A municipal power group and a rural electric co-op group calledon FERC last week to put a halt to the merger “frenzy” betweenlarge electric utilities for a two-year period. By that time, theybelieve the Commission will have had enough time to collect andanalyze hard data on the changing competitive structure of thepower industry, putting itself in a much better position todetermine whether proposed mergers are in the public interest.

The moratorium would provide the ‘breathing time’ necessary tostop the “defensive posturing” between utilities that’s presentlyoccurring, as well as would give FERC the time to analyze data toreview the mergers, said Gregory Wortham, counsel for the NationalRural Electric Cooperative Association (NRECA), which along withthe American Public Power Association (APPA) filed the jointpetition. The two groups represent entities that serve 25% of theelectric customers in the nation.

The aim of the petition is to try to stem the tide of utilitymega-mergers, many of which are the result of the current industrymindset that everything’s got to be “geometrically larger than whatit [was] the year before,” Wortham said. Two years ago, he notedelectric utilities believed they needed one million customers tosurvive and compete in the current market, but that number shot upto four million last year and 10 million this year. This, Worthansaid, has set off a chain reaction of defensive mergers.

“They’re creating this frenzy that nobody’s big enough, and soeverybody’s going to gobble everybody else up, which defeats thepurpose of going to competition and having customer choice” in thefirst place. While regulators and legislators “are moving to createthe competitive market,” the electric utility companies seem to bemoving in the opposite direction via their merger activity, Worthamsaid. “Basically, you’re going towards competition, but by the timeyou get there, there won’t be any competitors left.”

The NRECA and APPA asked the Commission to impose a two-yearmoratorium in cases where the acquired or acquiring utility hasmore than one million electric metered accounts, which amounts toabout 2-3.5 million customers, or in cases where the actual mergerwould result in a utility with more than one million meteredaccounts.

FERC needs to take a two-year pause to find out “whether mergersof incumbent electric utilities and/or wholesale power suppliers,collectively or individually, are on balance pro-competitive oranticompetitive.” Specifically, the Commission needs to “reallyanalyze what’s actually happening in some of the states, to figureout if market power is a problem there; to figure out ifconvergence mergers are irrelevant to market power or if they’re anew 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 “significantup-tick” in certain types of mergers is expected soon, said DavePenn, APPA’s deputy executive director. The utility industry hasbeen in the throes of a merger wave for more than two years, but”we anticipate…that there’s about to be a new onslaught ofmergers, especially convergence ones involving gas and electriccompanies, and non-adjacent mergers.” Previously, “most mergershave been between adjacent service territories, but in the newworld there’s a tremendous incentive to acquire or consolidate muchbeyond the [contiguous] services territories,” Penn said. Thesetypes of mergers will raise different kinds of market-power issues.

Susan Parker

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.