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Merger proceedings that work: A look to the future
Merger Proceedings That Work: A Look to the Future Both consumers and the economy in general would benefit from consummation of electric utility mergers that yield efficiencies. To permit this, the merger approval process itself must become more efficient. Douglas G. Green
Doug Green is a partner in the Washington, D.C. firm of Newman & Holtzinger, where his practice involves antitrust matters and commercial litigation for energy companies. Mr. Green has represented Northeast Utilities Co. and Southern California Edison Co. in their recent FERC merger proceedings, and was involved in formulating competition issues for intervenors in the PacifiCorp merger case. He has also represented Public Service Electric and Gas Co. and Houston Lighting & Power Co. in major commercial litigation matters. Mr. Green received a J.D. from Georgetown University Law School where he was an editor of the law journal.
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'n 1987 industry analysts fore.saw a wave of electric utility consolidations that would reduce the number of major utilities from "150 to 50 in five years." Now, as that five year milestone nears, and in the wake of California regulators' rejection of the proposed merger between Southern California Edison Company ("Edison") and San Diego Gas & Electric Company ("SDG&E'), The New York Times recently featured an article proclaiming: "Era of Utility Deals Fails to Arrive. ''~ What does the future hold for electric utility mergers? What are the implications of the regulatory complexities and major political opposition encountered by the Edison/SDG&E and Kansas Power & Light Company ("KP&L")/
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Kansas Gas & Electric Company ("KG&E") mergers? Can antitrust and transmission access issues be dealt with effectively in electric utility merger proceedings? Will the Federal Energy Regulatory Commission issue guidelines to simplify these proceedings? While no one can provide the definitive answer to these questions - - some of which may be resolved by the FERC's decision in the Northeast Utilities/Public Service of N e w Hampshire acquisition, expected to be issued about the time this article is published - the shape of the future is sufficiently distinct that its contours can be sketched with some confidence.
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I. Taking Stock of the Merger Movement A. The Impetus For Consolidations Remains Powerful The same considerations that led industry analysts to predict a wave of consolidations persist, and there are good reasons to think that meritorious mergers will be identified and proposed in the next several years. The structure of the electric utility industry remains largely unchanged from its status 50 years ago, while other regulated areas of the economy have experienced substantial structural reorganizations. Deep down, I suspect no one truly believes that the electric utility sector - - unlike other infrastructure industries - - achieved the optimal struc~xre a half century ago, never to change. In today's global econom)~ the United States can ill afford to hobble the efficiency of an industry so essential to its productivity. Furthermore, with the emergence of a strong nonutility generation industry, pressure from industrial customers for bypass, and demands from power producers, customers, and power brokers for transmission access, it is evident that utilities possessing a diversity of management, financial, and technological resources will have the best chances for success in the coming years. Electric utility mergers provide the potential for substantial cost-savings, 2 higher quality service, and other benefits that are important in an increasingly competitive world.
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B. Factors That Have Impeded Some Consolidations Are Substantial, but Can Be Addressed Strategically Three major unexpected factors have decreased the merger momentum perceived in the late 1980s. First, local political opposition that has arisen in some instances, with the Edison/SDG&E merger the prime example, has been both active and potent. Various interests have challenged the proposition that lower rates and better service necessarily matter in assessing merger ap-
In today's global economy, the United States can ill afford to hobble the efficiency of an industry so essential to its productivity.
plications. These interests have resisted mergers on parochial grounds, attacking them for being pro-efficiency. For example, in both the Kansas and California mergers, the applicants introduced evidence demonstrating hundreds of millions of dollars in labor savings benefits. State regulatory staff in the KP&L/KG&E merger and various intervenor groups in the Edison/SDG&E case argued that such economies
should be counted not as merger benefits, but rather as d e t r i m e n t s - on the theory that franchised utilities have an obligation not to reduce local jobs. During oral argument the California regulators expressed puzzlement with this contention, since all of the projected labor savings there involved attrition, with no employees to be laid off. The representative for organized labor explained that when his young daughter grows up he hopes she can be an accountant for the electric company, and that reducing the number of accountants carried on the payroll diminishes her chances. uch arguments bring to mind the Luddites who in Victorian times rioted against the coming of the machine age. Yet these arguments illustrate that at the state level, at least, the likelihood exists that utility mergers will be opposed by some on what are essentially emotional grounds. Where such grounds are given credence, the task of convincing regulators that a particular consolidation is in the public interest becomes much harden The above factors tend to protract approval proceedings and to expose merger proposals to the vicissitudes of time. In the unregulated world, few mergers are vulnerable for so long to the sensitivity of financial markets or to the fickle winds of politics. Utility mergers can withstand a measure of both; but the longer the process, the greater the chances of unexpected reverses. While none of these factors can be eliminated, it is apparent that
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there are courses by which they can be reasonably addressed. Recent experience shows that these factors come into play most negatively where a proposed merger is hostile rather than friendly. This was true in Kansas, where the takeover of KG&E was initially proposed by Kansas City Power & Light Co. in a hostile fashion. The Edison/SDG&E proposal, too, through ultimately accepted by SDG&E's Board of Directors, had all the trappings of a hostile takeover, since SDG&E had "put itself in play" via its announced merger agreement with Tucson Electric Power Company. 3 In a "hostile" context, potentially volatile groups with parochial interests tend to be galvanized into unfriendly action. The result is proliferation of issues and much higher transaction costs. rhere the merger is friendly, the opportunity exists at the outset to maximize the degree of consensus among state regulators, antitrust enforcement agencies, and potentially interested parties. The Northeast Utilities case represents an example of such efforts, albeit in an unusual situation. The specter of out-of-control transaction costs (coupled with uncertain results) represents perhaps the principal deterrent to prospective consolidations. While any large utility merger will result in significant costs, recent experience indicates that keeping the merger friendly and resolving as many matters as possible with state regulators at the
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threshold can provide an acceptable means of cost control.
