Energy Legal Blog

Mergers, Acquisition and Transmission Management Plans Sail through FERC

In stark contrast to the protracted merger proceedings of recent years, FERC approved MidAmerican Energy Holdings’ acquisition of PacifiCorp, and the merger of Duke and Cinergy, with no strings attached and only five months after the proposals were filed with the agency.  At the same meeting, FERC also affirmed its previous approval of the contested PSEG-Exelon merger.  Concurrently, FERC blessed MidAmerican's and  Duke’s proposals to hire independent operators for their transmission grids, but these measures were not a condition of the utilities' respective mergers. 

Not more than a few years ago, FERC routinely leveraged its gatekeeper control over mergers to force merger applicants to take other steps to the agency’s liking.  A favored step of late was requiring the utilities to join an RTO, which FERC required of AEP when it acquired CSW.  But FERC did not use it leverage in connection with these latest transactions.  None was even set for evidentiary hearing.  Exelon and PSEG had chosen to be proactive regarding any market power concerns and had proposed divestiture of generation, but the other applicants did not take this step.  They proved to be right, as FERC was satisfied that none of these transactions would harm competition, rates or regulation.  However, these utility mergers still require authorization from other regulators, including affected state regulators.

FERC separately approved Duke and MidAmerican's proposals to hire independent transmission coordinators to perform open-access transmission functions, including calculation and posting of total and available capacity, processing of transmission and interconnection service requests, operation of the OASIS, and coordination of transmission planning.  The utilities would retain other authority, however, including the setting of prices for transmission services.  FERC approved both proposals because it found they would increase transparency in the provision of transmission services.  FERC accepted Duke's proposal without condition, and MidAmerican's proposal subject to further steps by the utility.

FERC's approval of these proposals demonstrates its retreat from its policy under previous chairmen of encouraging participation in RTOs or ISOs.  Neither Duke nor MidAmerican is a member of an RTO or ISO and it would seem unlikely that either will join one soon.  Instead, they appear to be following the lead of Entergy, a forceful opponent of RTOs, which developed the independent transmission coordinator concept as an alternative to RTO or ISO participation.  The Entergy proposal went further than the latter two, however, as it also surrendered transmission pricing to the entity.  The common denominator of these proposals is that they eschew creation of organized, short-term energy or capacity markets, which have been a hallmark of RTO’s and ISOs, and which arguably increase competitive opportunities for power sellers and marketers.

Notably, Entergy has proposed hiring the Southwest Power Pool, an RTO, to serve as its ICT.  Duke would use Midwest ISO, another RTO, while MidAmerican has yet to select an entity.  See Duke Energy Asks FERC to Approve MISO as ICT for Duke Facilities; Entergy and SPP Come to Terms on ICT Agreement.  It will be worth monitoring to see whether these affiliations will mature into membership over time in the absence of merger conditions or other directives.