Federal Merger Review Authorities and Electric Utility Restructuring

Order Code RL32133

CRS Report for Congress

Received through the CRS Web

Federal Merger Review

Authorities and

Electric Utility Restructuring

Updated January 23, 2004

Aaron M. Flynn

Legislative Attorney

American Law Division

Janice E. Rubin

Legislative Attorney

American Law Division

Michael V. Seitzinger

Legislative Attorney

American Law Division

Congressional Research Service ˜ The Library of Congress

Federal Merger Review Authorities and Electric Utility

Restructuring

Summary

Reform of federal agency oversight of electric utility mergers is among the

issues addressed in the conference report of H.R. 6, the Energy Policy Act of 2003.

The current version of the bill would repeal the Public Utility Holding Company Act

of 1935 (PUHCA), fundamentally altering the current regulatory system by curtailing

Securities and Exchange Commission (SEC) involvement in the merger oversight

process. The conference report also incorporates provisions from both the House and

Senate versions of the bill, including changes to the merger review process conducted

by the Federal Energy Regulatory Commission (FERC) and the antitrust agencies.

This report will explain the regulatory environment now in place and address some

of the proposed changes to current merger review procedures; it will be updated as

necessary.

Under current law, the primary agencies responsible for merger oversight are the

SEC, FERC, the Department of Justice (DOJ) and the Federal Trade Commission

(FTC). Each agency’s role in merger oversight is governed by agency specific

federal statutes, providing oversight responsibilities differing in purpose and

procedure.

SEC responsibilities are governed by PUHCA, which defines and regulates

public utility holding companies, subjecting such entities to, among other things,

merger, acquisition, and holdings regulation. The SEC reviews a transaction and its

resulting business combinations to insure that they comport with the public interest.

Both the House and Senate versions of the energy bill would have repealed PUHCA,

removing SEC oversight, and transferred certain SEC responsibilities to FERC and

state regulators. The conference report adopts these provisions as well.

Section 203 of the Federal Power Act subjects all mergers of public utilities

within FERC jurisdiction to FERC review, often the most extensive agency review

undertaken. Without FERC approval, the transaction cannot occur. Under current

law, FERC’s jurisdiction attaches whenever a particular size or type of transaction

is proposed. FERC reviews these transactions to insure they will secure adequate

service and coordinates the public interest with the interest of regulated facilities.

The conference report version would amend the transactions which fall under FERC

jurisdiction and require future studies of FERC’s oversight responsibilities with an

emphasis on streamlining the process as a whole.

DOJ and FTC enforce the generally applicable antitrust laws. These laws

prevent transactions that would substantially impede competition and can require

premerger notification. Neither of these acts would be directly affected by any

provision in the currently pending legislation. However, as mentioned above, the

conference report may anticipate potential alterations to merger review authority by

the agencies.

Contents

SEC Review Under the Public Utility Holding Company Act . . . . . . . . . . . 2

The Federal Energy Regulatory Commission and Merger Review . . . . . . . . 5

Antitrust Review by DOJ and FTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Overlapping Jurisdiction of FERC, DOJ and FTC . . . . . . . . . . . . . . . . . . . 10

Federal Merger Review Authorities and

Electric Utility Restructuring

Disagreement over environmental and electric utility restructuring issues had

stalled comprehensive energy reform legislation for several years prior to the recent

cascading power outages.1 The power blackout of August 14, 2003, however,

provided new impetus for Congressional action regarding electricity regulation

reform.2 Among the current issues is federal oversight of electric utility mergers.3

The H.R. 6 conference report (108th Congress) combines provisions from the earlier

House and Senate versions of the legislation and would fundamentally change the

current regulatory system by, inter alia, repealing the Public Utility Holding

Company Act of 1935 (PUHCA) and modifying the oversight responsibilities of the

primary regulators.4 A brief overview of the current system and the changes that

would be wrought by the bill follows.

Under current law, four federal agencies – the Federal Energy Regulatory

Commission (FERC), the Securities and Exchange Commission (SEC), the

Department of Justice (DOJ), and the Federal Trade Commission (FTC)–regularly

play significant roles in electric utility merger oversight.5 Each agency approaches

the merger process from a different perspective, pursuant to the dictates of various

federal statutes.

