BRG Experts Provide Comments to FERC's Horizontal Market Power Notice of Inquiry

In August 2010, the US Department of Justice and Federal Trade Commission jointly issued updated Horizontal Merger Guidelines (“2010 Guidelines”) for conducting merger reviews. In March 2011, the Federal Energy Regulatory Commission (FERC) issued a Notice of Inquiry asking whether or how it should use the new Guidelines in its own merger analysis under section 203 of the Federal Power Act (Docket RM11-14-000)—including the new HHI thresholds the DOJ and FTC adopted.

In May 2011, Drs. Carl Danner, Henry Kahwaty, and Cleve Tyler of Berkeley Research Group filed comments with the FERC discussing the value of setting an HHI (Herfindahl-Hirschman Index) screen, but emphasized that a screen was but a first step in a merger evaluation and that simple reliance on a numerical screen would be expected to lead to errors in merger enforcement. The authors recommended that the FERC conduct an evaluation of consummated mergers to assess the appropriateness of changing the HHI thresholds.

On February 16, 2012, the FERC closed its inquiry without revising its merger review policies, stating that its “current approach is flexible enough to incorporate theories set forth in the 2010 Guidelines, while still retaining the certainty that the current approach provides.” The FERC also declined to “initiate further formal general inquiry into the procedure for merger review, the modeling methods used and data sources relied upon in those models, or the hypothetical results that may arise if the FERC had relied on alternative methodology.”

In the view of Drs. Danner, Kahwaty, and Tyler, this decision appears to represent a missed opportunity for the FERC, whose merger review procedures necessarily reflect predictions of future market outcomes that typically are not checked later for accuracy. They continue to support a retrospective review of consummated mergers to help the FERC better benchmark its policy against the actual results it has produced.

The views expressed are those of the authors and not intended to represent those of Berkeley Research Group or other experts at BRG.