FTC/DOJ Joint Comment to the Federal Energy Regulatory Commission (FERC) Regarding Modifications to FERC Requirements for Review of Certain Transactions and Market-Based Rate Applications

UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Modifications to Commission
Requirements for Review of Transactions
Under Section 203 of the Federal Power
Act and Market-Based Rate Applications
Under Section 205
of the Federal Power Act
Docket No. RM16-21-000
COMMENT OF
THE U.S. DEPARTMENT OF JUSTICE AND
THE FEDERAL TRADE COMMISSION
November 28, 2016
I. 	INTRODUCTION
In a Notice of Inquiry (NOI) in this Docket issued September 22, 2016, the
Federal Energy Regulatory Commission (FERC) requested comments on its current
approach to identifying and assessing market power under sections 203 and 205 of the
Federal Power Act (FPA), and on its scope of review under section 203 of the FPA.1 The
NOI poses a number of questions concerning whether FERC should simplify its analysis
of section 203 transactions unlikely to raise competitive concerns, while eliminating
blanket authorizations that may be inappropriate; enlarge the kinds of evidence examined
under both sections 203 and 205; modify how it treats other kinds of evidence; and make
its analyses of market power under the FPA more consistent.
1 Notice of Inquiry, Modifications to Commission Requirements for Review of
Transactions under Section 203 of the Federal Power Act and Market-Based Rate
Applications under Section 205 of the Federal Power Act, 156 FERC ¶ 61,214, 81 Fed.
Reg. 66,649 (2016).

2
The Department of Justice (DOJ) and the Federal Trade Commission (FTC)
commend FERC for opening this inquiry. It has been nearly ten years since FERC
adopted its current approach to market-based rate (MBR) authority,2 and nearly twenty
years since it adopted its current approach to mergers.3 Electricity markets have evolved
substantially during that time. New electricity trading platforms have come into
existence, including formal markets administered by regional transmission organizations
(RTOs) and independent system operators (ISOs). Market data has grown exponentially,
as have information technology and tools for analyzing data. Distributed generation and
demand response technologies have grown and matured. In light of these developments,
it is appropriate for FERC to re-examine its approach to merger and MBR applications.
DOJ and the FTC (the Agencies) respectfully submit this comment based on their
experience analyzing market power, especially with respect to electricity markets and
electric power mergers. As a general matter, we encourage FERC to reduce its reliance
on market structure measures to assess market power in electricity markets. Structural
measures, such as market shares and market concentration, should be the starting point of
2 Market-Based Rates for Wholesale Sale of Electric Energy, Capacity and
Ancillary Services by Public Utilities, Order No. 697, FERC Stats. & Regs. ¶ 31,252,
clarified by 121 FERC ¶ 61,260 (2007), order on reh’g, Order No. 697-A, FERC Stats. &
Regs. ¶ 31,268, clarified by 124 FERC ¶ 61,055, order on reh’g, Order No. 697-B, FERC
Stats. & Regs. ¶ 31,285 (2008), order on reh’g, Order No. 697-C, FERC Stats. & Regs.
¶ 31,291 (2009), order on reh’g, Order No. 697-D, FERC Stats. & Regs. ¶ 31,305 (2010),
aff’d sub nom. Montana Consumer Counsel v. FERC, 659 F.3d 910 (9th Cir. 2011), cert.
denied, 133 S. Ct. 26 (2012).
3 Inquiry Concerning the Commission’s Merger Policy Under the Federal Power
Act: Policy Statement, Order No. 592, FERC Stats. & Regs. ¶ 31,044 (1996),
reconsideration denied, Order No. 592-A, 79 FERC ¶ 61,321 (1997). FERC has issued
supplemental guidance since 1996. See FPA Section 203 Supplemental Policy Statement,
FERC Stats. & Regs. ¶ 31,253 (2007), order on clarification and reconsideration, 122
FERC ¶ 61,157 (2008). However, the basic framework of the 1996 Merger Policy
Statement still guides merger review under section 203.

3
an analysis of market power, not its end.4 This is especially true of electricity markets as
experience suggests that market participants can exercise market power despite holding
relatively small market shares. We encourage FERC to supplement its market power
analyses as the Agencies do:5 with other types of evidence, such as a supply curve
analysis, to reduce the likelihood of an incorrect market power determination.6
When considering a merger or an MBR application, FERC should balance the risk
that approval will increase or permit the exercise of market power against the risk that
denial will thwart a procompetitive or benign application. An approach that considers
more than market structure evidence alone is more likely to accomplish this goal. The
Agencies recognize, however, that FERC may wish to use structural screens to streamline
its market power inquiries. In that case, we urge FERC to establish screens that reduce
the likelihood that a merger or MBR approval will result in increased market power or
permit its exercise because of the risk that electricity market participants can exercise
substantial market power with relatively small market shares.7
4 Cf. U.S. Department of Justice and Federal Trade Commission, Horizontal
Merger Guidelines § 4 (Aug. 19, 2010) (discussing use of market shares and
concentration to assess competitive effects of merger),
https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf.
5 Cf. id. at § 5 (“The Agencies evaluate market shares and concentration in
conjunction with other reasonably available and reliable evidence for the ultimate
purpose of determining whether a merger may substantially lessen competition.”).
6 A merger frequently will have consequences for capacity and ancillary services
markets, as well as electric energy markets. Although we focus on electric energy
markets in this comment, we encourage FERC not to rely solely on structural measures –
but rather to supplement its analysis with other types of evidence – when assessing
market power in capacity and ancillary services markets.
7 There are two types of incorrect market power determinations. False positives
involve erroneously determining that market power increases or exists. False negatives
involve erroneously failing to determine that market power increases or exists.