The SEC’s role is governed by the PUHCA,6 which grants the SEC the authority

to regulate mergers, acquisitions, and the holdings of “public utility holding

companies.”7 FERC generally undertakes the most extensive and substantive review

of utility mergers and does so pursuant to section 203 of the Federal Power Act

1

Samuel Goldreich, Blackout Turns Spotlight on Energy Overhaul Bill, CQ TODAY, Aug.

18, 2003, at 1,4, available at [http://www.cq.com/display.do?dockey=/usr/local/cqonline

/docs/html/news/108/news/108-000000799450.html@allnews&metapub=CQNEWS7seqNum=1&searchIndex=1].

2

Id.

3

See Energy Policy Act of 2003, H.R. 6 (Conference Report), 108th Cong. §§ 1291, 1292

(2003).

4

Id.

5

Nuclear Regulatory Commission review of transactions involving nuclear facilities and

Internal Revenue Service review of transaction tax consequences have been excluded

because they are not pertinent to this discussion.

6

15 U.S.C. §§ 79 et seq.

7

E.g,., 15 U.S.C. §§ 79b, i, j, k, l.

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(FPA).8 DOJ and FTC are both charged with enforcing the applicable antitrust

statutes, § 7 of the Clayton Act9 and the premerger provisions of the Hart-ScottRodino Antitrust Improvements Act of 1976.10

SEC Review Under the Public Utility Holding Company Act

As mentioned above, the conference report of H.R. 6 would repeal PUHCA.

The following summarizes the Act as it currently exists.

PUHCA regulates holding companies which have subsidiaries that are electric

utility companies or that are engaged in the retail distribution of natural gas or

manufactured gas. The Act defines a holding company as:

(A) any company which directly owns, controls, or holds

with power to vote, 10 per centum or more of the outstanding

voting securities of a public-utility company or of a company

which is a holding company by virtue of this clause or clause (B)

of this paragraph, unless the Commission [Securities and

Exchange Commission], as hereinafter provided, by order

declares such company not to be a holding company; and

(B) any person which the Commission determines, after

notice and opportunity for hearing, directly or indirectly to

exercise (either alone or pursuant to an arrangement or

understanding with one or more other persons) such a

controlling influence over the management or policies of any

public-utility or holding company as to make it necessary or

appropriate in the public interest or for the protection of

investors or consumers that such person be subject to the

obligations, duties, and liabilities imposed in this chapter upon

holding companies.11

Under PUHCA all holding companies which have subsidiaries that are engaged

in the electric utility business or in the retail distribution of natural or manufactured

gas must register with the SEC if they engage in interstate commerce.12 Several

kinds of holding companies are exempt under the Act from the registration and

regulation requirements. These exemptions include: 1) a predominantly intrastate

holding company which substantially carries on its business in the state in which it

and all of its subsidiaries are organized and derives a material part of its income from

such intrastate activity; 2) a holding company which is predominantly a public utility

company and whose operations do not extend beyond the state in which it is

8

16 U.S.C. §§ 791a et seq; 16 U.S.C. § 824.

9

15 U.S.C. § 18.

10

15 U.S.C. § 18a (Title II of P.L. 94-435).

11

15 U.S.C. § 79b(a)(7).

12

15 U.S.C. § 79d.

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organized and states contiguous to it; 3. a holding company which is only incidentally

a holding company; 4. a holding company that is only temporarily a holding company

because of acquiring securities for liquidation or distribution; and 5. a holding

company that does not derive a material part of its income from a subsidiary whose

principal business is that of a public utility company.13

Holding companies required to register with the Securities and Exchange

Commission must disclose information concerning the company’s operations and a

description of its management structure. Among the items required by the

registration statement are the charter or articles of incorporation, bylaws, rights of the

different classes of securities, underwriting arrangements under which the securities

have been offered, directors and officers, material contracts, balance sheets, and

profit and loss statements.14

However, PUHCA goes beyond the disclosure-type requirements of the

Securities Act of 193315 and the Securities Exchange Act of 1934.16 PUHCA also

places substantive requirements upon the operations of a registered holding company.

