Exhibit d.1.2
91 F.E.R.C. P61,225; 2000 FERC LEXIS 1102, *
Consolidated Edison, Inc., Northeast Utilities
Docket No. EC00-49-000
FEDERAL ENERGY REGULATORY COMMISSION - COMMISSION
91 F.E.R.C. P61,225; 2000 FERC LEXIS 1102
ORDER APPROVING MERGER
June 1, 2000
HISTORY: [*1]
As Revised June 22, 2000.
CORE TERMS: merger, transmission, proposed merger, subsidiary, merged, pool,
concentration, competitive, commit, merger-related, post-merger, generation,
adversely affect, public utility, hold harmless, downstream, premium,
consolidated, tariff, concentrated, membership, vertical, customer, entity,
merger-induced, acquisition, sensitivity, generating, transition, switch
PANEL:
Before Commissioners: James J. Hoecker, Chairman; William L. Massey, Linda
Breathitt, and Curt Hebert, Jr.
OPINION:
On January 14, 2000, Consolidated Edison, Inc. (CEI) and Northeast Utilities
(NU) (collectively, Applicants) filed a joint application pursuant to section
203 of the Federal Power Act (FPA) n1 for approval of the merger of CEI and
NU. The proposed merger would create an exempt holding company structure in
which "New CEI" would be the surviving parent company (to be referred to,
post-merger, as Consolidated Edison, Inc.) and CEI and NU would be the
operating utility subsidiaries, as described more fully below.
As discussed below, the Commission has reviewed the proposed merger under the
Commission's Merger Policy Statement. n2 In this order, we will approve the
merger, as proposed.
[*2]
I. Background
A. Description of the Parties to the Merger
1. CEI and its subsidiaries
a. CEI
CEI is an exempt public utility holding company under section 3(a)(1) of the
Public Utility Holding Company Act (PUHCA) n3 . It is the holding company for
Consolidated Edison Company of New York, Inc. (ConEd) and presently owns all
of
ConEd's issued and outstanding common stock. As a result of a Commission-
approved merger, n4 CEI also became the holding company for Orange and
Rockland
Utilities, Inc. (Orange and Rockland) and presently owns all of Orange and
Rockland's issued and outstanding common stock. n5
b. ConEd
ConEd supplies electric service in most of New York City and most of
Westchester County, New York. ConEd also supplies natural gas to the Boroughs
[*3] of Manhattan and the Bronx and parts of the Borough of Queens and
Westchester County, New York. n6
ConEd has 1,485 MW of generating capacity that it owns and operates, 462 MW
of entitlements to jointly owned units, 2,090 MW of non-utility generation
(NUG) contracts, and 550 MW of other contracts.
Orange and Rockland is an electric and gas distribution utility that has two
wholly-owned public utility subsidiaries: Rockland Electric Company and Pike
County Light & Power Company. Orange and Rockland does not own any generating
facilities. It has 19 MW of NUG contracts and certain power purchase
contracts.
Orange and Rockland's consolidated gas operations include three propane air
gas
plants that have a combined capacity of 30,600 Mcf per day of natural gas
equivalent.
CEI also wholly owns several [*4] non-utility subsidiaries.
2. NU and Its Subsidiaries
NU is a registered public utility holding company. It directly owns six
subsidiaries that are public utilities under the FPA: Connecticut Light &
Power
Company (CL&P), Western Massachusetts Electric Company (WMECO), Holyoke Water
Power Company (HWP), Holyoke Power and Electric Company (HPE), Public Service
Company of New Hampshire (PSNH), and North Atlantic Energy Corporation
(NAEC).
NU also owns several non-utility subsidiaries.
NU and its subsidiaries (including non-utility subsidiaries) own 3,893 MW of
generating capacity and have total capacity, including net contract
purchases,
of 4,530 MW.
B. Description of Proposed Merger
Applicants state that the merger between CEI and NU would occur through two
simultaneous mergers: the merger of CEI into New CEI (a newly formed Delaware
corporation that will become the ultimate post-merger holding company) and
the
merger of an indirect wholly-owned subsidiary of CEI with NU. Upon
completion,
New CEI will own all of the assets of CEI and NU will be a wholly-owned
subsidiary of New CEI. The merged company's name will be Consolidated Edison,
Inc. The utility subsidiaries of CEI and NU would [*5] retain their original
names and identities and continue to serve their respective service
territories.