4
As explained in more detail below, the Agencies respectfully suggest that FERC
consider taking the following actions:
• 	Add a supply curve analysis to its examination of mergers under
section 203.8 A supply curve analysis can give greater insight into
competitive effects than traditional measures of market concentration.
• 	Account for transmission constraints when defining a geographic
market to assess market power.9 When binding, constraints can limit
the size of the relevant geographic market to an area smaller than
RTO/ISO or balancing authority areas.
• 	Make its section 205 market power analysis as consistent as possible
with its section 203 competitive effects analysis.10 In particular,
FERC should use the same approach to defining geographic markets
under both sections.
• 	Account for incremental acquisitions in its merger analysis.11 If an
applicant has made multiple acquisitions over a period of years, FERC
may wish to analyze the competitive effects of the series of
acquisitions.
• 	Take a more flexible approach to assessing the competitive effects of
power purchase agreements (PPAs).12 Because a PPA’s competitive
effect will depend on several factors, FERC may wish to incorporate a
wider range of information into its analysis of PPAs.
• 	Require that applicants under section 203 submit certain merger-
related documents.13 However, before it adopts such a requirement,
FERC should be certain that it can protect confidential information
from public disclosure.
II. 	INTEREST OF THE AGENCIES
The Agencies share responsibility for enforcing the federal antitrust laws, for
which a core concern is the creation or enhancement of market power. Each Agency has
8 See NOI PP 20-21; infra Section IV.
9 See NOI P 16; infra Section V.
10 See NOI P 11; infra Section V.
11 See NOI P 19 (serial de minimis mergers), P 17 (partial acquisitions); infra
Section VI.
12 See NOI PP 31-32; infra Section VII.
13 See NOI PP 33-34; infra Section VIII.

5
substantial experience analyzing the market power effects of mergers that involve electric
utility companies. The FTC typically reviews proposed mergers that involve electric and
natural gas utility companies, where the primary effect of the merger is on gas markets.14
DOJ typically reviews proposed mergers that involve electric utilities or that involve
electricity and natural gas utility companies, where the primary effect of the merger is on
electricity markets.15 The Agencies also analyze regulatory or legislative proposals that
affect competition or efficiency in the electric power industry.16
III. 	MARKET POWER IN ELECTRICITY MARKETS
Measures of market concentration traditionally have played an important role in
analyses of market power under section 203 and section 205 of the FPA. The Agencies
14 See, e.g., Analysis of the Complaint and Consent Order to Aid Public
Comment, DTE Energy Company and MCN Energy Group Inc., FTC Dkt. No. C-4008
(Mar. 22, 2001),
https://www.ftc.gov/sites/default/files/documents/cases/2001/03/dteanalysis.htm;
Analysis of the Complaint and Consent Order to Aid Public Comment, Entergy
Corporation and Entergy-Koch, LP, FTC Dkt. No. C-3998 (Jan. 31, 2001),
https://www.ftc.gov/sites/default/files/documents/cases/2001/01/entergycorpana.htm;
Analysis of the Complaint and Consent Order to Aid Public Comment, Dominion
Resources, Inc., and Consolidated Natural Gas Company, FTC Dkt. No. C-3901 (Nov. 5,
1999),
https://www.ftc.gov/sites/default/files/documents/cases/1999/11/dominionana.htm.
15 See, e.g., Competitive Impact Stmt., United States v. Exelon Corp. and Pub.
Servs. Enter. Grp., No. 1:06CV01138 (D.D.C. Aug. 10, 2006),
https://www.justice.gov/atr/case-document/competitive-impact-statement-98;
Competitive Impact Stmt., United States v. Exelon Corp. and Constellation Energy Grp.,
No. 1:11CV02276 (D.D.C. Dec. 21, 2011), https://www.justice.gov/atr/case-
document/competitive-impact-statement-97.
16 See, e.g., Reply Comment of the Staff of the Federal Trade Commission,
Proceeding on the Motion of the Commission in Regard to Reforming the Energy Vision,
NY PSC No. 14-M-0101 (Nov. 23, 2015)
https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-reply-
comment-state-new-york-public-service-commission-reforming-energy-vision-
proceeding/112315nypsc.pdf; Comment of the U.S. Department of Justice, Transparency
Provisions of the Energy Policy Act of 2005, FERC Dkt. No. AD06-11 (Jan. 25, 2007),
https://www.justice.gov/atr/comments-us-department-justice-transparency-provision-
energy-policy-act-2005.

