Feds Recommend Regulators Tighten Merger Reviews

The Federal Energy Regulatory Commission should be more vigilant in reviewing power industry mergers under the Energy Policy Act of 2005, which repealed the Depression-era Public Utility Holding Company Act, according to the Government Accountability Office. The recommendation--based both on a study of how FERC has handled merger reviews since the repeal, as well as a survey in which state energy regulators rated the federal agency--was outlined in a report the Government Accountability Office made public March 7. The Government Accountability Office found that FERC has largely relied on self-reported information from companies--with selected audits--in its reviews of mergers. That includes one that occurred last year in which Dynegy took control of generating plants operated by LS Power in California. Its approach has been inadequate to guard against cross-subsidies among public utilities and affiliates, according to Mark Gaffigan, Government Accountability Office acting director of natural resources and environment. To do a better job, the report recommended that FERC tighten up its auditing procedures, as well as monitor the financial condition of utilities. FERC chair Joseph Kelliher disagreed with the recommendations, saying the Government Accountability Office report “ignores the commission’s extensive ratemaking authority” under which it works to “prevent cross-subsidization.” The 2005 act moved review of mergers from the Securities and Exchange Commission, which had administered the former federal anti-monopoly law, to FERC and charged it with preventing cross-subsidies from occurring between utilities and other businesses controlled by holding companies. The 2005 act also gave states power to police holding companies to prevent cross-subsidies. However, the Government Accountability Office found that many lack the staff, resources, and legal authority under state law to do an adequate job. Accordingly, the Congressional watchdog agency recommended that FERC enhance audits and reassess resource levels to police mergers, which are expected to increase with the repeal of the former federal anti-monopoly law. The Government Accountability Office found, for instance, that FERC has reviewed 15 mergers since Congress passed the 2005 act. Repeal of the former federal anti-monopoly law opened the door to increased merger activity because it removed restrictions on holding companies. They became free to acquire an unlimited number of utilities that are not geographically contiguous. Previously they had been restricted to owning no more than one such utility. In addition, repeal of the former federal anti-monopoly law lifted restrictions on acquisitions of utilities by companies outside the utility industry.

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Feds Recommend Regulators Tighten Merger Reviews

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