Department of Justice and Federal Trade Commission Support Federal Energy Regulatory Commission’s Reexamination of Market Power Analysis
Agencies Urge Consideration of Broad Range of Evidence When Assessing Potential for Exercise of Market Power
The Department of Justice’s Antitrust Division and the Federal Trade Commission have submitted a comment in response to the U.S. Federal Energy Regulatory Commission’s (FERCs) Notice of Inquiry addressing how FERC assesses market power with respect to mergers and electricity sales at market-based rates.
Based on their experience analyzing market power, especially with respect to competition and mergers in electricity markets, the agencies encouraged FERC not to rely solely on structural indicators of market power, such as market share or concentration, when assessing market power under the Federal Power Act. Due to certain features specific to electricity markets, even firms with relatively small market shares may be able to exercise market power. Therefore, FERC should consider evidence such as whether a proposed combination of assets would enhance the ability and incentive of a firm to raise prices.
“We commend FERC for opening its inquiry,” said Acting Assistant Attorney General Renata Hesse of the Department of Justice’s Antitrust Division. “Electricity is a cornerstone of modern life – lighting our homes, driving important industries and powering cutting-edge technologies. We endorse a more comprehensive approach that goes beyond market share percentages and concentration when assessing market power in this critical industry.”
The comment also addressed proper considerations when determining geographic markets and urged consideration of serial acquisitions in its merger analysis. The agencies also encouraged FERC to consider gathering more information from merger applicants to inform its market power analyses. The comment notes that electricity markets can involve annual sales of billions of dollars, so that even a small percentage increase in the price due to an exercise of market power can substantially harm electricity consumers.