CEI shareholders would receive one share of New CEI common stock for each CEI
common share. NU shareholders would receive payment for each NU common share,
calculated from a base amount of $ 25.00 for each NU common share, in either
cash or New CEI common stock, depending on their election and upon allocation
and proration procedures specified in the Merger Agreement. The base amount
will be adjusted upward if certain conditions set forth in the Merger
Agreement
are met.
In order to eliminate any adverse rate impacts, Applicants commit to hold
harmless, for a period of five years, all wholesale requirements and
transmission customers from any merger-related costs in excess of merger
savings.
The NU and CEI operating companies are members of the New England Power Pool
(NEPOOL) and the New York Power Pool (NYPP) respectively. These are tight
power
pools in which transmission-owning members have turned over operational
control
of their transmission facilities to the ISO New England, Inc. (ISO-NE) and
New
York Independent System Operator (NYISO), respectively. NYISO and ISO-NE are
contiguous [*6] along a 400-mile border and are interconnected by eight
separate interties, with aggregate transfer capability of 1,600 MW to 2,300
MW,
depending on direction and system conditions. Applicants are directly
interconnected by the 398 Line, owned by CL&P and ConEd, one of the interties
that comprise the NYISO/ISO-NE Interface. The 398 Line operates at 345 kV and
has a summer normal rating of 1195 MW. Access to the NYISO/ISO-NE Interface
is
provided on a non-discriminatory basis under the NYISO and NEPOOL Tariffs
administered by NYISO and ISO-NE.
II. Notices of Filing, Interventions, and Answers
Notice of Applicants' merger filing was published in the Federal Register,
65 Fed. Reg. 4409 (2000), with comments, interventions, and protests due
on or before March 14, 2000. n7
The Massachusetts Municipal Wholesale Electric Company and the Connecticut
Municipal Electric Energy Cooperative (collectively, Municipals) filed a
timely
motion to intervene and protest. Municipals state that the merged company
would
have rights over and ownership of assets that link the New York and New
England
control areas and express concern over the effects on pricing and capacity
should either CEI or NU join the other's power pool. Municipals state that
the
Commission should conduct a probing evaluation of the proposed merger, and
that
any approval of the merger should be conditioned on a commitment by
Applicants
that neither CEI or NU will switch their respective power pool memberships.
The United Illuminating Company (United Illuminating) filed a timely motion
to
intervene and protest. United Illuminating finds fault with Applicants'
proposals concerning the proposed merger's effect on rates and argues that
that
the proposed merger would have an adverse effect upon United Illuminating's
transmission rates. Specifically, United Illuminating believes that
Applicants
have not proposed adequate ratepayer protections related to: (1) preserving
the
current NEPOOL Regional Network [*8] Service (RNS) rate and NU Local Network
Service (LNS) rate (collectively, the NEPOOL Rates) paid by United
Illuminating; (2) preventing any acquisition premium and other merger-related
costs from affecting transmission rates in any manner until Applicants obtain
regulatory approval for recovering either the premium or other merger-related
expenses; and (3) protecting ratepayers against cost increases that would
arise
from the merged entity withdrawing NU or its current utility subsidiaries
from
NEPOOL. In addition, United Illuminating claims that Applicants fail to set
forth any commitment to protect against changes in the use of the 398 Line.
United Illuminating requests that the Commission adopt the following
mitigation
measures: (1) condition approval of the merger upon Applicants' commitment to
maintain the status quo with respect to the NEPOOL RNS and NU LNS
transmission
rates during the NEPOOL transition period, particularly if Applicants choose,
or are required, to develop a single system-wide rate for service over their
combined system; (2) require Applicants to commit that they will not attempt
to recover their merger acquisition premium or other merger-related costs
until
[*9] they have obtained authorization to do so from the Commission; (3)
require
Applicants to commit that NU and the NU subsidiaries will continue to provide
transmission service under the NEPOOL tariff and the NU subsidiaries'
own individual open access transmission tariffs until the end of the
transition
period; and (4) require Applicants to commit that the 398 Line will remain a
regional asset operated on a non-discriminatory basis and that the use of the
tie will not change through the end of the transition period.
Further, United Illuminating states that a large transmission-owning entity
such as NU has the incentive and ability to influence NEPOOL transmission
decisions in ways that are preferential to its power marketing business.