C. The Edison/SDG&E Experience Appears To Be Sui Generis
As its echoes begin to fade awa)~ the Edison/SDG&E experience appears to be largely sui genesis. A number of unique factors coalesced there at once: • unexpectedly strong local political opposition to the merger by the City of San Diego and the Copley Press who perceived the
In the unregulated world, few mergers are vulnerable for so long to the sensitivity of financial markets or to the fickle winds of politics.
proposal as part of the creeping "Los Angelesization" of their municipality; • the decision by the then Attorney General of California to run against the merger as a central theme of his campaign for the Democratic gubernatorial nomination; • the passage of an extraordinary statute by the California legislature applying a stricter standard to the Edison/SDG&E merger than would have applied under existing state and federal
laws concerning competition and merger benefits; • and a turnover in the composition of the California Public Utilities Commission. The uniqueness of California as a regulatory and cultural venue also was a distinguishing feature. The significance of the Edison/SDG&E decision, at least at present, appears to be that it may embolden other state Commissions to take a harder look at merger proposals, and some of its language and reasoning may provide a "litigant's wishing well" for future merger opponents in other forums. In the long run, its significance may be a function of the fate of other mergers now pending. If both the KP&L / KG&E and Northeast Utilities transactions are approved without reference to it, the EdiSOn/SDG&E decision is likely to be viewed as a special case. If state regulators kill the Kansas proposal, the hurdle of state proceedings may loom still higher. At the moment, if there is any clear general lesson in the EdiSOn/SDG&E case, it is that the more hostile and politically charged a utility merger proposal, the greater the risk that the ground rules will change during its pendency.
II. Antitrust and the Dynamics of the Regulatory Process Transmission access, and antitrust issues generally, remain focal points of electric utility merger proceedings, particularly before the FERC. Ideally, one sharply deThe Electricity Journal
fines the antitrust issues involved in a utility merger at the outset. The case can then be shaped so that those issues are clearly focused and do not get confused with other issues requiring regulatory scrutiny. In the course of this effort, steps can be taken to anticipate and address any concerns which the Department of Justice might raise in the course of its review u n d e r the Hart-Scott-Rodino merger r e v i e w process. 4 here the antitrust issues are clearly delineated and the evidence fully developed at an early stage, the competition issues ordinarily can be addressed and resolved in a w a y that facilitates c o n s u m m a t i o n of an otherwise beneficial merger. This can be accomplished either through formulating merger-related commitments that dispel any legitimate competition concern or by developing a case showing in simple terms that the merger does not change competitive conditions adversel~ or by a combination of both approaches. 5 In the dynamics of the regulatory process, however, the central goals of antitrust can become obscured. This is ironic because proper antitrust enforcement is supposed to achieve the same objective as properly-focused economic regulation - - lower prices to consumers and increased consumer welfare. 6 The antitrust laws protect against mergers that create o u t p u t restrictions and thereby raise prices to consumers - - i.e., yield "enhanced market power. ''7 Merger cases thus are supposed to focus on the changes
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in competitive opportunities, and whether there is a resulting effect on o u t p u t and prices caused by the merger. A merger proposal that improves rather than diminishes competitive opportunities for transmission service does not enhance market power by dint of control over transmission facilities. It should not occasion a debate about the optimal way to use transmission in the industry, which is at bottom a policy issue, not an antitrust merger question.
Merger intervenors have resurrected antitrust theories coined in William Jennings Bryan's era and interred by the courts decades ago.
The perfect should not be an enemy of the good. In electric utility merger cases, these principles tend to get obscured in three ways. First, the process encourages utilities that deal with the merging firms to intervene and to d e m a n d , in the name of "antitrust," transmission concessions and preferences unrelated to any competitive impact of the merger. In regulatory mergerapproval proceedings, unlike federal court proceedings, all interested parties are allowed to
participate whether or not they can establish an antitrust injury from the merger. To date this has meant that virtually every utility having an actual or potential commercial relationship with either of the merging parties m a y intervene and raise antitrust contentions before regulatory tribunals not used to assessing antitrust claims and more accustomed to compromising economic disputes in rate cases. It is a great challenge, in this context, for the regulator to distinguish between genuine antitrust issues and those that are spurious. Indeed, intervenors, seeking to benefit from the dynamics of the process, have resurrected antitrust theories coined in William Jennings Bryan's era and interred by the courts decades ago as being at war with sound law and economic policy. For example, there is a tendency for any firm which is a customer or a supplier of one of the merging firms to charge that the merger "lessens competition" by the mere fact that it removes the acquired c o m p a n y from the marketplace. But the mere elimination of actual or potential rivalry alone does not raise valid antitrust concerns. The Supreme Court flatly rejected precisely this notion years ago, holding that the antitrust laws "protect competition, not competitors. ''8 The purpose of antitrust is not to perpetuate a particular n u m b e r of rivals, but to foster consumer welfare. 9 The proper antitrust inquiry thus is not whether a merger eliminates one of the merging firms as an independent competitor - - all
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mergers do this - - but rather whether it "obstructs the achievement of competition's basic goals - - lower prices, better products, and more efficient production methods. "1° a second potential source of confusion in electric utility merger proceedings is that regulatory policy preferences are often garbed in antitrust clothes. For example, everyone agrees that access to scarce facilities controlled by regulated companies should be made available to their competitors on a reasonable basis. The disagreement is over precisely what terms are "reasonable." The antitrust laws provide one answer to this question. But the answer provided by the antitrust laws - which give the owner of a scarce facility the right to use that facility to serve its customers efficiently - may not be the answer preferred by regulatory policy makers} 1 For instance, the FERC Transmission Task Force Report essentially advocates that the transmission conditions imposed by the FERC in the PacifiCorp case be imposed upon the industry generally. But the antitrust laws do not support such a rule, and as the FERC's own decisions in the PacifiCorp case make plain, its imposition in merger cases on a generic basis would offend fundamental legal principles that require merger remedies to be tailored to the specific facts at hand} 2 It is important to separate proposed "conditions" impelled by regulatory policy preferences from those actually required by antitrust imperatives. What is
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proper policy varies according to the eye of the beholder. Indeed, some economists argue that any attempt to impose a regulatory policy solution will ineluctably be counter-productive. Whatever one's philosophy on regulatory interventionism, when regulatory policy gets mistaken for antitrust principles, the only sure result is confusion. The third source of confusion arises from the fact that in electric utility merger cases the parochial or chauvinistic interests of various
When regulatory policy gets mistaken for antitrust principles, the only sure result is confusion.
constituencies will be voiced. Some of these parties tend to cast their arguments in antitrust terms when they are really political polemics. It is the task of regulators to insulate themselves from the desideratum of such parties and to apply judgment to the merits of a case. The best way to facilitate this, again, is to keep the actual antitrust issues distinct from the putative ones. When the antitrust issues are clearly delineated and properly focused, regulators can
accurately evaluate a merger proposal on its merits.
