USA Law and Practice Contributed by: David P. Flynn, Lindsey E. Haubenreich, Thomas F. Puchner, Dennis W. Elsenbeck and Zachary R. Hirschfeld, Phillips Lytle LLP
petition in wholesale markets through (among other things) screening and authorising market participants that seek to make wholesale sales of energy, capacity and ancillary services at MBR. Negotiated rates will only be upheld if neither party has market power – that is, the ability of one party to set prices above competi- tive rates due to their unilateral or co-ordinated ability to leverage undue influence on the market. MBR authorisation Market participants seeking MBR authorisation must file an application and receive approval from FERC, which may be granted if the applicant can demon- strate that it lacks, or has adequately mitigated, hori- zontal and vertical market power. FERC has adopted two screens for determining whether a party has hori- zontal market power: a pivotal supplier screen and a market share screen. Applicants that fail one or both screens are presumed to have significant market power, but may rebut that presumption. In 2019, FERC Order 861 revised the requirements applicable to MBR sellers in certain RSO markets, allowing a seller to forego submittal of indic- ative screens by indicating compliance with FERC- approved market-monitoring measures adopted by RSOs. MBR sellers must also demonstrate that they do not have vertical market power. FERC has determined that when an applicant owns, operates or controls transmission facilities a FERC-approved Open Access Transmission Tariff (OATT) adequately mitigates verti- cal market power. As such, an MBR applicant must either be bound by a FERC-approved OATT or receive a waiver of the OATT requirement. FERC’s oversight of M&A FERC also regulates wholesale market concentra- tion by overseeing mergers and acquisitions (M&A) of public utilities to ensure that the merger’s effect on competition, rates, regulation and cross-subsidisation is consistent with the public interest. FERC’s use of the HHI and MPS FERC generally relies on the Herfindahl-Hirschman Index (HHI) – a commonly accepted measure of mar- ket concentration – to determine whether the pro-
posed transaction will increase market concentration to exceed the relevant market’s threshold concentra- tion levels. FERC uses the HHI and its Merger Policy Statement (MPS), issued in 1996, to analyse the trans- action. The MPS articulates methods for further com- puting market concentration, identifies safe-harbour concentration levels and outlines the methods to be undertaken if a transaction failed either screening. Role of Other Bodies Energy industry M&A are also subject to review by the US Department of Justice (DOJ) and the Federal Trade Commission (FTC). While FERC’s review M&A is a relatively straightforward public interest inquiry, the DOJ and FTC will typically follow their 2010 Horizontal Merger Guidelines (HMG) for a more complex analy- sis. DOJ and FTC authorisation may still be required upon FERC’s approval of a transaction. State utility commissions may also have jurisdiction to review public utility M&A transactions. However, instead of focusing on the wholesale market, their review focuses on the impact on retail rates and the public interest. 2.5 Surveillance to Detect Anti-Competitive The EPAct significantly augmented FERC’s authority to prohibit market manipulation, anti-competitive behav- iour and fraud. FERC remains the primary authority overseeing competition in the wholesale electricity markets, while a variety of other federal agencies, such as the FTC or DOJ, may also have jurisdiction over electricity market participants (particularly over antitrust violations and criminal behaviour) as part of their generalised authority to regulate anti-competitive behaviour across a variety of market sectors. In the EPAct, Congress enhanced and added sections to the FPA, NGA and NGPA, which prohibit manipula- tive or deceptive practices, and provided for maximum civil penalties of USD1 million per day, per violation of rules, regulations and orders issued under those acts. It also expanded FERC’s authority with respect to anti-competitive behaviour by expressly prohibit- ing fraudulent or manipulative acts by “any entity” in the sale or purchase of electrical energy or the sale or Behaviour The EPAct
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