United Illuminating argues that, as a condition of approving the merger,
the Commission should preclude the merged entity from participating in
decisions relating to the provision of transmission service or the rates,
terms and conditions pursuant to which that service is provided for as long
as the merged entity actively engages in power marketing in the same markets.
In the alternative, United Illuminating argues, the merged entity should be
required [*10] to end its active participation in the power markets in which
it participates in decisions relating to the provision of transmission
service
or the rates and the terms and conditions pursuant to which that service is
provided.
On March 29, 2000, Applicants filed an answer to the protests filed by
Municipals and United Illuminating in which they respond to certain requests
for conditions. Applicants accept certain of Municipals' and United
Illuminating's proposed conditions. Specifically, Applicants commit to the
following: (1) not to switch their power pool memberships without Commission
approval; (2) not to include any part of the acquisition premium or other
merger-related costs in any Commission-jurisdictional rates without
Commission
approval, specifically, in formula rates for transmission service under
individual or power pool tariffs; and (3) not to assert rights to obtain
access
to the 398 Line on a basis different from other pool participants without
Commission approval.
Applicants argue, among other things, that other further conditions sought by
Municipals and United Illuminating would require the Commission to prejudge
how
the region should be configured and would involve [*11] issues that are not
before the Commission in this proceeding, or would require the Commission to
modify the scope of the regional settlement in NEPOOL and would thus disrupt
the balanced framework that the Commission has repeatedly stated it will not
alter in merger cases.
On May 1, 2000, United Illuminating filed a motion for leave to file an
answer
and an answer.
III. Discussion
A. Procedural Matters
Pursuant to Rule 214 of the Commission's Rules of Practice and Procedure, n8
the timely, unopposed motions to intervene and notice of intervention serve
to make those who filed them parties to this proceeding. Due to the absence
of any undue prejudice or delay, the Commission will grant the late,
unopposed motion to intervene in this proceeding of NRG Power Marketing, Inc.
Pursuant to Rule 213 of the Commission's Rules of Practice and Procedure, n9
we will accept the answer of March 29, 2000 submitted by Applicants, as it
assists in our understanding and resolution of the issues in this [*12]
proceeding. Also, pursuant to Rule 213 we will reject the answer of
May 1, 2000 submitted by United Illuminating, as this pleading is largely
repetitive and, as we stated in the Merger Policy Statement, n10 considering
such a pleading would merely bog down the process of considering mergers.
B. The Merger
1. Standard of Review
Section 203(a) of the FPA n11 provides as follows:
No public utility shall sell, lease, or otherwise dispose of the whole of its
facilities subject to the jurisdiction of the Commission, or any part thereof
of a value in excess of $ 50,000, or by any means whatsoever, directly or
indirectly, merge or consolidate such facilities or any part thereof with
those
of any other person, or purchase, acquire, or take any security of any other
public utility, without first having secured an order of the Commission
authorizing it to do so.
Under section 203(a), the Commission must approve a proposed merger if it
finds
that the [*13] merger "will be consistent with the public interest." n12
In 1996, the Commission issued its Merger Policy Statement updating and
clarifying its procedures, criteria and policies applicable to public utility
mergers. n13 The Merger Policy Statement provides that the Commission will
generally take account of three factors in analyzing proposed mergers: (a)
the effect on competition; (b) the effect on rates; and (c) the effect on
regulation.
For the reasons discussed below, we find that Applicants' proposed merger,
with its mitigation commitments, is consistent with the public interest.
Accordingly, we will approve the merger without further investigation.
2. Effect on Competition
a. Applicants' Analysis
Applicants analyze the horizontal and vertical competitive effects of the
proposed merger. These [*14] effects are related to the consolidation of
generation controlled by Applicants and the consolidation of generation and
delivered gas controlled by Applicants, respectively. While Applicants have
plans to divest considerable portions of their generating assets, the
analysis
provided by Applicants includes only those divestitures that have been
completed. Applicants state that their analysis shows that the proposed
merger will not adversely affect competition as a result of consolidating
generation. Furthermore, Applicants claim that because of their limited gas
operations, the proposed merger raises no vertical concerns.
