[Code of Federal Regulations] [Title 18, Volume 1] [Revised as of April 1, 2004] From the U.S. Government Printing Office via GPO Access [CITE: 18CFR33.3] [Page 231-236] TITLE 18--CONSERVATION OF POWER AND WATER RESOURCES CHAPTER I--FEDERAL ENERGY REGULATORY COMMISSION, DEPARTMENT OF ENERGY PART 33_APPLICATION FOR ACQUISITION, SALE, LEASE, OR OTHER DISPOSITION, Sec. 33.3 Additional information requirements for applications involving horizontal competitive impacts. (a)(1) The applicant must file the horizontal Competitive Analysis Screen described in paragraphs (b) through (f) of this section if, as a result of the proposed transaction, a single corporate entity obtains ownership or control over the generating facilities of previously unaffiliated merging entities (for purposes of this section, merging entities means any party to the proposed transaction or its parent companies, energy subsidiaries or energy affiliates). (2) A horizontal Competitive Analysis Screen need not be filed if the applicant: (i) Affirmatively demonstrates that the merging entities do not currently conduct business in the same geographic markets or that the extent of the business transactions in the same geographic markets is de minimis; and (ii) No intervenor has alleged that one of the merging entities is a perceived potential competitor in the same geographic market as the other. (b) All data, assumptions, techniques and conclusions in the horizontal Competitive Analysis Screen must be accompanied by appropriate documentation and support. (1) If the applicant is unable to provide any specific data required in this section, it must identify and explain how the data requirement was satisfied and the suitability of the substitute data. (2) The applicant may provide other analyses for defining relevant markets [[Page 232]] (e.g. the Hypothetical Monopolist Test with or without the assumption of price discrimination) in addition to the delivered price test under the horizontal Competitive Analysis Screen. (3) The applicant may use a computer model to complete one or more steps in the horizontal Competitive Analysis Screen. The applicant must fully explain, justify and document any model used and provide descriptions of model formulation, mathematical specifications, solution algorithms, as well as the annotated model code in executable form, and specify the software needed to execute the model. The applicant must explain and document how inputs were developed, the assumptions underlying such inputs and any adjustments made to published data that are used as inputs. The applicant must also explain how it tested the predictive value of the model, for example, using historical data. (c) The horizontal Competitive Analysis Screen must be completed using the following steps: (1) Define relevant products. Identify and define all wholesale electricity products sold by the merging entities during the two years prior to the date of the application, including, but not limited to, non-firm energy, short-term capacity (or firm energy), long-term capacity (a contractual commitment of more than one year), and ancillary services (specifically spinning reserves, non-spinning reserves, and imbalance energy, identified and defined separately). Because demand and supply conditions for a product can vary substantially over the year, periods corresponding to those distinct conditions must be identified by load level, and analyzed as separate products. (2) Identify destination markets. Identify each wholesale power sales customer or set of customers (destination market) affected by the proposed transaction. Affected customers are, at a minimum, those entities directly interconnected to any of the merging entities and entities that have purchased electricity at wholesale from any of the merging entities during the two years prior to the date of the application. If the applicant does not identify an entity to whom the merging entities have sold electricity during the last two years as an affected customer, the applicant must provide a full explanation for each exclusion. (3) Identify potential suppliers. The applicant must identify potential suppliers to each destination market using the delivered price test described in paragraph (c)(4) of this section. A seller may be included in a geographic market to the extent that it can economically and physically deliver generation services to the destination market. (4) Perform delivered price test. For each destination market, the applicant must calculate the amount of relevant product a potential supplier could deliver to the destination market from owned or controlled capacity at a price, including applicable transmission prices, loss factors and ancillary services costs, that is no more than five (5) percent above the pre-transaction market clearing price in the destination market. (i) Supplier's presence. The applicant must measure each potential supplier's presence in the destination market in terms of generating capacity, using economic capacity and available economic capacity measures. Additional adjustments to supplier presence may be presented; applicants must support any such adjustment. (A) Economic capacity means the amount of generating capacity owned or controlled by a potential supplier with variable costs low enough that energy from such capacity could be economically delivered to the destination market. Prior to applying the delivered price test, the generating capacity meeting this definition must be adjusted by subtracting capacity committed under long-term firm sales contracts and adding capacity acquired under long-term firm purchase contracts (i.e., contracts with a remaining commitment of more than one year). The capacity associated with any such adjustments must be attributed to the party that has authority to decide when generating resources are available for operation. Other generating capacity may also be attributed to another supplier based on operational control criteria as deemed necessary, but the applicant must explain the reasons for doing so. [[Page 233]] (B) Available economic capacity means the amount of generating capacity meeting the definition of economic capacity less the amount of generating capacity needed to serve the potential supplier's native load commitments, as described in paragraph (d)(4)(i) of this section. (C) Available transmission capacity. Each potential supplier's economic capacity and available economic capacity (and any other measure used to determine the amount of relevant product that could be delivered to a destination market) must be adjusted to reflect available transmission capability to deliver each relevant product. The allocation to a potential supplier