6
encourage FERC, however, to place less emphasis on concentration and greater emphasis
on other types of evidence. This is especially important in electricity markets, which are
susceptible to an exercise of market power at low levels of concentration not usually
associated with the presence of market power.
A. 	Susceptibility of Electricity Markets to an Exercise of Market Power
Several features of electricity markets make them vulnerable to an exercise of
market power, even at relatively low levels of market concentration. First, supply and
demand generally are inelastic. This means that even a small reduction in output by one
or more generators can yield a large increase in price. Second, entry can be difficult. For
example, it often is difficult to find a suitable site and obtain permits for a new generating
facility. Moreover, transmission constraints can limit supply by curbing the ability of
existing generation outside a constrained area to sell into that area. Finally, system
operators must balance supply and demand continually for engineering reasons, which
may accentuate the effect of the market’s inelastic supply and demand.17 For example, in
the face of unanticipated changes in supply or demand, a system operator may have to
dispatch generation simply to operate the transmission system reliably, which may further
limit available supply.
B. 	Market Power and Harm to Electricity Consumers
Because of the large value of commerce in a typical electricity market, even a
modest exercise of market power resulting in a small percentage price increase can
substantially harm consumers. For example, DOJ alleged that a merger of Exelon and
Public Service Enterprise Group would lessen competition in a subregion of the PJM
17 Electricity markets may also be susceptible to a coordinated exercise of market
power because products are homogeneous and transactions are regular and frequent.

7
regional market known as PJM East, where annual wholesale electricity sales totaled
more than $10 billion.18 In a market of that size, a price increase of just one-half of one
percent could raise the cost of wholesale electricity to buyers by over $50 million
annually. The susceptibility of electricity markets to the exercise of market power – with
potentially large costs to consumers – counsels in favor of a careful analysis of market
power under section 203 and section 205.
IV. 	SUPPLY CURVE ANALYSIS
FERC’s current approach to merger analysis under section 203 focuses on market
shares and concentration.19 The Agencies caution FERC against sole or undue reliance
on this type of evidence. Although market shares and concentration can be a useful
starting point for assessing a merger’s competitive effects, they should not be the end of
the analysis. Rather, they are useful only to the extent they illuminate a merger’s likely
competitive effects, which should be the central focus of a merger inquiry. In light of the
potentially large costs to consumers from an exercise of market power, it would be
appropriate for FERC to conduct a more thorough competitive effects analysis, including
use of a supply curve analysis as proposed in the NOI.20
A. 	Competitive Effects of a Merger
The Agencies frequently consider market power in connection with mergers,
which they analyze using the framework articulated in the 2010 Horizontal Merger
18 Compl. ¶ 22, United States v. Exelon Corp. and Pub. Servs. Enter. Grp., No.
1:06CV01138 (D.D.C. June 22, 2006), https://www.justice.gov/atr/case-
document/complaint-98.
19 NOI PP 3-4.
20 Id. PP 20-21.

8
Guidelines (HMG).21 A merger can create or enhance market power – the ability of a
firm to maintain price above the competitive level profitably for a significant time –
through unilateral and/or coordinated effects. Unilateral effects arise when a merger
eliminates competition between the merging firms and enhances the merged firm’s ability
and/or incentive to raise prices.22 Coordinated effects arise when a merger enables or
encourages multiple firms to engage in conduct that is profitable for each of them as a
result of accommodating the reactions of others.23
B. 	Supply Curve Analysis of Effects
The Agencies encourage FERC to analyze competitive effects using a broader
range of evidence, including a supply curve analysis.24 A supply curve analysis
considers information about the market supply curve (which reflects individual
generating units’ costs) and the market demand curve to determine whether a firm has the
ability and incentive to raise the price of electricity by withholding output.25 A supply
curve analysis can be a particularly useful tool for assessing a merger’s competitive
effects – unilateral or coordinated – and, if necessary, for designing potential remedies.
Most important, a supply curve analysis can help determine when a merger is likely to
21 U.S. Department of Justice and Federal Trade Commission, supra note 4.
22 HMG § 6. Although the Agencies refer frequently to price effects, mergers
may adversely affect competition along non-price dimensions, including product quality
and innovation. Id. § 1.
23 Id. § 7.
24 The Agencies rely on a wide variety of evidence to assess a merger’s
competitive effects. See generally id. § 2.1. See also Transcript of Tech. Conf. on
Merger and Acquisition Review Standards, 108:11-110:4, FERC Dkt. Nos. RM05-32 &
34 (Mar. 8, 2007) (testimony of Mark J. Niefer summarizing evidence DOJ may consider
in an electric power merger analysis).
25 NOI P 20. Although the NOI and this comment focus on withholding output,
generators may use other strategies to exercise market power, including altering
generation to congest the transmission system, which may facilitate an exercise of market
power in the resulting geographic market.

