Docket No. RM96-6-000 42 authority if the SEC approved an inter-affiliate transaction. Thus, the costs could be flowed through to ratepayers, even if the goods or services were obtained at an above-market price or the costs were imprudently incurred. To guard against this possibility, we gave the applicants two options. 57/ They could either choose to have the issue set for hearing, or they could agree to abide by our policies on intra-system transactions. 58/ In response to the NOI, commenters generally argue that it is important for the Commission to continue to look at the effect of a merger on the effectiveness of state and Federal regulation. 59/ 2. Discussion We will continue to examine the effect on regulation as a factor in our analysis of proposed mergers and will use the approach adopted in PSColorado and subsequent cases. Thus, in situations involving registered public utility holding companies, we will require the applicants to choose between two options and to make that choice clear in their filing. They may commit themselves to abide by this Commission's policies with respect to intra-system transactions within the newly-formed holding company 57/ 75 FERC at 62,045-46. 58/ Accord, Union Electric, 77 FERC at 61,108-09 (state expressed concern over shift of regulatory authority from itself and this Commission to SEC; Commission noted that state had authority to disapprove merger). 59/ Appendix B at Section IV. Docket No. RM96-6-000 43 structure, or they may go to hearing on the issue of the effect of the proposed registered holding company structure on effective regulation by this Commission. If applicants choose the first option, we will set the issue for hearing only if intervenors raise credible arguments that because of special factual circumstances, the commitment will not provide sufficient protection. With respect to the effect of a merger on state regulatory authority, where a state has authority to act on a merger, as in PSColorado, we ordinarily will not set this issue for a trial type hearing. The application should tell us whether the states have this authority. If the state lacks this authority and raises concerns about the effect on regulation, we may set the issue for hearing; we will address these circumstances on a case by-case basis. E. Other Commonwealth Factors The other Commonwealth factors are evidence of coercion, the proposed accounting treatment, and the reasonableness of the purchase price. These three factors elicited very little comment. As to evidence of coercion, a few commenters suggest that this should be evaluated by the marketplace rather than by the regulatory process. 60/ Several commenters say that this factor should be 60/ East Texas Coop., EEI, PaineWebber, and Southern Company. Docket No. RM96-6-000 44 considered only if someone demonstrates that it is relevant. 61/ OK Com is among the few commenters who favor retaining this factor. It suggests that coercion is a means by which some companies will try to gain oligopolistic control of the market in the coming competitive environment. As to accounting treatment, some commenters support elimination of accounting concerns as a factor. 62/ PaineWebber notes that most recent mergers were mergers of equals, involving minimal premiums over current market prices. It suggests that a similar market discipline would likely cause shareholders to reject merger transactions involving large merger premiums and excessive amortization. Florida and Montaup argue that the accounting treatment of a merger should not be an issue for hearing unless an applicant seeks treatment different from the Commission's standards. Southern Company contends that the Commission's analysis of this factor should be subsumed within the analysis of the merger's impact on costs and rates. NY Com and OK Com are concerned about the accounting consequences of mergers. OK Com favors keeping the historical cost approach to accounting for plant acquisitions during mergers and business combinations until competitive market structures are achieved at the national, regional, and state levels. NY Com 61/ 62/ Florida and Montaup. East Texas Coop, EEI, and PaineWebber. Although they do not Docket No. RM96-6-000 45 also urges the Commission to continue to require unrestricted access to all books and records of newly merged entities. We also received a few comments on looking at the reasonableness of the purchase price as a factor. A number of commenters 63/ urge that the Commission not substitute its judgment for the workings of market forces, which will determine the reasonableness of the purchase price. Others 64/ believe that this issue should be examined only if its relevance is raised. However, OK Com argues that purchase price still has some relevance in this era of diversification. It is concerned that the purchase price may be based on expected returns on nonregulated investments, which, if they fail to materialize, may dilute the value of utility stock. We will no longer consider these three matters as separate factors. Any evidence of coercion will be considered as part of our analysis of the effect of the merger on competition. treated the reasonableness of the purchase price as an issue only insofar as it affects rates, so this issue is subsumed in the effect on rates factor. As for the proposed accounting We have treatment, this is not really a factor to be balanced along with other factors; proper accounting treatment is simply a requirement for all mergers. 65/ 63/ 64/ CINergy, East Texas Coop, EEI, Paine Webber, and Southern. 65/ See, e.g., Public Service Company of Colorado and Southwestern Public Service Company, 75 FERC 61,325 (continued...) premiums through wholesale rates, we will address the issue in We received many suggestions as to how to improve our procedures for handling merger cases. The commenters focused particularly on the need for certainty and the need to expedite the process, at least for some mergers. They suggested various screens or hold harmless provisions. Some suggested that we set forth filing requirements. There were also many comments on coordination with other agencies that are reviewing the merger. 66/ Although we plan to issue a Notice of Proposed Rulemaking in the near future to set forth more specific filing requirements consistent with this Policy Statement and additional procedures for improving the merger hearing process, we have determined that the best way to improve the Commission's handling of merger proposals is to update our merger review policy. As outlined in this Policy Statement, we will generally limit the number of factors we examine in order to determine whether a merger is in 65/(...continued) (1996); Entergy Services, Inc. and Gulf States Utilities Company, Opinion No. 385, 65 FERC 61,332 (1993), order on reh'g, 67 FERC 61,192 (1994). |