Applicants identify non-firm energy as the relevant product. They use
economic
capacity and available economic capacity as proxies for suppliers' ability to
participate in relevant markets. Applicants identify and define six relevant
geographic ("destination") markets in NEPOOL and NYPP. n14 They consider
various seasonal market conditions in evaluating the effect of the merger
on relevant geographic markets. Thus, Applicants assess market concentration
for the peak, off-peak, and super-peak non-firm energy product under summer,
winter, and spring/fall conditions, [*15] for a total of nine periods. For
the
purposes of estimating market prices, Applicants use daily data published by
Power Markets Week from 1998 to 1999.
The results of Applicants' economic capacity analysis show that there are no
merger-induced increases in market concentration (as measured by the HHI
statistic) that exceed the thresholds specified in the Merger Policy
Statement.
For the year 2000 analysis, post-merger concentration in the NEPOOL and
NYPP-West markets is below 1,000, and it is below 1,209 in the NYPP-East,
NYC, and PJM markets, with pre- to post-merger increases in concentration of
64
and less. The Long Island market is the most concentrated, with maximum
post-merger concentration of 6,095 and merger-induced increase in
concentration
of 31 or less. For the year 2001 analysis, post-merger markets are either
unconcentrated or merger-induced [*16] increases in concentration do not
exceed
the thresholds. n15
Applicants evaluate the vertical effects of the proposed merger in the NYPP
and
NEPOOL geographic markets. n16 In support of their conclusion that the
proposed
merger would not adversely affect competition, Applicants make a number of
points. First, they explain that they own a small amount of gas
transportation
assets. NU has a five percent share of Portland Natural Gas
Transmission Services pipeline, which accounts for ten percent of total
capacity into New England and serves only one [*17] generator, which is
owned by Applicants. Therefore, Applicants claim, they have no rivals whose
costs they could raise by withholding gas.
Second, Applicants explain that they hold about 16 percent of firm
transportation rights (FTRs) on pipelines serving the combined Metro New York
and southern New England market. They point out that these FTRs are used by
ConEd's subsidiaries to serve their local distribution company (LDC)
customers
and that they could not raise rival generators' costs because they use all
FTRs
to serve LDC native load requirements. However, they assess market
concentration on the basis of market shares for FTRs; they show that the
market
is moderately concentrated (1,361 HHI) and therefore raises no competitive
concerns. Applicants also argue that their ownership of LDCs poses no
competitive issues because all of the large generating [*18] stations served
by their LDC affiliates have low-cost bypass alternatives such that a
strategy
of withholding gas by the merged company would be unprofitable. n17
Finally, Applicants note that the proposed merger raises no vertical
competitive issues arising from control of transmission because all relevant
transmission facilities and control area and security coordinator functions
are
controlled by their respective ISOs.
b. Commission Determination
We find that the proposed merger will not adversely affect competition as a
result of: (1) consolidating generation controlled by Applicants; or (2)
consolidating generation and gas delivery facilities controlled by
Applicants.
We note that intervenors do not raise concerns regarding Applicants'
competitive analysis in this proceeding. In regard to horizontal competitive
issues, Applicants' analysis demonstrates that the merger does not produce
increases in market concentration in the six relevant [*19] geographic
markets
they define. n18
In regard to vertical [*20] competitive issues, the proposed merger will not
create or enhance the merged company's ability and/or incentive to adversely
affect prices and output in downstream electricity markets. Five of the six
relevant downstream electricity markets are not highly concentrated. This
dispells any concern that the merged company could adversely affect prices
or output through, for example, raising rivals' costs or foreclosure, which
requires that both downstream and upstream delivered gas markets be highly
concentrated (i.e., not conducive to competitive outcomes). n19 As a result,
in these markets, further investigation into the competitive conditions in
the
upstream market or the merged company's ability and incentive to adversely
affect electricity prices or output is unnecessary. The remaining downstream
relevant market (Long Island) is highly concentrated. However, we note that
there is no significant "overlap" in the upstream and downstream relevant
markets in which Applicants compete, nor is there a significant incentive for
the merged company to adversely affect prices or output in the Long Island
market. n20
Finally, we are satisfied that the proposed merger raises no vertical
concerns
related to combining generation and transmission because Applicants'
transmission facilities and control area and security coordinator functions
are under the control of ISO-NE and NYISO. We rely upon this fact in
approving the merger. With regard to United Illuminating's concern over the
proposed merger's effect upon the usage of the 398 Line, Applicants commit
not to assert rights to access the 398 Line on a basis different from other
pool participants without Commission approval. As explained by Applicants in
their response, operational control over the 398 Line has been turned over to
the NYISO. Again, any change to the treatment of the 398 Line would require
Commission approval, and the consequences of such a change would be examined
at that juncture.