Holding companies not exempt from PUHCA registration have two other

requirements–geographical integration and corporate simplification.17

The geographical integration requirement provides that a holding company is

limited to a single integrated electric or gas utility system and other businesses which

are reasonably incidental or economically necessary or appropriate to the operations

of the integrated public utility system. The SEC will permit a registered holding

company to continue to control one or more additional public utility systems if it

finds that each of the additional systems cannot be operated as an independent system

without the loss of “substantial economies”; the additional systems are located in one

state, in adjoining states, or in a contiguous foreign country; and the continued

combination of the systems is not so large as to impair the advantages of localized

management, efficient operation, or the effectiveness of regulation.18

Corporate simplification under PUHCA requires the elimination of corporate

structures or companies which unduly or unnecessarily complicate the structure of

a holding company system or which unfairly or inequitably distribute the voting

power among security holders of a holding company system. Further, the SEC is

required to take whatever action is necessary to ensure that a holding company ceases

13

15 U.S.C. § 79c(a).

14

15 U.S.C. § 79e(b).

15

15 U.S.C. §§ 77a et seq.

16

15 U.S.C. §§ 78a et seq.

17

15 U.S.C. § 79k. It should be noted that exempt companies will themselves comply with

the geographic integration and corporate simplification requirements. Should an exempt

holding company fail to meet the requirements, it would become a registered company under

PUHCA and be subject to these same regulations.

18

15 U.S.C. § 79k(b)(1).

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to be a holding company concerning each of its subsidiary companies “which itself

has a subsidiary company which is a holding company.”19

PUHCA was not intended to eliminate all holding companies. Those remaining

public utility holding companies, however, must adhere to certain constraints. For

example, registered holding companies must obtain SEC approval before they or

their subsidiaries acquire any subsidiaries, utility assets, or any other interest in any

business.20 SEC approval is also usually required before any person owning 5

percent or more of the voting securities of a public utility or holding company

acquires 5 percent or more of any other public utility.21

Argument over the continuing relevance of PUHCA has been ongoing for some

time. There has been some agreement in Congress that, if not repealed, PUHCA, at

least, requires significant modernization, with the regulated entities and the SEC

itself recommending repeal on several occasions.22 Consumer groups and some state

regulators, on the other hand, have claimed that PUHCA continues to serve a

valuable purpose and should not be changed.23 PUHCA was originally enacted in the

wake of the stock market collapse of 1929 to deal with abuses stemming from

consolidated ownership of utility and non-utility interests.24 Supporters of repeal

have argued that the conditions that originally necessitated PUHCA’s enactment no

longer exist in the current market and that, even if they should arise again, state and

other federal regulators are equipped to efficiently regulate financial transactions

without SEC involvement. Additionally, supporters of repeal argue PUHCA prevents

regulated companies from fully and beneficially participating in the electric power

industry.25 Opponents of PUHCA repeal argue that PUHCA protects consumers and

19

15 U.S.C. § 79k(b)(2).

20

15 U.S.C. § 79i(a)(1).

21

15 U.S.C. § 79i(a)(2).

22

Lifting PUHCA Restrictions: Joint Hearing Before the Subcomm. on Energy and Power

and the Subcomm. on Telecommunication and Finance of the House Comm. on Energy and

Commerce, 103d Cong., 2d Sess. 16 (1994). For SEC support of repeal, see, SEC, The

Regulation of Public-Utility Holding Companies (1995); see also U.S. Securities and

Exchange Comm’n, Statement Concerning Proposals to Amend or Repeal the Public Utility

Holding Company Act of 1935 (1982); see also S. 1977, 97th Cong., 2d Sess. (1982); H.R.

5465, 97th Cong., 2d Sess. (1982); Public Utility Holding Company Act Amendments:

Hearing Before the Subcomm. on Securities of the Senate Comm. on Banking, Housing and

Urban Affairs, 97th Cong., 2d Sess. (1982).

23

Rates & Regulation: Senate Panel to Mark Up PUHCA Real Bill; One CEO Sees Votes

for Passage, ELECTRIC UTILITY WK., April 23, 2001, available at 2001 WL 10440035;

PUHCA Bandied About at Workshop; DOE Opposes Stand-Alone Repeal, INSIDE F.E.R.C.

16, June 30, 1997, available at 1997 WL 9127543.

24

See 15 U.S.C. § 79(a)(c); Joris M. Hogan & Rodrigo J. Howard, Viable Deal Formats for

Merging Utilities, MERGERS & ACQUISITIONS, 41 (Sept./Oct. 1996).

25

See, e.g., Richard F. Vander Venn, “Michigan is Now Entering a New Electrical Energy

Field: Competition, 78 MICH. B. J. 164, 168 (1999). For additional information see CRS

Report RL32728, Electric Utility Regulatory Reform: Issues for the 109th Congress, by

(continued...)