9
lead to or enhance a unilateral exercise of market power when traditional concentration
thresholds may fail to do so.26
One way that a generator can unilaterally exercise market power in wholesale
electricity markets is through its control of generating capacity from which it can
withhold output at relatively low cost. Withholding output shifts the supply curve to the
left, which can raise the market price of electricity. For a generator to have an incentive
to exercise market power, it must be able to offset losses that it incurs from selling less
output from withheld capacity by earning higher profits on sales from its inframarginal
capacity. Thus, to exercise market power profitably, a generator must have the ability to
affect market prices by controlling capacity from which it can withhold output at a
relatively low cost; it also must have an incentive to do so, in the form of inframarginal
capacity that can more than earn back the profit lost on withheld capacity.27
Although the NOI focuses on the “marginal” unit as a source of ability to exercise
market power, a generator can withhold output from any unit (marginal or inframarginal)
to shift the supply curve and raise market price. Whether a generator will find it
profitable to withhold a particular unit will depend on the facts. It generally is less costly
to withhold output from marginal or near-marginal generating units, which have costs
relatively close to market prices and, hence, lower profits, than to withhold output from a
lower-cost inframarginal unit. As a result, generating units with costs that are near the
26 See, e.g., Competitive Impact Stmt. at 8-11, United States v. Exelon Corp. and
Pub. Servs. Enter. Grp., No. 1:06CV01138 (D.D.C. Aug. 10, 2006),
https://www.justice.gov/atr/case-document/competitive-impact-statement-98 (discussing
evidence of electric power merger’s competitive effects, including market structure and
supply curve analysis).
27 The Appendix to this comment provides a simple graphical illustration of the
decision to exercise market power unilaterally through withholding.

10
market price generally are well suited to be “ability” assets. In the rest of this comment,
we refer to “marginal” units with the understanding that a generator may find it profitable
to withhold marginal or inframarginal units.
A merger can enhance the ability or the incentive of the newly merged firm to
exercise unilateral market power.28 For example, a merger between a generator that owns
only inframarginal capacity and a generator that owns only marginal capacity may
substantially increase the ability and incentive of the merged firm (relative to that
possessed by either firm independently) to exercise unilateral market power profitably.
Before the merger, the firm that owns only inframarginal capacity may not have the
ability to raise price profitably; and the firm that owns only marginal capacity may not
have the incentive to raise price if doing so would be unprofitable. By bringing
inframarginal and marginal assets together in a single portfolio, the merger can give the
merged firm the ability and the incentive to exercise unilateral market power.
A key lesson to emerge from consideration of a supply curve framework is that
market shares and market concentration alone may not accurately predict a merger’s
unilateral effects. The acquisition of a small marginal unit, for example, will change
concentration (as measured by total capacity) by a small amount – small enough that the
merger does not raise substantial concerns about market power when measured against
FERC’s current thresholds. A small acquisition nonetheless may provide the acquiring
firm with the ability to exercise substantial market power. Moreover, a policy that placed
28 A supply curve analysis also can capture the ability and incentive of two or
more generators to exercise market power in coordination with one another. To exercise
market power jointly, a group of generators will need ability and incentive, just as a
single generator does. An analysis of a supply curve can shed light on whether a group of
generators collectively has the ability and incentive to coordinate withholding.

11
such an acquisition in a safe harbor based on conventional thresholds would run the risk
of permitting the exercise of market power, thereby increasing electricity prices to the
detriment of electricity consumers. In these circumstances, a supply curve analysis can
serve as a useful supplement to a traditional concentration screen.29
C. 	Supply Curve Analysis of Remedies
A supply curve analysis also can help assess remedies.30 Consider a slight
variation on the example discussed above. Assume there is a merger is between two
firms, one owning only inframarginal capacity, the other owning inframarginal and
marginal capacity. In this simple example, assume that inframarginal capacity can
provide incentive only and would never be withheld; also assume that marginal capacity
can provide ability only and never provides incentive. In that case, the merger will bring
together the incentive to raise price (the combined inframarginal capacity) and the ability
to raise price (marginal capacity), such that it might result in unilateral anticompetitive
effects. One simple remedy for this harm would be to require the merged firm to divest
its marginal capacity. The post-divestiture merged firm would consist only of
inframarginal capacity, which, in this simple example, would provide the incentive but
not necessarily the ability to exercise market power.31
29 A supply curve analysis also can help identify mergers that are not likely to
result in unilateral effects. For example, if a merger brought together two firms
consisting only of very low-cost generation with high price/cost margins such that
capacity would never be withheld, one would not expect the merged firm to exercise
unilateral market power.
30 For an example of how a supply curve analysis helped DOJ assess remedies in
an electric power merger, see, e.g., Competitive Impact Stmt., supra note 26, at 14-15
(explaining how divestiture deprived merged firm of ability and incentive to exercise
market power).
31 This example is illustrative only. It rarely is the case in practice that
inframarginal capacity provides only the incentive to exercise market power; and it rarely

