Munis & Co-ops Seek Delay of Utility Mergers

A municipal power group and a rural electric co-op group called on FERC last week to put a halt to the merger "frenzy" between large electric utilities for a two-year period. By that time, they believe the Commission will have had enough time to collect and analyze hard data on the changing competitive structure of the power industry, putting itself in a much better position to determine whether proposed mergers are in the public interest.

The moratorium would provide the 'breathing time' necessary to stop the "defensive posturing" between utilities that's presently occurring, as well as would give FERC the time to analyze data to review the mergers, said Gregory Wortham, counsel for the National Rural Electric Cooperative Association (NRECA), which along with the American Public Power Association (APPA) filed the joint petition. The two groups represent entities that serve 25% of the electric customers in the nation.

The aim of the petition is to try to stem the tide of utility mega-mergers, many of which are the result of the current industry mindset that everything's got to be "geometrically larger than what it [was] the year before," Wortham said. Two years ago, he noted electric utilities believed they needed one million customers to survive and compete in the current market, but that number shot up to four million last year and 10 million this year. This, Worthan said, has set off a chain reaction of defensive mergers.

"They're creating this frenzy that nobody's big enough, and so everybody's going to gobble everybody else up, which defeats the purpose of going to competition and having customer choice" in the first place. While regulators and legislators "are moving to create the competitive market," the electric utility companies seem to be moving in the opposite direction via their merger activity, Wortham said. "Basically, you're going towards competition, but by the time you get there, there won't be any competitors left."

The NRECA and APPA asked the Commission to impose a two-year moratorium in cases where the acquired or acquiring utility has more than one million electric metered accounts, which amounts to about 2-3.5 million customers, or in cases where the actual merger would result in a utility with more than one million metered accounts.

FERC needs to take a two-year pause to find out "whether mergers of incumbent electric utilities and/or wholesale power suppliers, collectively or individually, are on balance pro-competitive or anticompetitive." Specifically, the Commission needs to "really analyze what's actually happening in some of the states, to figure out if market power is a problem there; to figure out if convergence mergers are irrelevant to market power or if they're a new kind of market power; [and] to figure out if bi-coastal [merger] deals are not a problem or, in fact, are a bigger problem" than mergers involving contiguous utilities, Wortham said.

Another reason a moratorium is needed is that a "significant up-tick" in certain types of mergers is expected soon, said Dave Penn, APPA's deputy executive director. The utility industry has been in the throes of a merger wave for more than two years, but "we anticipate...that there's about to be a new onslaught of mergers, especially convergence ones involving gas and electric companies, and non-adjacent mergers." Previously, "most mergers have been between adjacent service territories, but in the new world there's a tremendous incentive to acquire or consolidate much beyond the [contiguous] services territories," Penn said. These types of mergers will raise different kinds of market-power issues.

Susan Parker

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