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the economy by effectively limiting opportunities for cross-subsidization and the

likelihood that public utility holding companies will enter into risky business

transactions.26

Questions concerning whether PUHCA should be repealed alone or in

conjunction with comprehensive energy regulation reform have often contributed to

no final action on past attempts at PUHCA repeal. In addition, there has been

concern over the resulting roles of federal and state regulators if repeal were to take

place.27

The current version of H.R. 6 would repeal PUHCA in conjunction with other

comprehensive energy industry reforms. The bill would grant FERC and state

regulators access to the books and records of public utility holding companies and

their affiliates and provides that FERC “shall have the same powers as set forth in

section 306 through 317 of the Federal Power Act (16 U.S.C. 825e-825p) to enforce

[these provisions].”28 Section 1292 of the bill would also amend section 203(a) of

the FPA, directly placing review of public utility holding company mergers within

the ambit of FERC jurisdiction.29 The earlier Senate version of the bill would have

provided for a Government Accounting Office study on anticompetitive practices

following PUHCA repeal and would have requested recommendations for any further

legislative action to correct them, a provision the conference report does not

include.30

The Federal Energy Regulatory Commission and Merger

Review

Section 203 of the Federal Power Act31 requires FERC to approve any merger

attempted by the public utilities within the agency’s jurisdiction before the

transaction can occur, and the section authorizes what is often the most extensive

25

(...continued)

Amy Abel.

26

See, e.g., Michael E. Stern & Margaret M. Mlycznak Stern, “A Critical Overview of the

Economic and Environmental Consequences of Deregulation of the U.S. Electric Power

Industry,” 4 ENVTL. L. 79 (1997).

27

Practicing Law Institute, “Recent Developments Affecting the Work of the Securities and

Exchange Commission–December 29, 2000,” 11234 PLI/CORP 797, 909-915, (March

2001).

28

Energy Policy Act of 2003, H.R. 6 (Conference Report), 108thCong. §§ 1264, 1265, 1270

(2003).

29

Energy Policy Act of 2003, H.R. 6 (Conference Report), 108th Cong. § 1292(a)(2) (2003).

For additional information see CRS Report RL32033, Omnibus Energy Legislation (H.R.

6): Side by Side Comparison of Non-tax Provisions, by Mark Holt and Carol Glover.

30

Energy Policy Act of 2003, H.R. 6 (Senate version), 108th Cong. § 235 (2003).

31

16 U.S.C. §§ 791a et seq.

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agency review undertaken.32 Under current law, FERC’s jurisdiction attaches

whenever a regulated utility:

(1) Proposes a transfer of its own assets valued over $50,000;

(2) Attempts to merge or consolidate; or

(3) Moves to acquire another public utility’s securities.33

Under current law, FERC reviews the above-mentioned transactions to insure

that they will be consistent with the “public interest,” a term that has never been

explicitly defined.34 Still, FERC’s FPA-based public interest standard establishes a

somewhat different set of review principles than those used by the antitrust

agencies.35 Whereas DOJ and FTC look for utility compliance with the terms of the

antitrust statutes, which generally punish anti-competitive behavior, FERC’s review

process can potentially condition or prevent a proposed transaction in the absence of

antitrust violations.36

Until 1996, FERC followed the guidelines set forth in In re Commonwealth

Edison Co. when reviewing merger applications.37 The nonexclusive factors

included: a potential merger’s effect on the operating costs and rate levels of the

newly formed company, the effect on competition in the industry, the reasonableness

of the purchase price, whether the merger was voluntary on the part of the involved

companies, the effect on federal and state regulation, and the contemplated

accounting treatment of the merged entity.38

32

16 U.S.C. § 824b. This section states: “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.... [I]f the Commission

finds that the proposed disposition, consolidation, acquisition, or control will be consistent

with the public interest, it shall approve the same.”

33

Id.

34

Id.

35

The courts have held that the public interest standard requires an application of antitrust

principles. Gulf States Utils. Co. v. FPC, 411 U.S. 747, 760 (1973); Kansas City Power &

Light Co. v. FPC, 554 F.2d 1178, 1184 (D.C.Cir. 1977). FERC has complied with these

rulings but also weighs “other important public interest considerations.” Utah Power &

Light Co., 45 F.E.R.C. ¶ 61,095, at 61, 283 (1988).

36

Albert A. Foer and Diana L. Moss, Electricity in Transition: Implication for Regulation

and Antitrust, 24 ENERGY L. J. 89, 100 (2003).