III. FERC: Teaching Old Dogma New Tricks As noted above, under existing law, the FERC does not have the authority to prescribe generic merger commitments in the form of binding requirements. But it arguably could identify in the form of "guidelines" transmission commitments that, if accepted, would shift the burden of proof to intervenors to show that they are insufficient to resolve competitive issues. The existing Department of Justice Merger Guidelines were neither designed nor intended for application in highly regulated, vertically-integrated industries, much less those having native load service obligations. It is yet unclear whether the FERC will issue specific guidelines tailored to resolution of competition and transmission issues in electric utility mergers. However, it is apparent that further guidance from the FERC could be beneficial. Indeed, a major reason w h y FERC merger proceedings have been protracted is that they have served as a forum to play out the transmission policy debate. Tension arises, however, because the "guidelines" that would be supportable under the antitrust laws may not go as far as the FERC would like to move policy. Much of the debate in recent FERC cases has concerned two related issues: (1) whether the merging companies should be stripped of native load priority in
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the use of their transmission system; and (2) whether the merging companies should lose the right to use their transmission system for coordination transactions if environmental or other unavoidable constraints make it impossible for them to build new facilities to accommodate other utilities' demands for transmission service. In the PacifiCorp case, the FERC imposed conditions establishing the latter result. In the Northeast Utilities merger proceeding, 13the FERC litigation staff has argued for a variation of the former. The merit of such conditions in individual cases is subject to great controversy. However, it is beyond question that neither can be legally justified as a generic prescription for all mergers. 'or could the sort of conditions currently being imposed by the FERC in its marketbased pricing cases be supported as generic "merger" requirements under the law. As illustrated by the Terra Comfort decision, the trend of these cases is to require the applicant for market-based pricing to "open" its transmission lines unless it can show a total absence of market power, i.e., that there is no prospect that a potentially lower cost seller might seek access over applicant's facilities. 14 Whatever the merit of a "perfect competition" standard in the context of market-based pricing (and it is not clear that the Commission espouses that criterion), such a standard is completely invalid in merger cases. In market-based pricing cases, since the applicant is seeking freedom from regula-
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tion, it is appropriate for the Commission to focus on the extent of applicant's existing market power. Where two utilities seek to merge, however, the standard is not whether any market power exists, but whether such power is increased by the merger. Accordingl)~ whether or not a standard that focuses on assuring access to all potential sellers can be justified by the broad discretion that the
Whatever the merit
of a "perfect competition" standard in the context of market-based pricing, such a standard is completely invalid in merger cases.
Commission may possess when regulating wholesale rates, it cannot pass muster as a valid application of antitrust policy in a merger case. Under traditional antitrust law, the appropriate guidelines in electric utility antitrust cases would be much less sweeping. The FERC's recent competition jurisprudence identifies two potential sources of "enhanced market power" resulting from a merger: (1) control of transmission and (2) control of generation.
As noted earlier, so long as transmission access after a merger is at least equally favorable as before, no "enhanced" market power is created by control of transmission assets. Hence, a commitment to wheel if capacity is available, and to build incremental facilities to accommodate wheeling where it is not, would provide a reasonable "guideline" under conventional antitrust law for merger-related transmission commitments. o far as generation is concerned, the Supreme Court has deemed a 30% market share the threshold for establishing a case of significant market power) s Accordingl}~ the FERC could indicate by way of straight-forward guidelines that any firm which accepts the transmission commitment described above and which, after the merger, will possess less than a 30% share of delivered bulk power sales in a region has made a prima facie showing of no enhanced market power. 16 On the other hand, proponents of more open transmission access argue that any such guidelines should go beyond existing law. Because one of the overriding concerns with the merger approval process is uncertaintyF they argue that the FERC should articulate "guidelines" that impose a strict enough standard for open access to eliminate any substantial likelihood that an intervenor would be able to show that acceptance of such commitments is insufficient. By this logic, if voluntary acceptance of such commitments "shifts the burden" to
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intervenors, it will simplify merger proceedings and further an open access agenda. However, such an approach runs headlong into the Commission's prior rulings that it cannot impose generic "open" access requirements by merger-related regulatory fiat. A possible solution is guidelines adopting a middle ground between the two approaches discussed above. n all events, a maelstrom of .forces now surrounds the transmission access debate, including federal legislative efforts, the FERC's recent requests for comments on the electric industr~ and the pendency of the Northeast Utilities decision.TM As these forces play out over the coming months, we can expect the situation regarding the likely treatment of transmission issues in merger cases to clarify.
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Footnotes
1. New York Times, May 16, 1991, at D-l, D-4. 2. Pacificorp recently announced that its actual annual merger-related savings exceed its projections, reaching $90 million (as compared to a projected $70 million). Electric Utility Week, March 4, 1991 at 9. 3. Prior to SDG&E's Board accepting the merger proposal, Edison had begun purchasing SDG&E stock and seeking its shareholder lists, a hostile strategy against which SDG&E complained at the FERC. FERC Docket No. EL89-1-000. 4. Under this process, which requires pre-merger notification in order to permit an antitrust review by the federal
IV. Conclusion The prediction of massive electric utility consolidation forecast by some financial analysts several years ago has now been eclipsed by other analysts questioning whether any major consolidations can survive the regulatory gauntlet. It is highly probable that additional meritorious electric utility mergers will be identified. As indicated above, while the obstacles are quite significant, there are also reasons to think that some mergers will be successfully managed and consummated. Events in the relatively near future should illuminate these issues. •
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enforcement agencies, electric utility mergers have been subject to careful antitrust scrutiny of the Antitrust Division of the Department of Justice. In the proposed merger between Edison and SDG&E, the Department of Justice actively participated in the FERC hearings. Ultimately the Applicants were able to satisfy the Justice Department's concerns by modifying their proposed transmission commitments to specify the delivery points involved and to incorporate an auction pricing mechanism. 5. At present, the acceptance of broad transmission commitments will not, standing alone, obviate the need for competition hearings at the FERC. In
support of its hostile takeover effort to acquire KG&E, applicant Kansas City Power & Light C o m p a n y assayed this approach and was rebuffed, although it did succeed in obtaining an expedited schedule for further proceedings. Kansas City Power & Light Co., 53 FERC ~ 61,097 (1990). In the words of Commissioner Trabandt, in his concurrence, it should be "clear to all future applicants that they cannot 'sweeten the pie' with transmission in order to avoid a hearing on a merger. Any suggestion, past or future, that voluntary conditions are a ticket to s u m m a r y approval based on a wink or nod at the Commission will, I hope, have been dashed by this order." Id. at 61,297. This may change if the FERC issues its own merger prescription in the form of guidelines. 6. There has been near universal recognition in recent years that antitrust principles, properly applied, provide a "consumer welfare prescription." Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979); accord Westman C o m m ' n Co. v. Hobart Intern., Inc., 796 F.2d 1216, 1220 (10th Cir. 1986); General Leaseways, Inc. v. National Truck Leasing Ass'n., 744 F.2d 588 (7th Cir. 1984); Liggett Group, Inc. v. Brown & Williamson Tobacco Corp., 748 F. Supp. 344, 352 (M.D.N.C. 1990) ("Injury to competition occurs only if a competitor is able to raise and maintain prices in the relevant market above competitive levels because this is the only situation where consumer welfare is threatened"). Competition policy, in other words, is supposed to foster practices that deliver more output to consumers at lower costs - - the very same goal that economic regulation of utility mergers embodies. 7. DOJ Guidelines § 1; Northeast Utilities Serv. Co., 50 FERC ~ 61,266 at 61,834 (1990); Kansas Power & Light Co., 54 FERC ~ 61,077 (1991).
8. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977) (quoting Brown Shoe Co. v. U.S., 370 U.S. 294, at 370 (1962)).
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9. Roland Machinery Co. v. Dresser Indus., 749 F.2d 380, 394 (7th Cir. 1984). 10. Town of Concord, Mass. v. Boston Edison Co., 915 F.2d 17 at 21-22 (1st Cir. 1990) (cites omitted). One example of the tendency to raise such nonmerger related contentions is the claims m a d e by t r a n s m i s s i o n - d e p e n dent utilities in the E d i s o n / S D G & E case. The merger had no impact on the utilities' relationship with Edison, as they stood in the same shoes vis-avis Edison's transmission system both before a n d after a merger. Nonetheless, in these m e r g e r a p p r o v a l proceedings before the California Public Utility C o m m i s s i o n these entities w e r e p e r m i t t e d to re-argue antitrust claims having nothing to do with the m e r g e r that had a l r e a d y been twice rejected in federal district court. See Cities of Anaheim, et al. v. Southern California Edison Co., 1990-2 Trade Cas. (CCH) 69,246 (1990), appeal filed, No. 90-56375 (9th Cir. 1990); City of Vernon v. Southern California Edison Co., No. CV838137, slip op. (C.D. Cal., Aug. 30, 1990), appeal filed, No. 90-56281 (9th Cir. 1990). 11. See, e.g., A s p e n Skiing Co. v. A s p e n H i g h l a n d s Skiing Corp., 472 U.S. 585, 604-06 (1985) ("[R]efusal to deal with H i g h l a n d s does not violate Section 2 if valid business reasons exist for refusal."); Hecht v. Pro Football, Inc., 570 F.2d 982, 993 (D.C. Cir. 1977), cert. denied, 436 U.S. 956 (1978) (refusal to p r o v i d e access to RFK stad i u m is valid if it w o u l d interfere with Redskins' existing uses); O a h u Gas Service, Inc. v. Pacific Resources, Inc., 838 F.2d 360, 368-69 (9th Cir.), cert denied, 488 U.S. 870 (1988); Cities of Anaheim, et al., Id. at 64,911-12. 12. Utah Power & Light Co., O p i n i o n 318, 45 FERC ~ 61,095 (1988), reh'g granted in part, 47 FERC ~ 61,209 (1989); Utah Power & Light Co., Opinion 318A, 47 FERC ~ 61,209 (1989). 13. FERC Docket No. EC90-10-000, et
al. 14. Terra Comfort Corp., 52 FERC 61,241 at 61,846 (1990) (Trabandt, Comm'r, dissenting).
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15. More precisely, in Jefferson Parish Hospital Dist. No. 2 v. Hyde, the Sup r e m e Court held that a 30% market share is insufficient to constitute unilateral m a r k e t power. 466 U.S. 2, 26 n.43 (1984). In United States v. Philad e l p h i a N a t ' l Bank, 374 U.S. 321,36366 (1963), the Court indicated that mergers creating a firm with more than a 30% m a r k e t share created a rebuttable p r e s u m p t i o n of "anticompetitive tendency." A d e c a d e later, the Court rejected a challenge to a merger of two leading coal companies, finding the g o v e r n m e n t ' s historical market share measures inaccurately p o r t r a y e d post-merger competitive conditions. See United States v. General Dynamics Corp., 415 U.S. 486 (1974). Subsequently, antitrust courts have treated the 30% m a r k e t share
16. Moreover, the p r o p e r focus in calculating the m e r g i n g c o m p a n i e s share of the delivered bulk p o w e r m a r k e t is on sales to non-native load customers. Generation committed to native load customers is not available to compete in the m a r k e t at large. There is no unanimity on how best to measure a firm's share of this market: one expedient for guideline p u r p o s e s w o u l d be to focus on regional e c o n o m y energy sales. In most areas of the country, the market for p r o c u r e m e n t of n e w capacity contracts is extremely competitive, with m u l t i p l e non-utility generation supplies available to keep long-term prices down. Economy energy sales figures thus p r o b a b l y represent a reasonable p r o x y for historical market share in the potentially affected market for delivered bulk power. Arguably, such a focus leaves a possible gap for short-term capacity sales for several years i m m e d i a t e l y following the merger before n e w l y contracted-for capacity can be installed. However, w h e n a utility experiences a short-term capacity shortfall, it is generally the result either of historical accident or of short-sighted planning or regulatory decisions. Thus, it seems reasonable to place the b u r d e n of proving that such a discrete m a r k e t exists, a n d that a merger w o u l d impact it adversely, u p o n those who a d v a n c e such a contention.
threshold as merely establishing a "prima facie" case, a n d decisions have turned on a f o r w a r d - l o o k i n g examination of w h e t h e r the m e r g e r will in fact t r a m m e l competition in the i n d u s t r y involved. See, e.g., United States v. Baker H u g h e s Inc., 908 F.2d 981 (D.C. Cir. 1990)(approving m e r g e r giving m e r g e d firm 76% share of the m a r k e t in h a r d r o c k h y d r a u l i c u n d e r g r o u n d drilling rigs and which H H I s from 2878 to 4303); J. Whalley, Department of Justice Merger Enforcement, 57 ANTITRUST L.J. 109 (1988) (Since General Dynamics, m e r g e r analysis has m o v e d a w a y from m a r k e t shares "to an evaluation of the economic and business realities of a merger.")
17. See J. Moot, Electric Utility Mergers: Uncertainty Looms Over Regulatory Approvals at the FERC, 12 ENERGY L. J., 1 (1991). 18. In the meantime, applicants in the K P & L / K G & E m e r g e r have negotiated a p r o p o s e d settlement of competition issues involving w i d e - r a n g i n g transmission c o m m i t m e n t s that e v i d e n t l y were m o d e l e d on c o m m i t m e n t s accepted b y the C o m m i s s i o n in certain of its m a r k e t - b a s e d pricing decisions. These c o m m i t m e n t s a p p e a r to p u t the applicants' coordination transactions at risk and to contain other features that other utilities might find unacceptable for economic and p l a n n i n g reasons. Offer of Settlement, d a t e d May 29, 1991, FERC Docket No. EC912-000.