Moreover, as to United Illuminating's concern about the merged company's
voting
rights in NEPOOL,we note that the governance structure [*22] of NEPOOL has
been
approved by this Commission and, as NEPOOL has previously explained, its
restructuring proposal was the product of over two years of intensive
discussions, facilitated by the Commission's Office of Dispute Resolution,
among all affected parties, including United Illuminating. n21 In addition,
NU's voting rights within NEPOOL will not change as a result of the proposed
merger. Any concerns regarding Applicants' use of their rights under the
NEPOOL Agreement to unduly discriminate on behalf of their own power
marketing
affiliates could be brought to the Commission's attention in a complaint
filed
under section 206 of the FPA.
In light of these considerations, the proposed merger does not raise
competitive concerns.
3. Effect of the Merger on Rates
Applicants have made certain proposals in response to conditions sought by
United Illuminating and Municipals concerning the NEPOOL Rates, n22 the
merger
acquisition [*23] premium, transmission service during the transition period,
and the consequences of any potential decision by ConEd and/or NU to join the
other's power pool, absent a general consolidation of the two power pools.
Applicants respond to these concerns by making the following commitments: (a)
not to switch power pool memberships without Commission approval; and (b) not
to include any part of the acquisition premium or other merger-related costs
in any Commission-jurisdictional rates without Commission approval.
In addition, Applicants offer a hold harmless commitment as an assurance that
the proposed merger will not have an adverse effect on rates. Applicants
commit
that, for the five year period following the consummation [*24] of the
proposed
merger, they will hold harmless all existing wholesale requirements and
transmission customers from any merger-related costs to the extent that those
costs are not offset by merger-related savings. In regard to wholesale
transmission rates specifically, Applicants state that for a period of five
years following the consummation of the proposed merger, they will not seek
to include any increased costs attributable to the merger in their
transmission
revenue requirements under either the NYISO and ISO-NE tariffs or under NU's
individual open access transmission tariff.
In the Merger Policy Statement, we explain that one of the types of ratepayer
protection that can be proposed is a general hold harmless provision in which
an applicant commits that it will protect wholesale customers from any
adverse
rate effects resulting from the merger for a significant period of time
following the merger. Such a provision must be enforceable and
administratively
manageable. n23 Applicants' hold harmless commitment n24 meet these
requirements. n25
In response to the concerns of United Illuminating and Municipals related to
the adverse effects that may occur if either of Applicants switches its power
pool membership, Applicants state they have no plans at this time to change
their power pool membership post-merger and that they will not switch
their existing power pool membership without obtaining Commission approval.
Any adverse effects of such a change would therefore be appropriately
examined
at such time as it may occur. n26 United Illuminating's concern regarding
changes to NU's current transmission service under the NEPOOL Tariff and NU's
individual open access transmission tariff would also be examined by the
Commission if and when such changes are proposed.
[*26]
Therefore, given Applicants' hold harmless provisions and other commitments,
as
expanded in their response and explained above, we believe the proposed
merger
will not have an adverse effect on rates.
4. Effect of the Merger on Regulation
As explained in the Merger Policy Statement, the Commission's primary concern
with the effect on regulation of a proposed merger involves possible changes
in the Commission's jurisdiction, specifically with regard to intra-company
sales of non-power goods and services, when a registered holding company is
formed, thus invoking the jurisdiction of the Securities and Exchange
Commission (SEC). n27 We are also concerned with the effect on state
regulation where a state does not have authority to act on a merger and
has raised concerns about the effect on its regulation of the merged entity.
n28
In this case, NU is currently a registered holding company regulated by the
SEC, and CEI is currently an [*27] exempt holding company under PUHCA section
3(a)(1). However, the new, merged company, according to the application, will
be required to be registered under PUHCA section 5. Applicants, therefore,
commit that they will follow the Commission's policies regarding the
treatment
of costs and revenues associated with intra-company services. However, as
explained above, our concern lies with both goods and services. Therefore, in
order to avoid a hearing on the issue of the proposed effect of the merger on
federal regulation, Applicants, within 30 days of the date of this order,
must
agree to abide by the Commission's policies with respect to intra-system
transactions involving non-power goods as well as services.