12
V. 	RELEVANT GEOGRAPHIC MARKETS
The NOI outlines a possible process to determine market shares for purposes of
identifying a de minimis merger under section 203. The process entails the use of default
geographic markets based on RTO/ISO or balancing authority areas.32 The Agencies
caution FERC against using such default markets in its merger or MBR analyses.
Relevant geographic markets may be much smaller than those areas, and reliance on
improperly broad markets may lead to inaccurate conclusions about market power.
Properly defining the relevant geographic market is critical to analyzing market
power.33 A crucial characteristic of electricity markets is that transmission constraints
can isolate generation or pockets of demand within smaller areas of the grid. A failure to
account for such constraints may result in an improperly defined market, which can yield
misleading conclusions about market power in the context of a merger or an MBR
analysis. Defining a geographic market too broadly, for example, may yield lower levels
of concentration than would be the case for a properly defined market. In the case of a
supply curve analysis, it may lead to an erroneous conclusion that supply is elastic
enough such that market power is not a concern.
Geographic market definition is further complicated by transmission constraints
that may change as supply or demand changes over time. For example, during peak
demand months, transmission lines may reach capacity and thereby become constrained,
creating smaller geographic markets during those months but not during off-peak months.
is the case that marginal capacity provides only the ability to exercise market power.
Nonetheless, a supply curve analysis can provide insight into potential remedies that
would reduce the incentive or the ability of a merged firm to exercise market power.
32 NOI P 16.
33 For an example of how DOJ analyzes geographic markets for an electric power
merger, see, e.g., Competitive Impact Stmt., supra note 26, at 3-7.

13
Similarly, transmission lines may become constrained during peak hours but not during
off-peak hours. As a result, particular geographic markets may exist for less than a full
year or even less than a full day, depending on variations in demand conditions. Changes
in supply conditions also can affect geographic markets. Planned generation retirements
or transmission expansions, for example, may relieve some constraints and create others,
which will change relevant geographic markets over the longer term.
Although properly defining a geographic market may seem like a daunting task,
there is ample public information about transmission congestion and constraints that may
be of substantial assistance to FERC. Indeed, in its review of electric power mergers,
DOJ frequently finds that publicly available information is sufficient to make an initial
geographic market determination. In RTO/ISO markets, for example, market monitors
often compile reports concerning the most important constraints in the system, including
information about the temporality of constraints. In addition, RTOs and ISOs publicly
report locational marginal prices, which reflect constraints and can help define
geographic markets. Finally, regional transmission planning processes required by
FERC’s Order No. 1000 also typically produce reports describing major transmission
constraints.34 The Agencies encourage FERC to use such information to define
geographic markets for merger and MBR determinations, using the same approach that
the Agencies follow.
34 Final Rule, Transmission Planning and Cost Allocation by Transmission
Owning and Operating Public Utilities, 136 FERC ¶ 61,051 (Jul. 21, 2011), order on
reh’g and clarification, 139 FERC ¶ 61,132 (May 17, 2012), order on reh’g and
clarification, 141 FERC ¶ 61,044 (Oct. 18, 2012). Although data for non-RTO/ISO
markets may not be as readily available from public sources, FERC could require that
applicants who own transmission provide information concerning constraints.

14
VI. 	DE MINIMIS, PARTIAL, AND SERIAL ACQUISITIONS
The NOI poses a number of questions concerning whether the acquisition of small
or partial interests in another firm should trigger a fuller market power analysis.35 In
particular, the NOI asks whether FERC might adopt a simplified market structure
analysis, such as the “2ab” statistic, to demonstrate that the transaction’s effect on
competition is small. In addition to the concerns expressed above regarding structural
analyses in electricity markets generally, the Agencies set out below additional reasons
not to rely solely on “2ab” analyses to assess market power.
The 2ab statistic represents the change in market concentration, as measured by
the Herfindahl-Hirschman Index (HHI).36 Under FERC’s current practice, if the 2ab
statistic is small enough, a merger purportedly does not present market power concerns.
Under the HMG, however, the Agencies use changes in concentration in conjunction with
other evidence to assess a merger’s competitive effects.37 It is especially important to do
so in electricity markets where the type of capacity acquired by a firm may matter as
much for an analysis of competitive effects as the amount of capacity acquired. As a
result, a transaction that increases the likelihood of an exercise of market power might
escape scrutiny under a de minimis 2ab standard, as contemplated in the NOI.
The NOI also raises the prospect of using a 2ab statistic to analyze partial
acquisitions.38 Partial acquisitions can take multiple forms. Some may involve the
purchase of assets, such as a portion of a generating facility. Others may involve the
acquisition of a financial interest in another firm. No matter the form, use of a 2ab
35 NOI PP 16-19.
36 HMG § 5.3 n.10.
37 Id. § 5.3.
38 NOI P 17.