of limited capability of constrained transmission paths internal to the merging entities' systems or interconnecting the systems with other control areas must recognize both the transmission capability not subject to firm reservations by others and any firm transmission rights held by the potential supplier that are not committed to long-term transactions. For each such instance where limited transmission capability must be allocated among potential suppliers, the applicant must explain the method used and show the results of such allocation. (D) Internal interface. If the proposed transaction would cause an interface that interconnects the transmission systems of the merging entities to become transmission facilities for which the merging entities would have a ``native load'' priority under their open access transmission tariff (i.e., where the merging entities may reserve existing transmission capacity needed for native load growth and network transmission customer load growth reasonable forecasted within the utility's current planning horizon), all of the unreserved capability of the interface must be allocated to the merging entities for purposes of the horizontal Competitive Analysis Screen, unless the applicant demonstrates one of the following: (1) The merging entities would not have adequate economic capacity to fully use such unreserved transmission capability; (2) The merging entities have committed a portion of the interface capability to third parties; or (3) Suppliers other than the merging entities have purchased a portion of the interface capability. (ii) [Reserved] (5) Calculate market concentration. The applicant must calculate the market share, both pre- and post-merger, for each potential supplier, the Herfindahl-Hirschman Index (HHI) statistic for the market, and the change in the HHI statistic. (The HHI statistic is a measure of market concentration and is a function of the number of firms in a market and their respective market shares. The HHI statistic is calculated by summing the squares of the individual market shares, expressed as percentages, of all potential suppliers to the destination market.) To make these calculations, the applicant must use the amounts of generating capacity (i.e., economic capacity and available economic capacity, and any other relevant measure) determined in paragraph (c)(4)(i) of this section, for each product in each destination market. (6) Provide historical transaction data. The applicant must provide historical trade data and historical transmission data to corroborate the results of the horizontal Competitive Analysis Screen. The data must cover the two-year period preceding the filing of the application. The applicant may adjust the results of the horizontal Competitive Analysis Screen, if supported by historical trade data or historical transmission service data. Any adjusted results must be shown separately, along with an explanation of all adjustments to the results of the horizontal Competitive Analysis Screen. The applicant must also provide an explanation of any significant differences between results obtained by the horizontal Competitive Analysis Screen and trade patterns in the last two years. (d) In support of the delivered price test required by paragraph (c)(4) of this section, the applicant must provide the following data and information used in calculating the economic capacity and available economic capacity that a potential supplier could deliver to a destination market. The transmission data required by paragraphs (d)(7) through (d)(9) of this section must be [[Page 234]] supplied for the merging entities' systems. The transmission data must also be supplied for other relevant systems, to the extent data are publicly available. (1) Generation capacity. For each generating plant or unit owned or controlled by each potential supplier, the applicant must provide: (i) Supplier name; (ii) Name of the plant or unit; (iii) Primary and secondary fuel-types; (iv) Nameplate capacity; (v) Summer and winter total capacity; and (vi) Summer and winter capacity adjusted to reflect planned and forced outages and other factors, such as fuel supply and environmental restrictions. (2) Variable cost. For each generating plant or unit owned or controlled by each potential supplier, the applicant must also provide variable cost components. (i) These cost components must include at a minimum: (A) Variable operation and maintenance, including both fuel and non- fuel operation and maintenance; and (B) Environmental compliance. (ii) To the extent costs described in paragraph (d)(2)(i) of this section are allocated among units at the same plant, allocation methods must be fully described. (3) Long-term purchase and sales data. For each sale and purchase of capacity, the applicant must provide the following information: (i) Purchasing entity name; (ii) Selling entity name; (iii) Duration of the contract; (iv) Remaining contract term and any evergreen provisions; (v) Provisions regarding renewal of the contract; (vi) Priority or degree of interruptibility; (vii) FERC rate schedule number, if applicable; (viii) Quantity and price of capacity and/or energy purchased or sold under the contract; and (ix) Information on provisions of contracts which confer operational control over generation resources to the purchaser. (4) Native load commitments. (i) Native load commitments are commitments to serve wholesale and retail power customers on whose behalf the potential supplier, by statute, franchise, regulatory requirement, or contract, has undertaken an obligation to construct and operate its system to meet their reliable electricity needs. (ii) The applicant must provide supplier name and hourly native load commitments for the most recent two years. In addition, the applicant must provide this information for each load level, if load- differentiated relevant products are analyzed. (iii) If data on native load commitments are not available, the applicant must fully explain and justify any estimates of these commitments. (5) Transmission and ancillary service prices, and loss factors. (i) The applicant must use in the horizontal Competitive Analysis Screen the maximum rates stated in the transmission providers' tariffs. If necessary, those rates should be converted to a dollars-per-megawatt hour basis and the conversion method explained. (ii) If a regional transmission pricing regime is in effect that departs from system-specific transmission rates, the horizontal Competitive Analysis Screen must reflect the regional pricing regime. (iii) The following data must be provided for each transmission system that would be used to deliver energy from each potential supplier to a