In regard to state regulation, Applicants contend that they are making
appropriate filings with the state public utility commissions in Connecticut,
Maine, Massachusetts, New Hampshire, New York, New Jersey, Pennsylvania and
Vermont. Applicants also explain that their public utility subsidiaries
subject
to state regulation will remain so post-merger.
Accordingly, in light of the facts and commitments stated above, we are
satisfied that the proposed merger will not adversely affect [*28] federal
or state regulation. n29
5. Accounting Issues
Applicants state that the merger will be recorded using the purchase method
of
accounting. Applicants also state that any premium paid above the fair market
value of NU's assets will be reflected as goodwill on New CEI's consolidated
balance sheet. The pro forma consolidated balance sheet provided with the
application reflects approximately $ 1.5 billion of goodwill. In previous
applications the Commission has approved the use of the purchase method of
accounting. n30 Because the transaction is structured so that the merger
occurs at the holding company level without any changes to the accounting
records or financial statements of the Commission-jurisdictional
subsidiaries,
we have no objection to Applicants' use of the purchase method of accounting.
[*29]
We further understand that the goodwill will remain on the books of New CEI
and
that the merger will not affect the account balances or financial statements
of the jurisdictional subsidiaries, except for certain costs to achieve the
merger. With respect to certain costs to achieve the merger, Applicants
intend
to record the costs as a regulatory asset in Account 186, Miscellaneous
Deferred Debits. Although the application is unclear as to whether the
costs will be recorded on the books of the holding company or the
Commission-jurisdictional subsidiaries, amounts recorded on the books
of the jurisdictional subsidiaries that would otherwise be charged to
expense but for it being probable that the amounts will be recovered in
future rates shall be recorded in Account 182.3, Other Regulatory Assets. n29
The Commission orders:
(A) The untimely motion to intervene is hereby granted.
(B) Intervenor's request for hearing is hereby denied.
(C) The answers are hereby accepted and rejected to [*30] the extent
discussed in the body of this order.
(D) Applicants' proposed merger is hereby approved as discussed in the
body of this order.
(E) Applicants are hereby directed to file, within 30 days of the date of
this order, a statement indicating that they agree to abide by the
Commission's
policies regarding the treatment of costs and revenues associated with
intra-system transactions involving non-power goods and services, as
discussed
in the body of this order.
(F) Applicants shall advise the Commission within 10 days of the date the
merger is consummated.
(G) The foregoing authorization is without prejudice to the authority of
the Commission or any other regulatory body with respect to rates, services,
account, valuation, estimates, or determinations of cost, or any other matter
whatsoever now pending or that may come before the Commission.
(H) The accounting for the merger, including certain costs to achieve the
merger, shall be implemented consistent with the body of this order.
Applicants
shall inform the Commission of any change in the circumstances that would
reflect a departure from the facts the Commission has relied
upon.
(I) The Commission retains authority under section [*31] 203(b) of the
FPA
to issue supplemental orders as appropriate.
By the Commission.
Footnotes:
n1 16 U.S.C Section 824b (1994)
n2 Inquiry Concerning the Commission's Merger Policy Under the Federal Power
Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996) FERC
Statutes
and Regulations P31,044 (1996),reconsideration denied, Order No. 592-A,
62 Fed. Reg. 33,341 (1997), 79 FERC P61,321 (1997) (Merger Policy Statement).
n3 15 U.S.C. 79a et seq.
n4 Consolidated Edison Co. of New York and Orange and Rockland Utilities.,
Inc., 86 FERC P61,064 (1999).
n5 ConEd and Orange and Rockland are public utilities under the FPA.
n6 ConEd has two wholly-owned subsidiaries that own real property in New
York
State. ConEd also owns a 28.8 percent interest in Honeoye Storage
Corporation,
which owns and operates a gas storage facility in western New York.
