Inconsistent with the Public Interest:
FERC’S Three Decades of Deference to Electricity Consolidation

[This month’s essay is the abstract to my article published this month in the Energy Law Journal.  The full edition of this journal is available here.]

 

         Since the mid-1980s, mergers and acquisitions approved by the Federal Energy Regulatory Commission have cut the number of independent retail electric utilities by more than half. These transactions have taken every possible form: horizontal, vertical, convergence, and conglomerate; operationally integrated and remote; domestic and international; publicly traded and going-private; debt-financed and stock-for-stock.

          Accompanying this consolidation has been complication. The conventional pre-1980s utility—local, pure play, conservatively financed—is being replaced by multistate and multinational holding company systems: corporate structures housing multiple, and sometimes conflicting, business ventures—structures that owe their financeability and viability to their utility affiliates’ monthly cash flow.

         Under Section 203 of the Federal Power Act, the FERC must find these consolidating and complicating transactions “consistent with the public interest.” Despite multiple policy statements, rules, and 70-plus transaction approvals, the FERC has never defined a “public interest” in terms of the industry’s performance. Though the 1996 Merger Policy Statement states a purpose of “encouraging greater wholesale competition,” that purpose rarely appears in the FERC’s actual merger orders. These orders require only “no harm,” and no harm only to pre-merger competition—regardless of whether that pre-merger competition is effective or ineffective. Effective competition exists when a market’s structure, and its sellers’ conduct, pressure all rivals to perform at their best. By requiring only “no harm,” and by applying that standard only to pre-merger competition, the FERC has invited and approved transactions whose contributions to performance are necessarily suboptimal. For 30 years, the Commission’s merger decisions have disconnected the “public interest” from performance.

         That disconnection has produced, and continues to produce, consolidated asset ownership and complicated business structures. . . .

Services

Testimony, Papers, and Presentations

The testimony relates to AltaGas’s proposed acquisition of WGL Holdings, Inc. and Washington Gas Light Company.
The testimony addresses the following: the effect of the transaction on consumers, including: (1) reasonableness of the purchase price, including whether the purchase price was reasonable in light of the savings that can be demonstrated from the merger and whether the purchase price is within a reasonable range; (2) whether ratepayer benefits . . .
Testimony addresses the issues of whether the proposed transaction affects the interests of ratepayers; the ability of JCP&L and MAIT to provide safe, adequate, and proper utility service at just and reasonable rates; and whether the proposed transaction is in the public interest.
This expert report was submitted to a federal trial court in May 2016 on behalf of City of Jacksonville, Florida. The litigation, and report, involve a 1943 disaffiliation of a gas corporation from its holding company, as mandated by the Public Utility Holding Company Act of 1935. The report explains why the disaffiliation did not prevent liability for the costs of environmental cleanup, if such liability exists under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, from passing to the new corporation.

Books by Hempling

Regulating Public Utility Performance

“[A] comprehensive regulatory treatise …. In all respects, it merits comparison with Kahn and Phillips."

Regulating Public Utility Performance:  The Law of Market Structure, Pricing and Jurisdiction

Learn More and Order

Preside or Lead

Preside or Lead?
The Attributes and Actions of Effective Regulators

Now Available on Kindle

Learn More and Order

Hempling Appearances

Energy Bar Association
Panel on Practice Principles for New Regulatory Lawyers


UDC Law School Panel
Is the Exelon Takeover of Pepco in the Public Interest?


Nigeria Electricity Regulatory Commission
3rd Judges’ Seminar


Telecom Forum
Asamblea Plenaria REGULATEL


view ALL

Receive Essays

Electricity Jurisdiction

Testimonials

I highly recommend Scott Hempling. I have known him since 2003, since he was a consultant for the Hawaii Public Utilities Commission on various important and cutting-edge policy regulatory matters in Hawaii, through his time as the Executive Director at the National Regulatory Research Institute. His expertise, knowledge, and experience in all regulatory and energy matters is unmatched, and he would be a highly valuable resource and asset in any such endeavor.
— Carlito P. Caliboso, former Chairman, Hawaii Public Utilities Commission