10492 Federal Register / Vol. 77, No. 35 / Wednesday, February 22, 2012 / Notices 

1Analysis of Horizontal Market Power under the 

Federal Power Act, Notice of Inquiry, 76 FR 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). 

4A list of the commenters is provided in 

Appendix A. 

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). 

6Energy Policy Act of 2005, Public Law 109–58, 

1289, 119 Stat. 594, 982–83 (2005), codified, 16 

U.S.C. 824b(a)(4). 7U.S. Dept. of Justice & Federal Trade 

Commission, ‘‘Horizontal Merger Guidelines’’ 

(1992), as revised (1997) (1992 Guidelines). 8Merger 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. 

9The 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. 

10Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,119–20, 30, 128–37. 

j. City of Aspen filed its request to use 

the Traditional Licensing Process on 

December 12, 2011. The city provided 

public notice of its request on December 

19, 2011. In a letter dated February 2, 

2012, the Director of the Office of 

Energy Projects approved the City of 

Aspen’s request to use the Traditional 

Licensing Process. 

k. With this notice, we are initiating 

informal consultation with: (a) The U.S. 

Fish and Wildlife Service under section 

7 of the Endangered Species Act and the 

joint agency regulations thereunder at 

50 CFR Part 402; and (b) the Colorado 

State Historic Preservation Officer, as 

required by section 106, National 

Historical Preservation Act, and the 

implementing regulations of the 

Advisory Council on Historic 

Preservation at 36 CFR 800.2. 

l. With this notice, we are designating 

the City of Aspen as the Commission’s 

non-federal representative for carrying 

out informal consultation, pursuant to 

section 7 of the Endangered Species Act, 

section 305 of the Magnuson-Stevens 

Fishery Conservation and Management 

Act, and section 106 of the National 

Historic Preservation Act. 

m. City of Aspen filed a PreApplication Document (PAD; including 

a proposed process plan and schedule) 

with the Commission, pursuant to 18 

CFR 5.6 of the Commission’s 

regulations. 

n. A copy of the PAD is available for 

review at the Commission in the Public 

Reference Room or may be viewed on 

the Commission’s Web site (http:// 

www.ferc.gov), using the ‘‘eLibrary’’ 

link. Enter the docket number, 

excluding the last three digits in the 

docket number field to access the 

document. For assistance, contact FERC 

Online Support at 

FERCONlineSupport@ferc.gov or toll 

free at 1–866–208–3676, or for TTY, 

(202) 502–8659. A copy is also available 

for inspection and reproduction at the 

address in paragraph h. Register online 

at http://www.ferc.gov/docs-filing/ 

esubscription.asp to be notified via 

email of new filing and issuances 

related to this or other pending projects. 

For assistance, contact FERC Online 

Support. 

Dated: February 14. 2012. 

Kimberly D. Bose, 

Secretary. 

[FR Doc. 2012–4012 Filed 2–21–12; 8:45 am] 

BILLING CODE 6717–01–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

[Docket No. RM11–14–000] 

Order Reaffirming Commission Policy 

and Terminating Proceeding; Analysis 

of Horizontal Market Power Under the 

Federal Power Act 

Before Commissioners: Jon Wellinghoff, 

Chairman; Philip D. Moeller, John 

R. Norris, and Cheryl A. LaFleur. 

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 

market-based rate program. 

Accordingly, we will terminate the 

proceeding in Docket No. RM11–14– 

000. 

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 fivestep 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 

increase concentration in relevant 

markets. The components to a screen 

analysis are as follows: (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 

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) 9 thresholds 

from the 1992 Guidelines.10


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Federal Register / Vol. 77, No. 35 / Wednesday, February 22, 2012 / Notices 10493 

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). 

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 CFR 35.37(c)(2) (2011). 

21Order No. 697, FERC Stats. & Regs. ¶ 31,252 at 

P 63; 18 CFR 35.37(c)(3) (2011). 

22Order No. 697, FERC Stats. & Regs. ¶ 31,252 at 

P 117. 

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

24 Id. P 13. 

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 identify sellers that raise no 

horizontal market power concerns and 

can otherwise be considered for marketbased 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

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

Market 1992 

Guidelines 

2010 

Guidelines 

HHI (Market Concentration) Thresholds 

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 factspecific 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 


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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. 

27Morris Comments at 21–22; EEI Comments 

5–9; EPSA Comments at 7–8. 

28Morris Comments at 21. 

29EEI Comments at 6–8. 

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

31EEI Comments at 12–14; EPSA Comments at 

5–6; Morris Comments at 20. 

32EEI Comments at 9, 14–15; EPSA Comments at 

6–7. 

33Modesto Comments at 4. 

34APPA and NRECA Comments at 9–10; ELCON 

and NASUCA Comments at 4. 

35ELCON and NASUCA Comments at 4. 

36APPA and NRECA Comments at 2–3. 

37Cavicchi Comments at 6–7 (citing 

Supplemental Policy Statement, FERC Stats. & Regs. 

¶ 31,253, at P 65). 

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 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 marketbased 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 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 onthe-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 open-ended 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 

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 


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Federal Register / Vol. 77, No. 35 / Wednesday, February 22, 2012 / Notices 10495 

38TAPS and TDU Systems Comments at 16–17. 

39 Id. at 4, 6–7; ELCON and NASUCA Comments 

at 5. 

40TAPS and TDU Systems Comments at 6–7. 

41New York Commission Comments at 3–4; 

ELCON and NASUCA Comments at 4–5; APPA and 

NRECA Comments at 2; Monitoring Analytics 

Comments at 6. 

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

43 Id. at 11–12. 

44Modesto Comments at 4–5. 

