Reject Exelon-PSEG Merger Plan, AAI Urges FERC

Apr 12 2005
Testimony and Interventions

Click here for the motion to intervene.

The AAI moved on April 11 to intervene in FERC’s proceeding regarding the proposed merger of Exelon and Public Service Enterprise Group Inc. (PSEG). Exelon affiliate PECO and PSEG sell electricity at wholesale and retail in eastern Pennsylvania and western New Jersey. The proposed combination is the largest electricity merger ever to require federal regulatory approval, consolidating a massive amount of generation in the Pennsylvania-New Jersey-Maryland (PJM) markets to create a utility with the largest generation portfolio in the U.S.

In its intervention, the AAI argues that the proposed merger puts competition and the welfare of dozens of wholesale and millions of retail electricity consumers in the PJM region at risk. Exelon and PSEG admit the merger is anticompetitive, since it would increase concentration in all relevant markets well-beyond the thresholds set forth in FERC’s Merger Policy Statement. In eastern PJM, for example, merger-induced increases in concentration exceed 1,000 HHI points in markets with post-merger concentration of almost 2,500 HHI. Exelon/PSEG propose to remedy the anticompetitive effects of the proposed merger by divesting some 2,900 MW of mid-merit and peaking capacity and “virtually” divesting (selling or swapping energy from) another 2,600 MW of baseload nuclear capacity.

The AAI strongly opposes Exelon/PSEG’s proposed divestiture proposal as flawed and inadequate and urges FERC to reject the remedy and pursue an acceptable divestiture plan through technical conferences or in an administrative hearing. The proposal raises concerns about every important aspect of divestiture as a merger remedy. For example, “virtual” divestiture avoids the real competition that actual divestiture would ensure and is based on an inadequate efficiencies analysis. Moreover, the merging parties’ proposed control of the divestiture process is akin to the “fox guarding the henhouse.” Accepted “as is,” the divestiture plan would constitute unconditional FERC approval of a hugely anticompetitive merger. Such an approval would result in harm to competition and consumers since increases in concentration significantly increase the ability and incentive of the merged company to adversely affect wholesale electricity prices through unilateral or coordinated conduct. Approval of the divestiture plan would also encourage additional mergers of very large utilities that would further concentrate markets, and set a damaging precedent for Commission merger policy. The AAI urges FERC to utilize the DOJ’s and FTC’s valuable and extensive experience with divestiture as a merger remedy in scrutinizing Exelon/PSEG’s flawed proposal and to retain an integral role in crafting and implementing an effective divestiture plan.

Click here for the motion to intervene.