37

In re Commonwealth Edison Co., 36 F.P.C. 927 (1966).

38

Id. at 14-15.

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In 1996, as policy was shifting toward the creation of a competitive electric

industry, FERC altered its merger review policy, setting forth its revised position in

Order 592.39 FERC’s revised position limits review to prospective effects on

competition, rates, and regulation.40 As to competition, the Commission adopted the

guidelines generally used by DOJ and FTC in evaluating antitrust concerns.41

However, several differences remain between FERC review and the analysis

conducted by its antitrust counterparts. The analysis of merger impact on rates and

federal and state regulation stems from the public interest standard and does not have

immediate corollaries in antitrust review, as the FERC standard is geared to assess

merger impact from consumer rate protection, state interest, and regulatory efficiency

points of view.42 In addition, unlike the antitrust agencies, under FERC review the

burden of proving consistency with the merger guidelines falls upon the regulated

entities.43

Debate over the extent to which FERC should continue to review electric utility

mergers has accounted for a portion of the controversy surrounding the new energy

legislation.44 Proponents of FERC’s continuing role in merger review cite the

agency’s expertise in the field and its specialized review focus based upon a public

interest standard. Proponents also argue that, until the market has been competitive

for a sufficiently long time, the antitrust agencies will be poorly equipped to

accurately gauge a participant’s market power.45 Those opposed to FERC’s

involvement cite the development of competition in the industry as making agency

involvement beyond DOJ/FTC antitrust oversight unnecessarily duplicative.

Opponents also argue that the increased transaction costs of multiple agency review

39

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 ¶

31,044 (1996), reconsideration denied, Order No. 592-A, 79 FERC ¶ 61,321 (1997)

(hereinafter “1996 Policy Statement”).

40

Id. at 61 Fed. Reg. 68606.

41

Id.; U.S. Department of Justice and Federal Trade Commission, Horizontal Merger

Guidelines, 57 Fed. Reg. 41,552, revised 41 Trade Reg. Rep.(CCH) ¶ 13,104 (Apr. 8, 1997).

Additionally, FERC has issued a final rule implementing this policy at 18 C.F.R. § 33

(2003). These regulations set out the filing requirements for mergers and other transactions

in an attempt to streamline the review process.

42

1996 Policy Statement, 61 Fed. Reg. 68596.

43

5 U.S.C. § 556(d) (2003)(“Except as otherwise provided by statute, the proponent of a rule

or order has the burden of proof.”).

44

See Samuel Goldreich, Blackout Turns Spotlight on Energy Overhaul Bill, CQ TODAY,

Aug. 18, 2003,at 1,4, available at [http://www.cq.com/display.do?dockey=/usr/local

/cqonline/docs/html/news/108/news/108-000000799450.html@allnews&metapub=CQNEWS7seqNum=1&searchIndex=1].

45

See, e.g., Joel I. Klein (then Assistant Attorney General in charge of the Antitrust

Division), Making the Transition from Regulation to Competition: Thinking About Merger

Policy During the Process of Electric Power Restructuring, Address Before the FERC (Jan.

21 1998) at 14-16, available at [http://www.usdoj.gov/atr/public/speeches/1332.pdf].

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and the regulatory uncertainty that stems from the “public interest” standard are

further indications that the system is not optimally structured.46

The conference report combines elements from both the House and Senate

versions of H.R. 6. The current bill would not fundamentally alter FERC’s review

process or mission, although it would amend the considerations and types of

transactions FERC must take into account. Section 1292 of the proposed legislation

would effect the following changes:

(1) Increase FERC’s jurisdictional amount from $50,000 to $10,000,000 for

transactions disposing of a utilities’ own facilities or for a utility’s acquisition of

an interest in another utility;

(2) Require FERC review of any merger or consolidation involving an electric

utility acquisition of existing electricity generating facilities; and

(3) Require review of holding company acquisitions and mergers as the SEC

currently does under PUHCA.47

Additionally, section 1291 would require analysis by DOE, FERC, and DOJ to

determine which, if any, of FERC’s current oversight responsibilities are duplicative

of the authority of other agencies or authority already vested in FERC by other

sections of the FPA.48 While this analysis would not in itself substantially alter the

current regulatory scheme, it could lead to a more significant change in the future.

Antitrust Review by DOJ and FTC

DOJ and FTC each enforce the Clayton Act and Hart-Scott-Rodino Antitrust

Improvements Act, both of which will generally apply to electric utility mergers.

