Advances in Competition Policy Enforcement in the EU and North America
Edited by Abel M. Mateus and Teresa Moreira
Chapter 9: Mergers in Regulated Industries: Electricity
Dennis W. Carlton1 Mergers in any industry can raise complicated questions about the elimination of competition and the achievement of efficiencies. Mergers in regulated industries such as electricity raise even more complicated issues as the analyst needs to grapple with the constraining effects of regulation, multiple levels of regulation, the ability to evade regulation, and the desire for efficiency. This chapter discusses the electricity industry in general and one particular electricity merger that the U.S. Department of Justice (DOJ) recently analyzed, in order to draw several lessons about the promotion of competition through electricity mergers in the United States. The purpose is to stimulate discussion with European counterparts to see what, if anything, Europe can learn from the U.S. experience with electricity mergers and regulations. There are six main lessons that I learn from the U.S. experience: 1. Competition in the deregulated (or partially deregulated) sectors of electricity is enhanced by long-term contracts between generators and wholesale buyers. Failure to expose retail consumers to variable retail prices exacerbates market power in wholesale electricity generation. The usual Herfindhal-Hirschman Index (HHI) or market share analysis can be misleading as a predictor of market power in wholesale generation. A merger simulation approach can be a superior method of evaluating market power. Multiple layers of regulation affect the profit maximizing choice of electricity generators. 2. 3. 4. 1 I served as Deputy Assistant Attorney General, Antitrust Division, Department of Justice at the time this chapter was presented. I thank Thomas Barnett, Robert Kramer, Jeffrey...
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