15
statistic to analyze a partial acquisition can be problematic, as the following example
illustrates. If one firm were to sell to a competing firm a partial interest in a generating
facility, both entities would continue to be present in the post-transaction market.39 In
this case, as the NOI notes, each competitor would change its size and asset portfolio
such that the 2ab analysis would not capture either firm’s new positioning in the
market.40 Nor would it capture changes in the firms’ incentives to exercise market
power.41
The NOI also recognizes that serial de minimis mergers may cumulatively affect
competition even if a single transaction would not necessarily have an adverse effect.42
FERC’s authority to determine whether a section 203 transaction is “consistent with the
public interest” should be broad enough to require applicants to address the cumulative
impact of serial acquisitions.43 Such a requirement would be similar to FERC’s current
39 Id.
40 Id.
41 HMG § 13. The HMG describe three other ways in which partial acquisitions
can enhance the likelihood of a unilateral or coordinated exercise of market power. First,
the acquiring firm may gain influence over the competitive conduct of the acquired firm.
Second, the transaction may reduce the incentive of one or both firms to compete against
each other. Third, merging firms may gain access to non-public, competitively sensitive
information about each other. See, e.g., Comment of the Federal Trade Commission,
Control and Affiliation for Purposes of the Commission’s Market-Based Rate
Requirements Under Section 205 of the Federal Power Act and the Requirements of
Section 203 of the Federal Power Act, FERC Dkt. No. RM09-16-000 (Mar. 29, 2010),
https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-comment-
federal-energy-regulatory-commission-concerning-rulemaking-competitive-
assessments/v090008ferc.pdf.
42 NOI PP 19, 30.
43 16 U.S.C. § 824b.

16
requirement that recipients of MBR authority notify FERC when there is a change in
facts upon which FERC granted that authority.44
VII. 	POWER PURCHASE AGREEMENTS
The NOI seeks comment on how FERC should analyze PPAs under section 203.45
The Agencies believe that FERC should adopt an analytic framework that more
accurately captures how PPAs may affect competition in merger and MBR applications
to avoid errors in the analysis of competitive effects.46
A PPA can substantially affect the ability and incentive of a firm to exercise
market power.47 If a generator sells output under a fixed-price PPA, the generator does
not benefit from an increase in market prices on that output, which diminishes the
generator’s incentive to exercise market power. Alternatively, if a generator buys output
under a fixed-price PPA, it can turn around and sell that output at a higher price if market
prices increase, which increases the generator’s incentive to exercise market power.
Moreover, a PPA that confers control over the operation of a generating unit may affect
the ability to exercise market power. Thus, a contract that gives a generator control of
44 Reporting Requirement for Changes in Status for Public Utilities with Market-
Based Rate Authority, Order No. 652, 70 Fed. Reg. 8,253 (Feb. 18, 2005), FERC Stats. &
Regs. ¶ 31,175, order on reh’g, 111 FERC ¶ 61,413 (2005).
45 NOI PP 31-32.
46 Although this section focuses on the role of PPAs in a competitive effects
analysis, PPAs also may come into play in a merger remedies analysis. Merging parties
occasionally propose a contractual commitment, such as a PPA to sell electricity, as a
form of remedy. Such a remedy often is referred to as a “virtual” divestiture. For the
reasons outlined in this section, we caution FERC against treating a “virtual” remedy
based on the promise to sell a PPA (or any other similar contractual commitment) as the
equivalent of a divestiture of generating facilities.
47 See, e.g., Armington et al., The Year in Review: Economics at the Antitrust
Division, 2005-2006, 29 Rev. Indus. Org. 305, 320 (2006) (explaining how forward
obligations affect incentive to exercise market power).