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Doug Green is a partner in the Washington, D.C. firm of Newman & Holtzinger, where his practice involves antitrust matters and commercial litigation for energy companies. Mr. Green has represented Northeast Utilities Co. and Southern California Edison Co. in their recent FERC merger proceedings, and was involved in formulating competition issues for intervenors in the PacifiCorp merger case. He has also represented Public Service Electric and Gas Co. and Houston Lighting & Power Co. in major commercial litigation matters. Mr. Green received a J.D. from Georgetown University Law School where he was an editor of the law journal.
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'n 1987 industry analysts fore.saw a wave of electric utility consolidations that would reduce the number of major utilities from "150 to 50 in five years." Now, as that five year milestone nears, and in the wake of California regulators' rejection of the proposed merger between Southern California Edison Company ("Edison") and San Diego Gas & Electric Company ("SDG&E'), The New York Times recently featured an article proclaiming: "Era of Utility Deals Fails to Arrive. ''~ What does the future hold for electric utility mergers? What are the implications of the regulatory complexities and major political opposition encountered by the Edison/SDG&E and Kansas Power & Light Company ("KP&L")/
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Kansas Gas & Electric Company ("KG&E") mergers? Can antitrust and transmission access issues be dealt with effectively in electric utility merger proceedings? Will the Federal Energy Regulatory Commission issue guidelines to simplify these proceedings? While no one can provide the definitive answer to these questions - - some of which may be resolved by the FERC's decision in the Northeast Utilities/Public Service of N e w Hampshire acquisition, expected to be issued about the time this article is published - the shape of the future is sufficiently distinct that its contours can be sketched with some confidence.
The Electricity Journal
I. Taking Stock of the Merger Movement A. The Impetus For Consolidations Remains Powerful The same considerations that led industry analysts to predict a wave of consolidations persist, and there are good reasons to think that meritorious mergers will be identified and proposed in the next several years. The structure of the electric utility industry remains largely unchanged from its status 50 years ago, while other regulated areas of the economy have experienced substantial structural reorganizations. Deep down, I suspect no one truly believes that the electric utility sector - - unlike other infrastructure industries - - achieved the optimal struc~xre a half century ago, never to change. In today's global econom)~ the United States can ill afford to hobble the efficiency of an industry so essential to its productivity. Furthermore, with the emergence of a strong nonutility generation industry, pressure from industrial customers for bypass, and demands from power producers, customers, and power brokers for transmission access, it is evident that utilities possessing a diversity of management, financial, and technological resources will have the best chances for success in the coming years. Electric utility mergers provide the potential for substantial cost-savings, 2 higher quality service, and other benefits that are important in an increasingly competitive world.
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B. Factors That Have Impeded Some Consolidations Are Substantial, but Can Be Addressed Strategically Three major unexpected factors have decreased the merger momentum perceived in the late 1980s. First, local political opposition that has arisen in some instances, with the Edison/SDG&E merger the prime example, has been both active and potent. Various interests have challenged the proposition that lower rates and better service necessarily matter in assessing merger ap-
In today's global economy, the United States can ill afford to hobble the efficiency of an industry so essential to its productivity.
plications. These interests have resisted mergers on parochial grounds, attacking them for being pro-efficiency. For example, in both the Kansas and California mergers, the applicants introduced evidence demonstrating hundreds of millions of dollars in labor savings benefits. State regulatory staff in the KP&L/KG&E merger and various intervenor groups in the Edison/SDG&E case argued that such economies
should be counted not as merger benefits, but rather as d e t r i m e n t s - on the theory that franchised utilities have an obligation not to reduce local jobs. During oral argument the California regulators expressed puzzlement with this contention, since all of the projected labor savings there involved attrition, with no employees to be laid off. The representative for organized labor explained that when his young daughter grows up he hopes she can be an accountant for the electric company, and that reducing the number of accountants carried on the payroll diminishes her chances. uch arguments bring to mind the Luddites who in Victorian times rioted against the coming of the machine age. Yet these arguments illustrate that at the state level, at least, the likelihood exists that utility mergers will be opposed by some on what are essentially emotional grounds. Where such grounds are given credence, the task of convincing regulators that a particular consolidation is in the public interest becomes much harden The above factors tend to protract approval proceedings and to expose merger proposals to the vicissitudes of time. In the unregulated world, few mergers are vulnerable for so long to the sensitivity of financial markets or to the fickle winds of politics. Utility mergers can withstand a measure of both; but the longer the process, the greater the chances of unexpected reverses. While none of these factors can be eliminated, it is apparent that
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there are courses by which they can be reasonably addressed. Recent experience shows that these factors come into play most negatively where a proposed merger is hostile rather than friendly. This was true in Kansas, where the takeover of KG&E was initially proposed by Kansas City Power & Light Co. in a hostile fashion. The Edison/SDG&E proposal, too, through ultimately accepted by SDG&E's Board of Directors, had all the trappings of a hostile takeover, since SDG&E had "put itself in play" via its announced merger agreement with Tucson Electric Power Company. 3 In a "hostile" context, potentially volatile groups with parochial interests tend to be galvanized into unfriendly action. The result is proliferation of issues and much higher transaction costs. rhere the merger is friendly, the opportunity exists at the outset to maximize the degree of consensus among state regulators, antitrust enforcement agencies, and potentially interested parties. The Northeast Utilities case represents an example of such efforts, albeit in an unusual situation. The specter of out-of-control transaction costs (coupled with uncertain results) represents perhaps the principal deterrent to prospective consolidations. While any large utility merger will result in significant costs, recent experience indicates that keeping the merger friendly and resolving as many matters as possible with state regulators at the
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threshold can provide an acceptable means of cost control.
C. The Edison/SDG&E Experience Appears To Be Sui Generis
As its echoes begin to fade awa)~ the Edison/SDG&E experience appears to be largely sui genesis. A number of unique factors coalesced there at once: • unexpectedly strong local political opposition to the merger by the City of San Diego and the Copley Press who perceived the
In the unregulated world, few mergers are vulnerable for so long to the sensitivity of financial markets or to the fickle winds of politics.
proposal as part of the creeping "Los Angelesization" of their municipality; • the decision by the then Attorney General of California to run against the merger as a central theme of his campaign for the Democratic gubernatorial nomination; • the passage of an extraordinary statute by the California legislature applying a stricter standard to the Edison/SDG&E merger than would have applied under existing state and federal
laws concerning competition and merger benefits; • and a turnover in the composition of the California Public Utilities Commission. The uniqueness of California as a regulatory and cultural venue also was a distinguishing feature. The significance of the Edison/SDG&E decision, at least at present, appears to be that it may embolden other state Commissions to take a harder look at merger proposals, and some of its language and reasoning may provide a "litigant's wishing well" for future merger opponents in other forums. In the long run, its significance may be a function of the fate of other mergers now pending. If both the KP&L / KG&E and Northeast Utilities transactions are approved without reference to it, the EdiSOn/SDG&E decision is likely to be viewed as a special case. If state regulators kill the Kansas proposal, the hurdle of state proceedings may loom still higher. At the moment, if there is any clear general lesson in the EdiSOn/SDG&E case, it is that the more hostile and politically charged a utility merger proposal, the greater the risk that the ground rules will change during its pendency.
