Carlton, Dennis W. --- "Mergers in Regulated Industries: Electricity" [2010] ELECD 357; in Mateus, M. Abel; Moreira, Teresa (eds), "Competition Law and Economics" (Edward Elgar Publishing, 2010)

Book Title: Competition Law and Economics

Editor(s): Mateus, M. Abel; Moreira, Teresa

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848449992

Section: Chapter 9

Section Title: Mergers in Regulated Industries: Electricity

Author(s): Carlton, Dennis W.

Number of pages: 13

Extract:

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 pro-
motion 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 electric-
ity 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.
2. Failure to expose retail consumers to variable retail prices exacerbates
market power in wholesale electricity generation.
3. The usual Herfindhal-Hirschman Index (HHI) or market share analy-
sis 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.
4. Multiple layers of regulation affect the profit maximizing choice of
electricity generators.


1 I served as Deputy Assistant Attorney General, Antitrust Division,

Department of Justice ...