compete aggressively because it 

shares in the losses inflicted on the rival. Id.

27 Issues relating to partial acquisitions are among the issues before the 

Commission in Docket No. RM09-16-000. Control and Affiliation for Purposes of 
Docket No. RM11-14-000 - 11 - 

III. Request for Comments

15. The Commission seeks comment on whether, and if so, how, the Commission 

should revise its approach for examining horizontal market power concerns in 

transactions under § 203 of the FPA to reflect the 2010 Guidelines. As discussed above, 

the 2010 Guidelines place less emphasis on market definition and the use of a prescribed 

formula for considering the effects of a merger than the 1992 Guidelines. Should the 

Commission adopt this approach? If so, what elements of this approach should the 

Commission adopt? And how should the Commission incorporate these elements into its 

analysis? The 2010 Guidelines’ reduced emphasis on market definition and prescribed 

formulas aside, should the Commission adopt the revised HHI levels in the 2010 

Guidelines in its analysis of whether a proposed transaction will adversely affect 

competition under § 203 of the FPA? 

16. For example, the 2010 Guidelines raise the HHI threshold for an unconcentrated 

market and classify a market where the post-merger HHI is below 1,500 as 

unconcentrated. Should the Commission adopt the 2010 Guidelines’ classification? Or 

should the Commission continue to classify a market as unconcentrated if the postmerger HHI in the market is below 1,000 points? 

17. While the 2010 Guidelines continue to retain a threshold of 100 points for the 

purpose of assessing the significance of a post-merger change in HHI in a moderately 

 

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). 
Docket No. RM11-14-000 - 12 - 

concentrated market, the 2010 Guidelines classify a market with a post-merger HHI of 

between 1,500 and 2,500 as moderately concentrated. Should the Commission adopt the 

2010 Guidelines’ classification of a moderately concentrated market, or should the 

Commission continue to classify a market as moderately concentrated if the post-merger 

HHI ranges from 1,000 to 1,800? 

18. Under the 2010 Guidelines, a market is classified as highly concentrated if the 

post-merger HHI exceeds 2,500, and mergers that involve an increase in HHI of between 

100 and 200 points are considered to potentially raise significant competitive concerns, 

with mergers resulting in a change of greater than 200 points presumed to be likely to 

enhance market power. Should the Commission adopt the 2010 Guidelines’ thresholds 

for the purpose of identifying a market as highly concentrated and assessing the 

competitive significance of a change in HHI resulting from a merger? Or should the 

Commission continue to classify a market as highly concentrated if the post-merger 

market’s HHI exceeds 1,800? Also, should the Commission continue to consider 

mergers that result in a change in HHI that is greater than 50 points as potentially raising 

significant competitive concerns, and that mergers resulting in a change in HHI 

exceeding 100 points are presumed to create or enhance market power? 

19. Should the Commission adopt any of the other aspects of the 2010 Guidelines? If 

so, which ones, and how would the Commission incorporate these aspects into its market 

power analysis? 

20. In this regard, we note that there are fundamental differences between the 

Commission’s process and that of the Antitrust Agencies. The Commission’s review 
Docket No. RM11-14-000 - 13 - 

process is public and parties can intervene and submit comments, while the review 

process at the Antitrust Agencies is nonpublic and closed. The Commission’s merger 

decision is based on a factual record shaped not only by the applicant, but by intervenors 

and subject to analysis by Commission staff. The merger decisions by the Antitrust 

Agencies are based on information submitted by the applicant, non-public information 

gathered by the agency staff, as well as the economic analysis performed by agency staff. 

The Commission seeks comment on whether the differences between the Commission’s 

process for considering applications under §§ 203 and 205 of the FPA and the process 

used by the Antitrust Agencies for considering mergers affect the extent to which the 

Commission should adopt the 2010 Guidelines. 

21. Finally, the Commission also seeks comment on what impact the 2010 Guidelines 

should have, if any, on the Commission’s analysis of horizontal market power in its 

electric market-based rate program. 

IV. Comment Procedures

22. The Commission invites interested persons to submit comments, and other 

information on the matters and issues identified in this notice. Comments are due [Insert 

date that is 60 days after publication in the FEDERAL REGISTER]. Comments must 

refer to Docket No. RM11-14-000, and must include the commenter’s name, the 

organization they represent, if applicable, and their address in their comments. 

23. The Commission encourages comments to be filed electronically via the eFiling 

link on the Commission's web site at http://www.ferc.gov. The Commission accepts 

most standard word processing formats. Documents created electronically using word 
Docket No. RM11-14-000 - 14 - 

processing software should be filed in native applications or print-to-PDF format and not 

in a scanned format. Commenters filing electronically do not need to make a paper 

filing. 

24. Commenters that are not able to file comments electronically must send an 

original copy of their comments to: Federal Energy Regulatory Commission, Secretary 

of the Commission, 888 First Street NE, Washington, DC 20426. 

25. All comments will be placed in the Commission's public files and may be viewed, 

printed, or downloaded remotely as described in the Document Availability section 

below. Commenters on this proposal are not required to serve copies of their comments 

on other commenters. 

V. Document Availability

26. In addition to publishing the full text of this document in the Federal Register, the 

Commission provides all interested persons an opportunity to view and/or print the 

contents of this document via the Internet through FERC's Home Page 

(http://www.ferc.gov) and in FERC's Public Reference Room during normal business 

hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, NE, Room 2A, 

Washington DC 20426. 

27. From FERC's Home Page on the Internet, this information is available on 

eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft 

Word format for viewing, printing, and/or downloading. To access this document in 

eLibrary, type the docket number excluding the last three digits of this document in the 

docket number field. 
Docket No. RM11-14-000 - 15 - 

28. User assistance is available for eLibrary and the FERC’s website during normal 

business hours from FERC Online Support at (202) 502-6652 (toll free at 1-866-208-

3676) or email at ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 

502-8371, TTY (202)502-8659. E-mail the Public Reference Room at 

public.referenceroom@ferc.gov. 

By direction of the Commission. 

( S E A L ) 

Kimberly D. Bose, 

Secretary.