Accordingly, in addition to whatever review is required by FERC, mergers in the

energy industry are reviewed from the perspective of their compliance with the

requirements of antitrust/economic market-based concerns by DOJ and FTC. Section

7 of the Clayton Act prohibits mergers or acquisitions which “substantially” lessen

competition or which “tend to create a monopoly”; the Premerger Notification

provisions of the Hart-Scott-Rodino Act require that certain mergers and acquisitions

(those meeting applicable size and other criteria) be notified to both the Attorney

General and the Chairman of the Federal Trade Commission prior to consummation

of the transaction.49 The Premerger Notification statute prohibits the consummation

46

Martin A. Marquis, DOJ, FTC and FERC Electric Power Merger Enforcement: Are There

Too Many Cooks in the Merger Review Kitchen?, 33 LOY. U. CHI. L. J. 783, 788-89

(Summer 2000).

47

Energy Policy Act of 2003, H.R. 6 (Conference Report), 108th Cong. § 1292 (2003).

48

Energy Policy Act of 2003, H.R. 6 (Conference Report), 108th Cong. § 1291 (2003).

49

The requirement that parties to a proposed merger notify the Attorney General and the

(continued...)

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of any transaction covered by it prior to the expiration of a statutorily specified

“waiting period” unless the reviewing agency grants an “early termination.”50

Implied exemptions from the antitrust laws, except when application of the

antitrust laws would frustrate another congressionally mandated policy or scheme,

are not assumed (e.g., merger transactions are not presumed exempt from antitrust

challenge by DOJ or the FTC because they have been approved by, in this case,

FERC) :

Repeals of the antitrust laws by implication from a regulatory statute are strongly

disfavored, and have only been found in cases of plain repugnancy between the

antitrust and regulatory provisions.51

Moreover, 16 U.S.C. section 2603 currently states that “[n]othing in this [Public

Utility Regulatory Policies] Act ... affects

(1) the applicability of the antitrust laws to any electric utility ..., or

(2) any authority of the Secretary or of the [Federal Energy Regulatory]

Commission under any other provision of law (including the Federal Power Act

[15 U.S.C.A. § 791 et seq.] and the Natural Gas Act (15 U.S.C.A. § 717 et seq.)

respecting unfair methods of competition or anticompetitive acts or practices.

49

(...continued)

Chairman of the FTC prior to the consummation of the transaction – premerger review does contain some exemptions, although none pertaining to the electric utility industry (see,

e.g., 15 U.S.C. §§ 18a(c)(7) and 18a(c)(8)); but even those exemptions pertain only to the

requirement that documents relating to a future, proposed merger transaction be filed with

the Attorney General and the FTC, and not to the mergers themselves.

50

51

15 U.S.C. §§ 18a(b)(1),(2).

Otter Tail Power Co. v. U.S., 410 U.S. 366, 372 (1973) quoting United States v.

Philadelphia National Bank, 374 U.S. 321, 350-51 (1963). See also National Gerimedical

Hospital and Gerontology Center v. Blue Cross, 452 U.S. 378, 388-389 (1981): “’Implied

antitrust immunity is not favored, and can be justified only by a convincing showing of clear

repugnancy between the antitrust laws and the regulatory system,’” quoting from United

States v. National Association of Securities Dealers, 422 U.S. 694, 719-720 (1975); “[Our

earlier] holdings [including Otter Tail] are based on the guiding principle that, where

possible, ‘the proper approach ... is an analysis which reconciles the operation of both

statutory schemes with one another, rather than holding one completely ousted,’” quoting

from Silver v. New York Stock Exchange, 373 U.S. 341, 357 (1963); “Repeal is to be

regarded as implied only if necessary to make the [subsequent law] work, and even then

only to the minimum extent necessary,” quoting from Silver at 357.

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Overlapping Jurisdiction of FERC, DOJ and FTC

As noted supra at pp. 5-8, mergers in the electric utility industry are also

reviewed by FERC pursuant to 16 U.S.C. section 824b. This section requires a

“public utility” subject to FERC jurisdiction to secure FERC approval before

undertaking action to “sell, lease, or otherwise dispose of” its facilities, merge, or

consolidate; FERC’s approval must be granted provided that it finds that the

proposed transaction would be “consistent with the public interest.”