destination market: (A) Supplier name; (B) Name of transmission system; (C) Firm point-to-point rate; (D) Non-firm point-to-point rate; (E) Scheduling, system control and dispatch rate; (F) Reactive power/voltage control rate; (G) Transmission loss factor; and (H) Estimated cost of supplying energy losses. (iv) The applicant may present additional alternative analysis using discount prices if the applicant can support it with evidence that discounting is and will be available. (6) Destination market price. The applicant must provide, for each relevant product and destination market, market prices for the most recent two [[Page 235]] years. The applicant may provide suitable proxies for market prices if actual market prices are unavailable. Estimated prices or price ranges must be supported and the data and approach used to estimate the prices must be included with the application. If the applicant relies on price ranges in the analysis, such ranges must be reconciled with any actual market prices that are supplied in the application. Applicants must demonstrate that the results of the analysis do not vary significantly in response to small variations in actual and/or estimated prices. (7) Transmission capability. (i) The applicant must provide simultaneous transfer capability data, if available, for each of the transmission paths, interfaces, or other facilities used by suppliers to deliver to the destination markets on an hourly basis for the most recent two years. (ii) Transmission capability data must include the following information: (A) Transmission path, interface, or facility name; (B) Total transfer capability (TTC); and (C) Firm available transmission capability (ATC). (iii) Any estimated transmission capability must be supported and the data and approach used to make the estimates must be included with the application. (8) Transmission constraints. (i) For each existing transmission facility that affects supplies to the destination markets and that has been constrained during the most recent two years or is expected to be constrained within the planning horizon, the applicant must provide the following information: (A) Name of all paths, interfaces, or facilities affected by the constraint; (B) Locations of the constraint and all paths, interfaces, or facilities affected by the constraint; (C) Hours of the year when the transmission constraint is binding; and (D) The system conditions under which the constraint is binding. (ii) The applicant must include information regarding expected changes in loadings on transmission facilities due to the proposed transaction and the consequent effect on transfer capability. (iii) To the extent possible, the applicant must provide system maps showing the location of transmission facilities where binding constraints have been known or are expected to occur. (9) Firm transmission rights (Physical and Financial). For each potential supplier to a destination market that holds firm transmission rights necessary to directly or indirectly deliver energy to that market, or that holds transmission congestion contracts, the applicant must provide the following information: (i) Supplier name; (ii) Name of transmission path interface, or facility; (iii) The FERC rate schedule number, if applicable, under which transmission service is provided; and (iv) A description of the firm transmission rights held (including, at a minimum, quantity and remaining time the rights will be held, and any relevant time restrictions on transmission use, such as peak or off- peak rights). (10) Summary table of potential suppliers' presence. (i) The applicant must provide a summary table with the following information for each potential supplier for each destination market: (A) Potential supplier name; (B) The potential supplier's total amount of economic capacity (not subject to transmission constraints); and (C) The potential supplier's amount of economic capacity from which energy can be delivered to the destination market (after adjusting for transmission availability). (ii) A similar table must be provided for available economic capacity, and for any other generating capacity measure used by the applicant. (11) Historical trade data. (i) The applicant must provide data identifying all of the merging entities' wholesale sales and purchases of electric energy for the most recent two years. (ii) The applicant must include the following information for each transition: [[Page 236]] (A) Type of transaction (such as non-firm, short-term firm, long- term firm, peak, off-peak, etc.); (B) Name of purchaser; (C) Name of seller; (D) Date, duration and time period of the transaction; (E) Quantity of energy purchased or sold; (F) Energy charge per unit; (G) Megawatt hours purchased or sold; (H) Price; and (I) The delivery points used to effect the sale or purchase. (12) Historical transmission data. The applicant must provide information concerning any transmission service denials, interruptions and curtailments on the merging entities' systems, for the most recent two years, to the extent the information is available from OASIS data, including the following information: (i) Name of the customer denied, interrupted or curtailed; (ii) Type, quantity and duration of service at issue; (iii) The date and period of time involved; (iv) Reason given for the denial, interruption or curtailment; (v) The transmission path; and (vi) The reservations or other use anticipated on the affected transmission path at the time of the service denial, curtailment or interruption. (e) Mitigation. Any mitigation measures proposed by the applicant (including, for example, divestiture or participation in a regional transmission organization) which are intended to mitigate the adverse effect of the proposed transaction must, to the extent possible, be factored into the horizontal Competitive Analysis Screen as an additional post-transaction analysis. Any mitigation commitments that involve facilities (e.g., in connection with divestiture of generation) must identify the facilities affected by the commitment, along with a timetable for implementing the commitments. (f) Additional factors. If the applicant does not propose mitigation, the applicant must address: (1) The potential adverse competitive effects of the transaction. (2) The potential for entry in the market and the role that entry could play in mitigating adverse competitive effects of the transaction; (3) The efficiency gains that reasonably could not be achieved by other means; and (4) Whether, but for the transaction, one or more of the merging entities would be likely to fail, causing its assets to exit the market. [65 FR 71014, Nov. 28, 2000; 65 FR 76005, Dec. 5, 2000]