Mergers in the U.S. electric power industry

Professor Pierce provides an overview of the ongoing process through which the Federal Energy Regulatory Commission (FERC) has been attempting to restructure the U.S. electricity industry to create effectively competitive wholesale electricity markets for almost two decades and of the merger policies FERC has adopted and applied during that period. Pierce gives FERC high marks for adopting as its own the general merger guidelines previously developed jointly by the Department of Justice and the Federal Trade Commission and then attempting to apply those guidelines to the unique characteristics of the evolving competitive electricity markets FERC has been attempting to create. He identifies three difficult systemic questions FERC has encountered in that process, however: (1) Whether to evaluate proposed mergers based on the assumption that future markets will resemble present markets when FERC expects that future markets will differ significantly from present markets in the near future? (2) If FERC decides to evaluate proposed mergers based on the assumption that the potentially affected markets will change significantly in the near future, which of several potential future market environments should it use as the basis for its evaluation? (3) Whether to adopt a passive merger policy in which the agency only reacts to structural changes proposed by private market participants or instead to adopt a proactive policy in which the agency attempts to use its power to condition its approval of mergers on the merged firm’s commitment to make other structural changes that FERC considers essential to the success of its restructuring program.