While an industry-specific regulatory agency is presumed to have the expertise

to know whether a particular proposed transaction would be in the “public interest”

or would further the “public convenience and necessity,” the regulatory agency may

have neither the expertise or the inclination to evaluate the antitrust/economic market

implications of a transaction. In any event, there is no requirement that a regulatory

agency utilize the antitrust laws, although it may be encouraged to consider them, or

at least the competitive consequences of a transaction. Similarly, although the

antitrust agencies possess expertise concerning the likely competitive or market

aspects of utility mergers, they may not be steeped in the intricacies of the electric

utility industry itself: “... while the Justice Department and the Commission have

shared jurisdiction in this area, our statutory responsibilities and missions are

somewhat different.”52 Thus, while DOJ, FTC and FERC each utilize the DOJ/FTC

Horizontal Merger Guidelines (Guidelines),53 and theoretically at least, all are

proceeding from the same assumptions, and will, on the basis on the Guidelines, all

reach the same conclusion with respect to particular merger transactions, the differing

prisms through which the Guidelines are necessarily filtered may produce differing

results; and that has been generally accepted:

Activities which come under the jurisdiction of a regulatory agency nevertheless

may be subject to scrutiny under the antitrust laws.

In California v. FPC, 369 U.S. 482, 489 ... the Court held that approval of

an acquisition of the assets of a natural gas company by the Federal Power

Commission pursuant to § 7 of the Natural Gas Act “would be no bar to (an)

antitrust suit.” Under § 7, the standard for approving such acquisitions is “public

convenience and necessity.” Although the impact on competition is relevant to

the Commission’s determination, the Court noted that there was “‘no pervasive

regulatory scheme” including the antitrust laws that ha(d) been entrusted to the

Commission.’” Id. at 485. Similarly, in United States v. Radio Corporation of

America, 358 U.S. 334 ... [1959] the Court held that an exchange of radio

stations that had been approved by the Federal Communications Commission as

in the ‘public interest’ was subject to attack in an antitrust proceeding.54

52

Klein, supra, note 46.

53

Promulgated in 1992 and revised in 1997 to take account of possible efficiencies resulting

from a merger transaction. FERC utilizes the Guidelines to further its examination of

utilities’ market power.

54

Otter Tail Power Co. v. U.S., supra, note 4 at 372, 373 (parts of citations omitted;

(continued...)

CRS-11

A further point concerning the respective abilities of FERC and the antitrust

agencies to address adequately the issue of market power in a restructured electric

power industry which may have important consequences in a future, deregulated

electric utility industry has been noted by DOJ: There is no concept of “no fault”

monopolization in antitrust law; the mere fact that an entity is a particular size is, by

itself, of no antitrust significance; the antitrust agencies may not, therefore, order the

divestiture (restructuring) of any entity deemed to be “too big” unless that entity has

achieved or is maintaining its monopoly position by virtue of something violative of

the antitrust laws. The Antitrust Division has expressed some thoughts on its

inability to challenge market structure in the electric utility industry and a possible

means of addressing that concern:

In other words, to whatever extent restructured electric power markets are

too highly concentrated to yield pricing at or near competitive levels, the

antitrust laws provide no remedy. To address these kinds of structural

problems, some states have encouraged or required divestiture as part of

their restructuring efforts, and these divestiture efforts have progressed

substantially. In support and furtherance of such efforts, the Antitrust

Division suggested in testimony before the House Judiciary Committee last

June that Congress might want to look into providing authority to order

divestiture in any federal restructuring legislation. Such authority, if

conferred, would presumably go to the [Federal Electric Regulatory]

Commission.55

The current bill would not directly affect either of the antitrust statutes. It may,

however, anticipate alterations to the current scheme of merger review: Section 1291

would require FERC, the Secretary of Energy, and the Attorney General to conduct

a study of whether FERC merger review authority under section 203 of the Federal

Power Act is “duplicative of authorities vested in other agencies of Federal and State

government.”56

54

(...continued)

emphasis added).

55

Klein, supra, note 46 (emphasis added), referencing the suggestion put forth in the June

4, 1997 testimony of A. Douglas Melamed, Principal Deputy Assistant Attorney General,

Antitrust Division, Department of Justice, before the House Committee on the Judiciary,

during the hearing, “Legislative and Oversight Hearing on Antitrust Aspects of Electricity

Deregulation,” 105th Cong.

56

Energy Policy Act of 2003, H.R. 6 (Conference Report), 108th Cong. § 1291 (2003).