17
marginal capacity is likely to have effects on competition similar to those that would arise
from the generator’s purchase of marginal capacity, albeit possibly for a limited time.48
The extent to which a PPA diminishes or enhances the incentive to exercise
market power will depend, in part, on its duration. A long-term (e.g., ten-year) PPA for
the purchase of electricity will increase the buyer’s incentive to exercise market power
more than a short-term (e.g., three-month) PPA. However, because it generally is limited
in duration, a PPA will have a weaker effect on the incentive to exercise market power
than a permanent merger or asset acquisition. That is to say, whereas the sale of a
generating unit permanently deprives its former owner of any incentive to exercise
market power associated with output from the unit, a PPA does so only temporarily.
Moreover, even if a generator continually renews a PPA to sell electricity, it is not
equivalent to the sale of generating capacity. The generator may still have an incentive to
exercise market power in the short term in the hope of affecting the price it receives for
its PPA upon renewal over the longer term.
FERC’s current analytical framework for merger and MBR determinations does
not adequately capture the competitive effects of PPAs. Current practice counts the
purchase of power under a PPA of one year or longer as part of a merging firm’s
portfolio of assets.49 As noted above, treating a temporary PPA as if it were a permanent
asset acquisition can yield misleading conclusions about a merger’s competitive effects.
48 Contracts other than PPAs also may affect the ability and incentive to raise
prices. Any forward purchase or sale of electricity will have incentive effects similar to
those we identify in connection with PPAs. Id. In addition, any contract that confers
control over output from generating will have ability effects similar to those we have
identified. In this comment, we focus only on PPAs. FERC, however, may wish to
reconsider the way it treats contracts for purchase, sale, or control of output more
generally.
49 NOI P 31, n. 35 and accompanying text.

18
For example, if a generator entered into a two-year PPA to purchase the output of a
generating facility before filing an application to acquire the same facility, FERC would
attribute the generating capacity of that facility to the purchasing utility’s pre-acquisition
market share.50 Because FERC already attributes the capacity of the facility to the
purchaser, FERC would not deem the capacity to increase the purchaser’s market share
under its existing screens.51 Such treatment of the PPA obscures the true impact of the
acquisition, which may not occur until after the expiration of the two-year PPA.
To assess the effects of PPAs more fully, FERC should consider collecting
additional information from merger applicants regarding duration, renewal, prices, and
control provisions of PPAs. Such information would allow FERC to account for the
effects of a PPA in its merger analysis more accurately. Moreover, given the potentially
large consumer costs associated with an exercise of market power, the Agencies believe it
would be appropriate to treat PPAs in a way that more reliably avoids erroneous results.
For example, if a firm acquires a generation facility for which it already has a PPA,
FERC still should consider counting the facility’s capacity in the change in shares and
concentration arising from the acquisition.
VIII. 	MERGER-RELATED DOCUMENTS
The NOI asks whether FERC should require section 203 applicants to submit to it
“consultant reports and other internal reports that assess the competitive effects of the
50 FERC has recognized, however, that when entered into in conjunction with an
acquisition, a short-term PPA may be considered as part of the acquisition when
comparing pre- and post-acquisition market conditions. Osprey Energy Center, LLC, 152
FERC ¶ 61,066 (2015).
51 NOI P 31.

19
merger” similar to those submitted to the Agencies.52 It also asks about the costs and
benefits of requiring applicants to submit such documents.53 The Agencies support an
approach that will better enable FERC to obtain the information necessary to undertake a
thorough analysis of mergers. As explained below, the Agencies gather merger-related
information and documents in a stepwise fashion. The Agencies suggest that FERC
employ a similar process.
The Agencies receive information about mergers that are reportable under the
Hart-Scott-Rodino Antitrust Improvements Act (the HSR Act). The HSR Act requires
that companies proposing a merger or acquisition meeting certain size thresholds notify
federal authorities. The Agencies’ regulations require the merging parties to submit “4(c)
documents,” which include documents prepared by or for senior management to help
them evaluate the transaction with respect to markets, market shares, competition, and
competitors.54 Requiring parties to submit to FERC the documents that they furnish to
the Agencies as part of their HSR submissions is unlikely to impose significant additional
costs on them.
Based upon the merging parties’ HSR submissions and public information, the
Agencies determine whether to open an investigation and request additional information
from the merging parties, commonly called a “Second Request.” Upon opening an
investigation, the Agencies typically seek information from a variety of third-party
52 Id. P 33.
53 Id. P 34.
54 Instructions, Antitrust Improvements Act Notification And Report Form For
Certain Mergers And Acquisitions, at VI (rev. 8/8/16),
https://www.ftc.gov/system/files/attachments/premerger-notification-
program/hsr form instructions 090116.pdf. The term “4(c) document” refers to Item
4(c) of the HSR notification form that calls for documents evaluating the transaction.

20
sources, including customers, competitors, and others with information about the relevant
markets (for example, RTOs or ISOs in the case of electric power mergers). In support of
these efforts, the Agencies can issue subpoenas or civil investigative demands as part of
an investigation.
Section 2 of the HMG describes the kinds of evidence the Agencies seek and rely
on to determine whether a merger may substantially lessen competition. This evidence
includes not only market shares and concentration but also, for example, evidence of
actual effects observed in consummated mergers, direct comparisons based on historical
or natural experiments, head-to-head competition, and the competitively disruptive pre-
merger role of a merging party.55 This is not an exhaustive list; rather, the Agencies look
to any reliable, available evidence indicating that a merger may enhance or lessen
competition.
FERC’s goal likewise should be to obtain reliable, available evidence that it needs
to undertake a merger review. The evidence should not be limited to the merging parties’
or intervenors’ representations about the transaction, but, to the extent possible, should
include evidence that will permit FERC to test those representations. FERC should
consider ways that it might utilize its investigatory authority to aid in the collection of
useful evidence from both the merging parties and market participants.56 If the evidence
is proprietary or confidential, competitively sensitive, or otherwise considered protected,
FERC should use its procedural rules to prevent any public or unauthorized disclosure.57
55 HMG § 2.1.
56 See 18 C.F.R. part 1b.
57 See, e.g., 18 C.F.R. § 388.112.

