Academic journal article Energy Law Journal

Report of the Antitrust Committee

Academic journal article Energy Law Journal

Report of the Antitrust Committee

Article excerpt

This report summarizes antitrust developments of particular interest to energy law practitioners that occurred in the year 2006.* The topics are covered in the following order:

I. MERGER REVIEW

A. Exelon Corporation and Public Service Enterprise Group

In June 2006, the U.S. Department of Justice (DOJ) required Exelon Corporation (Exelon) and Public Service Enterprise Group (PSEG) to divest six electric generation plants-two in Pennsylvania and four in New Jersey-in order to proceed with their proposed merger. Although Exelon and PSEG subsequently obtained the Federal Energy Regulatory Commission's (FERC) approval of their proposed merger, they later abandoned the merger when they were unable to obtain the approval of state regulators in New Jersey, pointing out the increasingly important role of the states in the utility merger process. Nevertheless, the DOJ's competitive analysis in support of the proposed settlement provides guidance for future mergers involving electric generation assets.

The DOJ's complaint focused on horizontal competitive concerns in the wholesale electricity product market and in the PJM East and PJM Central/East geographic markets.' PJM East includes the densely populated northern New Jersey and Philadelphia areas, while PJM Central/East includes PJM East, central Pennsylvania, and eastern Maryland. Transmission constraints sometimes isolate these areas from the rest of the PJM control area.

According to the DOJ, the merger would have created one of the largest electricity companies in the U.S. and combined two of the largest electric generation competitors in the mid-Atlantic region, with a total generating capacity of more than 40,000 megawatts (MWs). The merged company would have owned approximately forty-nine percent of the electric generation capacity in PJM East, and approximately forty percent of the electric generation capacity in PJM Central/East. Thus, the merger yielded a post-merger HHI in PJM East of approximately 2,750 points, representing an increase of more than 1,100 points, and a post-merger HHI in PJM Central/East of approximately 2,080 points, an increase of approximately 790 points. The DOJ also alleged that the merger would have enhanced the incentive and ability of the merged firm to raise wholesale electric prices by withholding selected capacity in the relevant areas. In addition, the DOJ concluded that entry through the construction of new generation or transmission capacity would not be timely, likely, and sufficient to deter or counteract an anticompetitive price increase.

Under the terms of the proposed consent decree, the companies were required to divest six generation plants, with more than 5,600 MW of generating capacity.2 The DOJ selected plants that it believed would reduce the merged firm's ability and incentive to withhold capacity and raise prices. The plants to be divested were the Cromby Generating Station and Eddystone Generating Station in Pennsylvania, and the Hudson Generating Station, Linden Generating Station, Mercer Generating Station, and Sewaren Generating Station in New Jersey. Divestiture would have reduced the merged firm's share of generating capacity to thirty-two percent in PJM East and twenty-nine percent in PJM Central/East. The DOJ also required the merged company to obtain DOJ approval prior to acquiring or obtaining control of any existing generation plants in the mid-Atlantic region in the future.

B. In the Matter of Dan L. Duncan, EPCO, Inc., Texas Eastern Products Pipeline Co., LLC, and TEPPCO Partners, LP.

In August 2006, the Federal Trade Commission (FTC) challenged a 2005 acquisition that combined the natural gas liquids (NGLs) storage businesses of Enterprise Product Partners, L.P. (Enterprise) and TEPPCO Partners, L.P. (TEPPCO) under common ownership.3 As a result of the acquisition, both the Enterprise and TEPPCO NGL storage businesses were ultimately owned and controlled by Mr. …

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