Markets Wired

The Federal Trade Commission and the Department of Justice’s Antitrust Division have submitted a comment to the U.S. Federal Energy Regulatory Commission (FERC) regarding market power in wholesale electricity markets. The comment responds to a FERC request for comments on how it assesses market power with respect to mergers and electricity sales at market-based rates, which it evaluates under the Federal Power Act (FPA).

The agencies commended FERC for opening its inquiry, noting that electricity markets have evolved substantially in the last 20 years, with the development of new markets, new technologies, and the exponential growth of data. In light of these developments, the agencies believe it is appropriate for FERC to re-examine its approach to merger and market-based rate applications.

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 FPA sections 203 and 205. The comment stated that certain features of electricity markets render them susceptible to the exercise of market power, even by firms with relatively small shares, and 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.

The comment concludes that it is worthwhile for FERC to consider carefully the potential for an exercise of market power, taking into consideration a broad range of evidence in addition to structural indicators.

The Commission vote authorizing the staff comment was 3-0. (FTC File No. V170000; the staff contact is Mark Hegedus, Office of the General Counsel, 202-326-2115).