II. Antitrust and the Dynamics of the Regulatory Process Transmission access, and antitrust issues generally, remain focal points of electric utility merger proceedings, particularly before the FERC. Ideally, one sharply deThe Electricity Journal
fines the antitrust issues involved in a utility merger at the outset. The case can then be shaped so that those issues are clearly focused and do not get confused with other issues requiring regulatory scrutiny. In the course of this effort, steps can be taken to anticipate and address any concerns which the Department of Justice might raise in the course of its review u n d e r the Hart-Scott-Rodino merger r e v i e w process. 4 here the antitrust issues are clearly delineated and the evidence fully developed at an early stage, the competition issues ordinarily can be addressed and resolved in a w a y that facilitates c o n s u m m a t i o n of an otherwise beneficial merger. This can be accomplished either through formulating merger-related commitments that dispel any legitimate competition concern or by developing a case showing in simple terms that the merger does not change competitive conditions adversel~ or by a combination of both approaches. 5 In the dynamics of the regulatory process, however, the central goals of antitrust can become obscured. This is ironic because proper antitrust enforcement is supposed to achieve the same objective as properly-focused economic regulation - - lower prices to consumers and increased consumer welfare. 6 The antitrust laws protect against mergers that create o u t p u t restrictions and thereby raise prices to consumers - - i.e., yield "enhanced market power. ''7 Merger cases thus are supposed to focus on the changes
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in competitive opportunities, and whether there is a resulting effect on o u t p u t and prices caused by the merger. A merger proposal that improves rather than diminishes competitive opportunities for transmission service does not enhance market power by dint of control over transmission facilities. It should not occasion a debate about the optimal way to use transmission in the industry, which is at bottom a policy issue, not an antitrust merger question.
Merger intervenors have resurrected antitrust theories coined in William Jennings Bryan's era and interred by the courts decades ago.
The perfect should not be an enemy of the good. In electric utility merger cases, these principles tend to get obscured in three ways. First, the process encourages utilities that deal with the merging firms to intervene and to d e m a n d , in the name of "antitrust," transmission concessions and preferences unrelated to any competitive impact of the merger. In regulatory mergerapproval proceedings, unlike federal court proceedings, all interested parties are allowed to
participate whether or not they can establish an antitrust injury from the merger. To date this has meant that virtually every utility having an actual or potential commercial relationship with either of the merging parties m a y intervene and raise antitrust contentions before regulatory tribunals not used to assessing antitrust claims and more accustomed to compromising economic disputes in rate cases. It is a great challenge, in this context, for the regulator to distinguish between genuine antitrust issues and those that are spurious. Indeed, intervenors, seeking to benefit from the dynamics of the process, have resurrected antitrust theories coined in William Jennings Bryan's era and interred by the courts decades ago as being at war with sound law and economic policy. For example, there is a tendency for any firm which is a customer or a supplier of one of the merging firms to charge that the merger "lessens competition" by the mere fact that it removes the acquired c o m p a n y from the marketplace. But the mere elimination of actual or potential rivalry alone does not raise valid antitrust concerns. The Supreme Court flatly rejected precisely this notion years ago, holding that the antitrust laws "protect competition, not competitors. ''8 The purpose of antitrust is not to perpetuate a particular n u m b e r of rivals, but to foster consumer welfare. 9 The proper antitrust inquiry thus is not whether a merger eliminates one of the merging firms as an independent competitor - - all
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mergers do this - - but rather whether it "obstructs the achievement of competition's basic goals - - lower prices, better products, and more efficient production methods. "1° a second potential source of confusion in electric utility merger proceedings is that regulatory policy preferences are often garbed in antitrust clothes. For example, everyone agrees that access to scarce facilities controlled by regulated companies should be made available to their competitors on a reasonable basis. The disagreement is over precisely what terms are "reasonable." The antitrust laws provide one answer to this question. But the answer provided by the antitrust laws - which give the owner of a scarce facility the right to use that facility to serve its customers efficiently - may not be the answer preferred by regulatory policy makers} 1 For instance, the FERC Transmission Task Force Report essentially advocates that the transmission conditions imposed by the FERC in the PacifiCorp case be imposed upon the industry generally. But the antitrust laws do not support such a rule, and as the FERC's own decisions in the PacifiCorp case make plain, its imposition in merger cases on a generic basis would offend fundamental legal principles that require merger remedies to be tailored to the specific facts at hand} 2 It is important to separate proposed "conditions" impelled by regulatory policy preferences from those actually required by antitrust imperatives. What is
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proper policy varies according to the eye of the beholder. Indeed, some economists argue that any attempt to impose a regulatory policy solution will ineluctably be counter-productive. Whatever one's philosophy on regulatory interventionism, when regulatory policy gets mistaken for antitrust principles, the only sure result is confusion. The third source of confusion arises from the fact that in electric utility merger cases the parochial or chauvinistic interests of various
When regulatory policy gets mistaken for antitrust principles, the only sure result is confusion.
constituencies will be voiced. Some of these parties tend to cast their arguments in antitrust terms when they are really political polemics. It is the task of regulators to insulate themselves from the desideratum of such parties and to apply judgment to the merits of a case. The best way to facilitate this, again, is to keep the actual antitrust issues distinct from the putative ones. When the antitrust issues are clearly delineated and properly focused, regulators can
accurately evaluate a merger proposal on its merits.