21
In general, the Agencies encourage FERC to incorporate a more robust evidentiary
foundation into its decisional process.
Finally, the Agencies urge FERC to use all the tools and resources at its disposal.
For example, we understand that FERC’s Division of Energy Market Oversight receives
significant information about electric power markets and can analyze that information
using its substantial information technology infrastructure. These resources could prove
useful in modeling the competitive effects of transactions based on actual and projected
generation, load, transmission, fuel cost, and other market data.
The Agencies recognize, of course, that if FERC were to broaden the range of
evidence it considers in connection with market power analyses, there would be some
additional costs and burdens for applicants, who might be required to submit additional
information or analyses. It is likely that applicants already maintain much of the
information useful to a market power analysis, so their burden may not increase
substantially. There also would be some additional costs to FERC, which would have to
devote staff to reviewing additional information or analyses. However, this evidence
may yield substantial benefits that are likely to outweigh these relatively small costs.
IX. 	CONCLUSION
The Agencies commend FERC for reconsidering its approach to assessing market
power under sections 203 and 205 of the FPA. If FERC were to revise its market power
analyses as the Agencies suggest, two important benefits would follow.
First, by updating its approach to assessing market power under section 203 and
section 205, FERC could bring its analytical approach more in line with the underlying
economics of market power in electricity markets. Market concentration is a far from

22
perfect indicator of market power in electricity markets. Any merger or MBR policy that
relies largely on concentration to assess market power may produce costly errors. In the
case of merger analysis, this results in a policy that sometimes will fail to identify
anticompetitive effects (false negatives) and other times will flag anticompetitive effects
where none exists (false positives). Use of a broader range of evidence – including
information concerning supply curves, transmission constraints, terms of PPAs, and the
rationale for the application – is likely to result in a more accurate assessment of market
power, reducing the likelihood of false negatives and false positives, to the benefit of
electricity consumers.
Second, by updating its merger analysis as the Agencies suggest, FERC would
follow an approach more in line with the Agencies’ analysis. FERC and the Agencies
presently rely on different types of evidence and emphasize different types of analytical
tools to assess and remedy a merger’s competitive effects. Differing approaches can
create the risk of inconsistent or conflicting outcomes at FERC and the Agencies,
potentially saddling merging firms with a longer, more confusing, and more costly review
than is necessary. Indeed, it is possible that FERC and the Agencies could reach different
conclusions about a merger’s competitive effects and impose different – or even
inconsistent – remedies for the same merger. More closely aligning the approaches of
FERC and the Agencies would benefit merging firms by reducing the likelihood of
inconsistent or conflicting outcomes.

P,MC
($) 	D
I <3_i I
I 	I
Q
(MN)
APPENDIX
Illustration of Supply Cmve Analysis of Potential Market Power
This appendix provides a simple graphical illustration of a supp ly cmve analysis
of the potential unilateral exercise of market power.
The graph above shows a supply cmve (S) and a demand cmve (D), whose
intersection determines the market price, which initially is Po , absent withholdin g. The
marginal costs of generating units available to serve the market trace out the supply cutve
(hence MC=S). Each step in the supp ly cmve is the marginal cost for each generating
unit. Assume that Finn X owns unit G1, a nd Firm Y owns units G2, G3, and G4. Absent
withholding, G3 is the marginal unit, setting the market price, P 0 ; unit G4 is idle because
its costs are greater than the market price; and lmits G1 and G2 are inframarginal. Finn Y
is considering whether unilaterally to exercise market power through a withh olding
strategy.
Film Y owns the marginal unit, G3 , with costs close to the market price, which
makes the m1it a good "ab ility" asset. Withholding G3, however, is not costless: Fil1n Y
will lose the profit it othe1wise would have earned on sales from G3. The area B
represents this lost profit, i.e., it is the cost to Film Y of withholding. The area A
represents the benefit of withholding. When G3 is withheld, the supply cmve shifts to the
left and the market clearing price increases from Po to P1 , with G4 becoming the new
marginal unit. Output from unit G2 continues to be sold but at the new higher price, P1 ,
which increases the profit earned by Film Y by the area A. That is, the inframarginal,
l ow-cost unit, G2, creates an "incentive" (area A) to withhold output. When the benefits
of withholding (area A) exceed the costs of withholding (area B), Fitm Y will find it
profitable to withl1old, i.e. , profitable to exercise market power.
23