Explaining the Divide between Doj and Ferc on Electric Power Merger Policy
Niefer, Mark J., Energy Law Journal
Synopsis: The Antitrust Division of the Department of Justice (DOJ) and the Federal Energy Regulatory Commission (FERC) purport to apply the same analytical framework to analyze the competitive effects of electric power mergers. In practice, however, the DOJ and the FERC take very different approaches. The FERC relies largely on market concentration screens to determine whether a merger is likely to result in anticompetitive effects; the DOJ, on the other hand, relies on a wider range of evidence to assess anticompetitive effects. In this article I explain differences between the FERC and the DOJ using a "cost minimization" framework that accounts for the error costs (the costs of reaching an incorrect determination about the likely effects of a merger) and administrative costs (the costs of determining whether a merger is likely to result in anticompetitive effects) of alternative merger policies. I argue that the FERC's preference for concentration screens arises from its belief that the administrative and error costs of that approach are relatively small, and that the DOJ's preference for a wide ranging analysis arises from an implicit belief that the error costs of a simpler approach are relatively large. Although a case can be made that DOJ's approach is preferable, there is not a terribly strong empirical basis for preferring its approach over the FERC's approach. As a result, I suggest that the FERC and the DOJ develop and implement their own research agendas to identify and assess the size of administrative and error costs of alternative merger policies. A better understanding of these costs may facilitate a better understanding of merger policy and, potentially, convergence between FERC and DOJ merger policies.
The Antitrust Division of the Department of Justice (DOJ) and the Federal Energy Regulatory Commission (FERC) take very different approaches to analyzing the competitive effects of electric power mergers. Each agency reviews horizontal mergers between electric power generators for effects on competition in wholesale electricity markets, the FERC as part of a relatively broad public interest inquiry, and the DOJ as part of a narrower competition inquiry.1 Each agency purports to analyze competitive effects under the same general analytical framework outlined in the Horizontal Merger Guidelines (HMG) issued by the DOJ and the Federal Trade Commission (FTC).2 The agencies, however, take very different approaches to applying the HMG's framework to potentially problematic mergers. The FERC's approach largely is based on market concentration rules that deem a merger competitively benign if market concentration levels fall within certain safe harbor levels. The DOJ's approach relies less on concentration safe harbors and more on a detailed, open-ended inquiry in which factors other than concentration play a substantial role. Although it sometimes appears that the DOJ and the FERC reach similar conclusions regarding a merger's competitive effects, their different approaches can lead to different conclusions regarding effects and remedies for those effects, which may unnecessarily increase costs for merging generators facing conflicting or inconsistent outcomes at the two agencies.
Recent revisions to the HMG have further highlighted differences between the FERC and DOJ approaches to assessing competitive effects. The FERC's current merger policy is based on the HMG issued in 1992 (1992 HMG).3 However, the DOJ and the FTC issued a new version of the HMG in 2010 (2010 HMG).4 The revised 2010 HMG elaborated on, but did not change substantially, the ways in which the antitrust agencies apply the HMG in practice.5 Notably, the 2010 HMG more clearly identified the types of evidence used to assess competitive effects,6 increased the market concentration levels that indicate a merger is likely to have anticompetitive effects,7 and expanded its treatment of unilateral effects.8 In 2011, the FERC opened a Notice of Inquiry seeking comments on whether, and if so how, it should revise its merger policy to reflect the revised 2010 HMG. …