III. FERC: Teaching Old Dogma New Tricks As noted above, under existing law, the FERC does not have the authority to prescribe generic merger commitments in the form of binding requirements. But it arguably could identify in the form of "guidelines" transmission commitments that, if accepted, would shift the burden of proof to intervenors to show that they are insufficient to resolve competitive issues. The existing Department of Justice Merger Guidelines were neither designed nor intended for application in highly regulated, vertically-integrated industries, much less those having native load service obligations. It is yet unclear whether the FERC will issue specific guidelines tailored to resolution of competition and transmission issues in electric utility mergers. However, it is apparent that further guidance from the FERC could be beneficial. Indeed, a major reason w h y FERC merger proceedings have been protracted is that they have served as a forum to play out the transmission policy debate. Tension arises, however, because the "guidelines" that would be supportable under the antitrust laws may not go as far as the FERC would like to move policy. Much of the debate in recent FERC cases has concerned two related issues: (1) whether the merging companies should be stripped of native load priority in
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the use of their transmission system; and (2) whether the merging companies should lose the right to use their transmission system for coordination transactions if environmental or other unavoidable constraints make it impossible for them to build new facilities to accommodate other utilities' demands for transmission service. In the PacifiCorp case, the FERC imposed conditions establishing the latter result. In the Northeast Utilities merger proceeding, 13the FERC litigation staff has argued for a variation of the former. The merit of such conditions in individual cases is subject to great controversy. However, it is beyond question that neither can be legally justified as a generic prescription for all mergers. 'or could the sort of conditions currently being imposed by the FERC in its marketbased pricing cases be supported as generic "merger" requirements under the law. As illustrated by the Terra Comfort decision, the trend of these cases is to require the applicant for market-based pricing to "open" its transmission lines unless it can show a total absence of market power, i.e., that there is no prospect that a potentially lower cost seller might seek access over applicant's facilities. 14 Whatever the merit of a "perfect competition" standard in the context of market-based pricing (and it is not clear that the Commission espouses that criterion), such a standard is completely invalid in merger cases. In market-based pricing cases, since the applicant is seeking freedom from regula-
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tion, it is appropriate for the Commission to focus on the extent of applicant's existing market power. Where two utilities seek to merge, however, the standard is not whether any market power exists, but whether such power is increased by the merger. Accordingl)~ whether or not a standard that focuses on assuring access to all potential sellers can be justified by the broad discretion that the
Whatever the merit
of a "perfect competition" standard in the context of market-based pricing, such a standard is completely invalid in merger cases.
Commission may possess when regulating wholesale rates, it cannot pass muster as a valid application of antitrust policy in a merger case. Under traditional antitrust law, the appropriate guidelines in electric utility antitrust cases would be much less sweeping. The FERC's recent competition jurisprudence identifies two potential sources of "enhanced market power" resulting from a merger: (1) control of transmission and (2) control of generation.
As noted earlier, so long as transmission access after a merger is at least equally favorable as before, no "enhanced" market power is created by control of transmission assets. Hence, a commitment to wheel if capacity is available, and to build incremental facilities to accommodate wheeling where it is not, would provide a reasonable "guideline" under conventional antitrust law for merger-related transmission commitments. o far as generation is concerned, the Supreme Court has deemed a 30% market share the threshold for establishing a case of significant market power) s Accordingl}~ the FERC could indicate by way of straight-forward guidelines that any firm which accepts the transmission commitment described above and which, after the merger, will possess less than a 30% share of delivered bulk power sales in a region has made a prima facie showing of no enhanced market power. 16 On the other hand, proponents of more open transmission access argue that any such guidelines should go beyond existing law. Because one of the overriding concerns with the merger approval process is uncertaintyF they argue that the FERC should articulate "guidelines" that impose a strict enough standard for open access to eliminate any substantial likelihood that an intervenor would be able to show that acceptance of such commitments is insufficient. By this logic, if voluntary acceptance of such commitments "shifts the burden" to
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intervenors, it will simplify merger proceedings and further an open access agenda. However, such an approach runs headlong into the Commission's prior rulings that it cannot impose generic "open" access requirements by merger-related regulatory fiat. A possible solution is guidelines adopting a middle ground between the two approaches discussed above. n all events, a maelstrom of .forces now surrounds the transmission access debate, including federal legislative efforts, the FERC's recent requests for comments on the electric industr~ and the pendency of the Northeast Utilities decision.TM As these forces play out over the coming months, we can expect the situation regarding the likely treatment of transmission issues in merger cases to clarify.
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Footnotes
1. New York Times, May 16, 1991, at D-l, D-4. 2. Pacificorp recently announced that its actual annual merger-related savings exceed its projections, reaching $90 million (as compared to a projected $70 million). Electric Utility Week, March 4, 1991 at 9. 3. Prior to SDG&E's Board accepting the merger proposal, Edison had begun purchasing SDG&E stock and seeking its shareholder lists, a hostile strategy against which SDG&E complained at the FERC. FERC Docket No. EL89-1-000. 4. Under this process, which requires pre-merger notification in order to permit an antitrust review by the federal
IV. Conclusion The prediction of massive electric utility consolidation forecast by some financial analysts several years ago has now been eclipsed by other analysts questioning whether any major consolidations can survive the regulatory gauntlet. It is highly probable that additional meritorious electric utility mergers will be identified. As indicated above, while the obstacles are quite significant, there are also reasons to think that some mergers will be successfully managed and consummated. Events in the relatively near future should illuminate these issues. •
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enforcement agencies, electric utility mergers have been subject to careful antitrust scrutiny of the Antitrust Division of the Department of Justice. In the proposed merger between Edison and SDG&E, the Department of Justice actively participated in the FERC hearings. Ultimately the Applicants were able to satisfy the Justice Department's concerns by modifying their proposed transmission commitments to specify the delivery points involved and to incorporate an auction pricing mechanism. 5. At present, the acceptance of broad transmission commitments will not, standing alone, obviate the need for competition hearings at the FERC. In
support of its hostile takeover effort to acquire KG&E, applicant Kansas City Power & Light C o m p a n y assayed this approach and was rebuffed, although it did succeed in obtaining an expedited schedule for further proceedings. Kansas City Power & Light Co., 53 FERC ~ 61,097 (1990). In the words of Commissioner Trabandt, in his concurrence, it should be "clear to all future applicants that they cannot 'sweeten the pie' with transmission in order to avoid a hearing on a merger. Any suggestion, past or future, that voluntary conditions are a ticket to s u m m a r y approval based on a wink or nod at the Commission will, I hope, have been dashed by this order." Id. at 61,297. This may change if the FERC issues its own merger prescription in the form of guidelines. 6. There has been near universal recognition in recent years that antitrust principles, properly applied, provide a "consumer welfare prescription." Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979); accord Westman C o m m ' n Co. v. Hobart Intern., Inc., 796 F.2d 1216, 1220 (10th Cir. 1986); General Leaseways, Inc. v. National Truck Leasing Ass'n., 744 F.2d 588 (7th Cir. 1984); Liggett Group, Inc. v. Brown & Williamson Tobacco Corp., 748 F. Supp. 344, 352 (M.D.N.C. 1990) ("Injury to competition occurs only if a competitor is able to raise and maintain prices in the relevant market above competitive levels because this is the only situation where consumer welfare is threatened"). Competition policy, in other words, is supposed to foster practices that deliver more output to consumers at lower costs - - the very same goal that economic regulation of utility mergers embodies. 7. DOJ Guidelines § 1; Northeast Utilities Serv. Co., 50 FERC ~ 61,266 at 61,834 (1990); Kansas Power & Light Co., 54 FERC ~ 61,077 (1991).
8. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977) (quoting Brown Shoe Co. v. U.S., 370 U.S. 294, at 370 (1962)).
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9. Roland Machinery Co. v. Dresser Indus., 749 F.2d 380, 394 (7th Cir. 1984). 10. Town of Concord, Mass. v. Boston Edison Co., 915 F.2d 17 at 21-22 (1st Cir. 1990) (cites omitted). One example of the tendency to raise such nonmerger related contentions is the claims m a d e by t r a n s m i s s i o n - d e p e n dent utilities in the E d i s o n / S D G & E case. The merger had no impact on the utilities' relationship with Edison, as they stood in the same shoes vis-avis Edison's transmission system both before a n d after a merger. Nonetheless, in these m e r g e r a p p r o v a l proceedings before the California Public Utility C o m m i s s i o n these entities w e r e p e r m i t t e d to re-argue antitrust claims having nothing to do with the m e r g e r that had a l r e a d y been twice rejected in federal district court. See Cities of Anaheim, et al. v. Southern California Edison Co., 1990-2 Trade Cas. (CCH) 69,246 (1990), appeal filed, No. 90-56375 (9th Cir. 1990); City of Vernon v. Southern California Edison Co., No. CV838137, slip op. (C.D. Cal., Aug. 30, 1990), appeal filed, No. 90-56281 (9th Cir. 1990). 11. See, e.g., A s p e n Skiing Co. v. A s p e n H i g h l a n d s Skiing Corp., 472 U.S. 585, 604-06 (1985) ("[R]efusal to deal with H i g h l a n d s does not violate Section 2 if valid business reasons exist for refusal."); Hecht v. Pro Football, Inc., 570 F.2d 982, 993 (D.C. Cir. 1977), cert. denied, 436 U.S. 956 (1978) (refusal to p r o v i d e access to RFK stad i u m is valid if it w o u l d interfere with Redskins' existing uses); O a h u Gas Service, Inc. v. Pacific Resources, Inc., 838 F.2d 360, 368-69 (9th Cir.), cert denied, 488 U.S. 870 (1988); Cities of Anaheim, et al., Id. at 64,911-12. 12. Utah Power & Light Co., O p i n i o n 318, 45 FERC ~ 61,095 (1988), reh'g granted in part, 47 FERC ~ 61,209 (1989); Utah Power & Light Co., Opinion 318A, 47 FERC ~ 61,209 (1989). 13. FERC Docket No. EC90-10-000, et
al. 14. Terra Comfort Corp., 52 FERC 61,241 at 61,846 (1990) (Trabandt, Comm'r, dissenting).
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15. More precisely, in Jefferson Parish Hospital Dist. No. 2 v. Hyde, the Sup r e m e Court held that a 30% market share is insufficient to constitute unilateral m a r k e t power. 466 U.S. 2, 26 n.43 (1984). In United States v. Philad e l p h i a N a t ' l Bank, 374 U.S. 321,36366 (1963), the Court indicated that mergers creating a firm with more than a 30% m a r k e t share created a rebuttable p r e s u m p t i o n of "anticompetitive tendency." A d e c a d e later, the Court rejected a challenge to a merger of two leading coal companies, finding the g o v e r n m e n t ' s historical market share measures inaccurately p o r t r a y e d post-merger competitive conditions. See United States v. General Dynamics Corp., 415 U.S. 486 (1974). Subsequently, antitrust courts have treated the 30% m a r k e t share
16. Moreover, the p r o p e r focus in calculating the m e r g i n g c o m p a n i e s share of the delivered bulk p o w e r m a r k e t is on sales to non-native load customers. Generation committed to native load customers is not available to compete in the m a r k e t at large. There is no unanimity on how best to measure a firm's share of this market: one expedient for guideline p u r p o s e s w o u l d be to focus on regional e c o n o m y energy sales. In most areas of the country, the market for p r o c u r e m e n t of n e w capacity contracts is extremely competitive, with m u l t i p l e non-utility generation supplies available to keep long-term prices down. Economy energy sales figures thus p r o b a b l y represent a reasonable p r o x y for historical market share in the potentially affected market for delivered bulk power. Arguably, such a focus leaves a possible gap for short-term capacity sales for several years i m m e d i a t e l y following the merger before n e w l y contracted-for capacity can be installed. However, w h e n a utility experiences a short-term capacity shortfall, it is generally the result either of historical accident or of short-sighted planning or regulatory decisions. Thus, it seems reasonable to place the b u r d e n of proving that such a discrete m a r k e t exists, a n d that a merger w o u l d impact it adversely, u p o n those who a d v a n c e such a contention.
threshold as merely establishing a "prima facie" case, a n d decisions have turned on a f o r w a r d - l o o k i n g examination of w h e t h e r the m e r g e r will in fact t r a m m e l competition in the i n d u s t r y involved. See, e.g., United States v. Baker H u g h e s Inc., 908 F.2d 981 (D.C. Cir. 1990)(approving m e r g e r giving m e r g e d firm 76% share of the m a r k e t in h a r d r o c k h y d r a u l i c u n d e r g r o u n d drilling rigs and which H H I s from 2878 to 4303); J. Whalley, Department of Justice Merger Enforcement, 57 ANTITRUST L.J. 109 (1988) (Since General Dynamics, m e r g e r analysis has m o v e d a w a y from m a r k e t shares "to an evaluation of the economic and business realities of a merger.")
17. See J. Moot, Electric Utility Mergers: Uncertainty Looms Over Regulatory Approvals at the FERC, 12 ENERGY L. J., 1 (1991). 18. In the meantime, applicants in the K P & L / K G & E m e r g e r have negotiated a p r o p o s e d settlement of competition issues involving w i d e - r a n g i n g transmission c o m m i t m e n t s that e v i d e n t l y were m o d e l e d on c o m m i t m e n t s accepted b y the C o m m i s s i o n in certain of its m a r k e t - b a s e d pricing decisions. These c o m m i t m e n t s a p p e a r to p u t the applicants' coordination transactions at risk and to contain other features that other utilities might find unacceptable for economic and p l a n n i n g reasons. Offer of Settlement, d a t e d May 29, 1991, FERC Docket No. EC912-000.
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