FERC yesterday approved the mergers of Illinova Corp. and DynegyInc. and Dominion Resources Inc. and Consolidated Natural Gas(CNG). But it placed conditions on its blessing of the lattermerger transaction, citing competitive concerns.

A merged Dominion-CNG “could use competitively-sensitiveinformation obtained by its upstream affiliates who deliver gas tonon-affiliated generators to manipulate costs and service tocurrent and prospective rival generators and to allow CNG to expandcapacity and structure open seasons to the advantage of the mergedcompany’s electric generation affiliates,” the order said[EC99-81].

Dominion and CNG offered to mitigate these concerns bysubjecting CNG and its pipeline subsidiary, CNG Transmission, andother affiliates to FERC’s standards of conduct, which precludesthe transfer of competitive market information between affiliates.But that wasn’t enough for FERC. Although the standards of conductgenerally apply only to natural gas affiliates, the Commission saidthe merger partners would need to apply the standards to the entire”corporate family” in order to satisfy its concerns.

“…..[W]e are concerned not just with the potential for abusebetween CNG and affiliated marketers, but also with the potentialfor abuse between any combination of the energy companies thatwould be affiliated under the proposed transaction,” the ordernoted.

In the alternative, FERC said Dominion and CNG could submit arevised analysis of the merger that addresses “certain data andanalytical problems” within 45 days. The merger partners “maychoose to do this if they believe that a more accurate, revisedanalysis would clearly demonstrate to the Commission that theproposed merger would not adversely affect competition.”

In contrast, the Commission found that the $2 billionIllinova-Dynegy deal posed no competitive concerns. It noted that”there is insufficient ‘overlap’ between relevant upstreamdelivered gas and downstream electricity markets…..to raisesignificant competitive concerns.” Also, the transaction “does notenhance the merged company’s incentive to raise its rivals’ costsbecause it has a relatively small share of the relevant downstreamelectricity markets.”

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