peak and off-peak energy (seasonal and daily) may be distinct products. The Commission encourages parties to propose even more precise definitions of relevant products where appropriate. Indeed, we would expect to see greater precision in product differentiation as market institutions develop. 2. Geographic markets: identify customers who may be affected by the merger. This is the first of a two-step process of determining the geographic size of the market. To identify customers potentially affected by a merger, at a minimum, applicants should include all entities directly interconnected to either of the merging parties. Additional entities should be included in the analysis if historical transaction data indicates such entities have been trading partners with a merging party. Applicants and others may argue either that there are other customers to be included as relevant buyers or that identified customers are not relevant buyers. Intervenors also may argue that other customers not identified by the applicants will be affected by the merger. 3. Geographic markets: identify potential suppliers to each identified customer. This second, and key, step in determining the size of the geographic market is to identify those suppliers that can compete to serve a given market or customer and how much of a competitive presence they are in the market. Alternative suppliers must be able to reach the market both economically and physically. There Docket No. RM96-6-000 61 are two parts to this analysis. One is determining the economic capability of a supplier to reach a market. This is accomplished by a delivered price test. The second part evaluates the physical capability of a supplier to reach a market, i.e., the amount of the defined product a supplier can deliver to a market based on transmission capacity availability. Supply and demand conditions in electricity markets vary substantially over time, and the market analysis must take those varying conditions into account. Applicants should present separate analyses for each of the major periods when supply and demand conditions are similar. One way to do this is to group together the hours when supply and demand conditions are similar; for example, peak, shoulder and off-peak hours. There may even be smaller groupings to reflect periods of significantly constrained transmission capability available for suppliers to reach a market. The screen analysis also examines historical trade data as a check on which suppliers should be included in the relevant markets. a. Delivered price test. The screen analysis should first identify those suppliers with the potential to economically supply power to the destination market or customer. The merging companies as well as non-traditional suppliers should be included in this test to identify potential suppliers. Basically, suppliers should be included in a market if they could deliver the product to a Docket No. RM96-6-000 62 customer at a cost no greater than 5% above the competitive price to that customer. 76/ The delivered cost of the product to the relevant market for each potential supplier is found by adding the potential supplier s variable generation costs and all transmission and ancillary service charges that would be incurred to make the delivery. 77/ Thus, the farther away a supplier, the more transmission and ancillary service prices that must be added to its power costs. Suppliers that would have to traverse a nonopen access system can be included as potential suppliers only to the extent they have firm access rights. The analysis should also take into account the effect of line losses on the economics of trade with a distant supplier. If a supplier can deliver the product to the market at a cost no more than 5% above the market price, that supplier should be included in the geographic market. Applicants are expected to provide product-specific delivered price estimates for each destination market or customer. The delivered price test uses the following data. Applicants should provide in electronic format these data and any other data relied upon in their analysis. Transmission prices. Applicants should use the ceiling prices in utilities open access tariffs on file with 76// The Guidelines suggest a 5% price threshold but acknowledge that others may be appropriate. Applicants have the burden of justifying a different price threshold. 77// This would include the unbundled transmission rates of a seller that is a vertically integrated public utility. Docket No. RM96-6-000 63 the Commission. Where a non-jurisdictional entity s transmission system is involved, the ceiling price in efforts to secure or estimate transmission ceiling Prices that are not found in a tariff on file with the Commission should be adequately supported. While we are aware that ceiling prices are frequently discounted, this screen analysis is to be conservative. Applicants may present an additional alternative analysis using discounted prices if they can support it with evidence that discounting is and will be available. Potential suppliers generation costs. The Commission will consider various measures of costs. Applicants are free to use any appropriate cost data as long as it sources may also be appropriate. The Commission has not reached a firm conclusion on a specific cost measure. Competitive market price. Electricity markets have not sufficiently matured yet to exhibit single market clearing prices for various products. In addition, price discovery is difficult because the reporting of actual transaction prices is still in its formative stage. Until market institutions mature enough to reveal single market clearing prices, applicants may use surrogate measures as long as they are properly supported. For example, a buyer s system lambda may be used because a buyer is not likely to purchase from a supplier that is more costly than its own costs of production at specific times. 78/ Another possibility might be the price at which the affected customer has been purchasing power. For each supplier, the screen analysis should then show the amount of each product the supplier could supply to the market. Generation capacity measures are appropriate for this showing. 79/ Different capacity measures should be used, as appropriate, for different products. It is also appropriate, even desirable, to use several measures for one product. Given that competitive analysis is an inexact science and that electricity markets are changing rapidly, using several measures for a particular product 78// System lambda data are usually reported by control area. For smaller entities that are within a control area, the area s system lambda may be a reasonable proxy for the cost of energy from the marginal resource. 79// The DOJ Guidelines support using capacity measures in industries with homogenous products, such as electricity. DOJ Guidelines, at 41557. We note that energy measures (MWH) may also be appropriate. |