45AAI Comments at 15. 

46Berkeley Comments at 5. 

47EPSA 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. 

50FTC Staff Comments at 2; PPL Companies 

Comments at 5–8. 

51FTC Staff Comments at 2, 4–7. 

52PPL Companies Comments at 16. 

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, 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

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-bycase 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 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 


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53AAI Comments at 5–7. 

54 Id. at 15–17. 

55Monitoring Analytics Comments at 2–5. 

56Brattle Group Comments 5–10. 

57Cavicchi Comments at 5–6. 

58PPL Companies Comments at 11–12. 

59Brattle Group Comments at 10–11. 

60Monitoring Analytics Comments at 2–3. 

61Morris 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)). 

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. 

64Morris Comments at 23. 

65Cavicchi Comments at 3. 

66PPL Companies Comments at 13–14. 

67 Id. at 17–19. 

68 Id. at 19–20. 

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 

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 post-merger 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 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 InterconnectionEast 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 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 


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69 Id. at 20–23. 

70AAI Comments at 10–14. 

71 Id. at 17–18. 

72APPA and NRECA Comments at 22. 

73AAI Comments at 22–23. 

74FTC Staff Comments at 8. 

75AAI Comments at 20–21. 

76FTC Staff Comments at 9. 

77APPA and NRECA Comments at 25. 

78FTC Staff Comments at 8. 

79Revised Filing Requirements Under Part 33 of 

the Commission’s Regulations, Order No. 642, FERC 

Stats. & Regs. ¶ 31,111, at 31,879 (2000) (Filing 

Continued 

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 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 nonpublic 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 section 13 of the 

2010 Guidelines and should require 

applicants to demonstrate that the 

acquisitions do not present these anticompetitive 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 


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Requirements Rule), order on reh’g, Order No. 642– 

A, 94 FERC ¶ 61,289 (2001). 80Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,119. 81Filing Requirements Rule, FERC Stats. & Regs. 

¶ 31,111 at 31,897. 82 Id. 83 Id. 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. 

84Supplemental Policy Statement, FERC Stats. & 

Regs. ¶ 31,253 at P 60, 65. 

85FirstEnergy Corp, 133 FERC ¶ 61,222, at P 49 

(2010). 

86 Id. P 50. 

87National Grid, plc, 117 FERC ¶ 61,080, at P 26– 

28 (2006). 

88See, e.g., 18 CFR 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’’). 

89Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at 30,119. 

90See Puget Sound Energy, Inc., 135 FERC 

¶ 61,254 (2011). 

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 

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 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 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 


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91See 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). 

92See 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). 

93Control and Affiliation NOPR, FERC Stats. & 

Regs. ¶ 32,650. 

94Merger Policy Statement, FERC Stats. & Regs. 

¶ 31,044 at P 80. 

95See NSTAR, 136 FERC ¶ 61,016, at P 51–52 

(2011). 

96See 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). 

97Kansas City Power and Light Co., 113 FERC 

¶ 61,074 at P 30–32, 35 (2005). 

98TAPS and TDU Systems Comments at 12–14; 

APPA and NRECA Comments at 26–28. 

99APPA and NRECA Comments at 28. 

100TAPS and TDU Systems Comments at 12–13. 

101Monitoring Analytics Comments at 8–9; 

ELCON and NASUCA Comments at 5–6. 

102Modesto Comments at 4–5. 

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 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 wellestablished 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-bycase 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. 

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 

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. 


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103AAI Comments at 25–26. 

104FTC Staff Comments at 10. 

105Morris Comments at 28–30. 

106EPSA Comments at 13–16. 

107PPL Companies Comments at 24–26. 

108Reutter Comments at 1–2. 

109Since 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. 

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

at P 89. 

111AEP Power Marketing, Inc., 108 FERC 

¶ 61,026, at P 96 (2004). 

112 Id.; Order No. 697, FERC Stats. & Regs. 

¶ 31,252 at P 89. 

113Order No. 697, FERC Stats. & Regs. ¶ 31,252 

at P 90–91. 

114BE Louisiana, LLC, 132 FERC ¶ 61,118 (2010). 

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 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 factspecific 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 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 market-based 

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’ 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 35 / Wednesday, February 22, 2012 / Notices 10501 

115Order 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). 

117Order 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). 

118See, e.g., id. P 66–67. 

119See, e.g., Dogwood Energy, LLC, 135 FERC 

¶ 61,089 (2011); Shell Energy North America (US), 

L.P., 135 FERC ¶ 61,090 (2011). 

120Order 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). 

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 

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 factspecific 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 

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 transmission data, to support or 

rebut the results of the indicative 

screens.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. 

Dated: February 16, 2012. 

By the Commission. 

Nathaniel J. Davis, Sr., 

Deputy Secretary. 

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 FoxPenner, 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. 

Short name 

or acronym Commenter 

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 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. 

[FR Doc. 2012–4050 Filed 2–21–12; 8:45 am] 

BILLING CODE 6717–01–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

[Docket No. EL12–25–000] 

Northeast Utilities Service Company; 

Notice of Petition for Declaratory Order 

Take notice that on February 8, 2012, 

Northeast Utilities Service Company 

(NUSCO), on behalf of the Connecticut 

Light and Power Company, Public 

Service Company of New Hampshire, 

and Western Massachusetts Electric 

Company (collectively, NU Companies), 

filed a Petition for Declaratory Order, 

requesting that the Federal Energy 

Regulatory Commission (Commission) 

confirm that the use of at-cost pricing 

for the provision of certain non-power 

goods and services among the NU 

Companies through NUSCO as an 

accounting intermediary is appropriate, 

or in the alternative, waiver of the 


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