n7 Timely motions to intervene were filed by the Utility Workers Union of
America, AFL-CIO, Local 1-2; Chicopee Municipal Lighting Plant and South
Hadley
Electric Light Department; the New Hampshire Electric Cooperative, Inc.; Long
Island Power Authority and its subsidiary, LIPA; Connecticut Industrial
Energy
Customers; 1st Rochdale Cooperative Group, Ltd. and Coordinated Housing
Services, Inc.; Southern Energy Bowline, LLC, Southern Energy Lovett, LLC,
and Southern Energy NY-GEN, LLC. The Public Service Commission of the State
of New York (New York Commission) filed a notice of intervention. A late
motion
to intervene was filed on April 3, 2000, by NRG Power Marketing, Inc. The
above-listed motions and notice raised no substantive issues.
n8 18 C.F.R. Section 385.214 (1999).
n9 18 C.F.R. Section 385.213(2) (1999).
n10 Merger Policy Statement at 30,127.
n11 See supra note 1.
n12 Id.
n13 See supra note 2.
n14 These markets are NYPP, NEPOOL, NYPP east of the Total East Interface
(NYPP-East), NYPP west of the Total East Interface (NYPP-West), New York City
(NYC), and Long Island.
n15 Results for available economic capacity indicate that merger-induced
increases in concentration fall within the thresholds. To simulate retail
access penetration for this analysis, Applicants assume a native load offset
of twenty-five percent in NYPP and PJM, and ten percent in New England
(except
for Vermont which, they state, has no definitive restructuring plans in
place).
Applicants present no results for the PJM market. See Affidavit of William H.
Hieronymus, at 70.
n16 They exclude PJM because the gas delivery facilities they control serve
no generation in PJM and because they are minor participants in downstream
electricity markets.
n17 These affiliates are ConEd and Yankee Gas, which operates in Connecticut
n18 This conclusion is based on market concentration results relied on by
Applicants(i.e., produced by Dr. William Hieronymus in his "baseline"
analysis)
and certain results based on sensitivity analyses conducted by Dr.
Hieronymus.
These sensitivity analyses consider price ranges that differfrom prices in
the
"baseline" analysis by plus or minus five dollars per megawatt. We consider
these sensitivities because in a number of the "baseline" cases using
economic
capacity, the prices used are above the range of observed prices, while in
the
sensitivities they largely fall within the range of observed prices. In
contrast to the "baseline" results, these sensitivities show that merger-
induced concentration exceeds the thresholds in the NYPP-East market in the
winter off-peak period (i.e., an increase in concentration of 146 HHI in a
moderately concentrated post-merger market ). However, we do not view this
isolated case as symptomatic of a competitive problem.
n19 See Dominion Resources, Inc. et al., 89 FERC P61,162 (1999) and San
Diego
Gas & Electric Co. et al.,79 FERC P61,372 (1997). [*21]
n20 This is because, in this particular case, Applicants have a relatively
small amount of generation in the downstream Long Island market.
n21 New England Power Pool, 88 FERC P61,079 (1999), reh'g pending.
n22 United Illuminating cites New England Power Co., 88 FERC P61,292 at
61,889
(1999) (New England Power), where the Commission required two merging parties
to maintain the status quo with respect to the NEPOOL RNS and NU LNS
transmission rates during the transition period.
n23 Merger Policy Statement at 30,124.
n24 Specifically, Applicants commit that, with respect to transmission
rates,
they will not include merger-related costs in those rates without: (1)
specifically identifying them; (2) demonstrating that the costs included in
the
rates are exceeded by the savings produced by the merger; and (3) in the
event of a dispute, bearing the burden of proof that the merger savings
exceed
the merger costs charged to the customer. [*25]
n25 On the issue of the duration of the hold harmless commitment, we believe
that United Illuminating has not adequately demonstrated any inadequacy of
the
five year time frame. See, e.g.,Sierra Pacific Power Co., 87 FERC P61,077
(1999); Public Service Co. of Colorado, 78 FERC P61,267 (1997).
n26 United Illuminating's reliance on New England Power is misplaced. There,
two merger applicants, both of which were members of NEPOOL, proposed a
single-system LNS rate which would change the LNS transmission rate charged
to their customers. In the instant proceeding, no such change has been
proposed, and as explained above, any such change would have to be approved
by the Commission before it can be adopted.
n27 Merger Policy Statement at 30,124-25.
n28 Merger Policy Statement at 30,124-25.
n29 Entergy Services, Inc. and Gulf States Utilities Company, Opinion No.
385, 65 FERC P61,332 (1993).
n30 Entergy Services, Inc. and Gulf States Utilities Company, Opinion No.
385, 65 FERC P61,332 (1993).
