Michigan households, schools and businesses have long
paid significantly more for electricity than those in neighboring states,
primarily because of regulatory policies in the state. The Michigan Legislature
is now considering adding another layer of unnecessary regulatory bureaucracy to
Michigan electricity supply that is unlikely to benefit Michigan ratepayers in
any way, but will certainly add costly regulatory burdens.
The bill in question is HB 6358 (http://www.legislature.mi.gov/documents/ 2005-2006/billintroduced/House/pdf/2006-hIB-6358.pdf),
which would authorize the Michigan Public Service Commission to review mergers
and acquisitions involving Michigan electricity and natural gas utilities. The
PSC would be empowered to gather extensive documentations from utilities, and
then review these and make advisory opinions favoring or opposing the mergers or
acquisitions. The bill would give no unique powers or mandates to the PSC in
reviewing such mergers, but rather would be entirely duplicative of merger
review powers already held by the U.S. Department of Justice, the Federal Energy
Regulatory Commission, the Federal Trade Commission, the U.S. Nuclear Regulatory
Commission (if nuclear power plants are involved) and the Michigan Attorney
General’s office.
HB 6358 would require utilities involved in mergers or
acquisitions to submit to the PSC at least 180 days before a merger or
acquisition "any books, records, accounts, documents, and other data and
information that is necessary to effectively assess . . . the impact of the
proposed acquisition." If the parties to the transaction object, the bill would
place the burden on them to show that any information they do not provide is not
relevant to any analysis the commission may want to do.
The passage above is a remarkably broad demand for
information. In contrast, the federal antitrust agencies attempt to limit the
information they demand from merging parties and focus only on specific
categories of information. The 180 days notice is also far longer than the 30
days federal antitrust authorities receive under the Hart-Scott-Rodino
pre-merger notification act.
According to the House sponsor of the legislation, the
motivation for the bill was the repeal of the federal Public Utility Holding
Company Act of 1935, which the sponsor claimed somehow reduced regulatory
oversight of utility mergers. While the 2006 repeal of PUHCA did eliminate some
regulatory restrictions on utility mergers, the 2005 Energy Policy Act
substantially expanded the review powers of federal agencies, and in particular
authorized the Federal Energy Regulatory Commission to collect information in
ways that went well beyond what was authorized by PUHCA.
Mergers
may have beneficial effects by allowing cost savings to be passed on to
customers, or may have harmful effects to customers by increasing the market
power of the merging parties. The federal antitrust agencies recognize the
difference in their "Horizontal
Merger Guidelines" as follows: "While challenging competitively harmful
mergers, the Agency seeks to avoid unnecessary interference with the larger
universe of mergers that are either competitively beneficial or neutral."
In stark
contrast, HB 6358 makes no such distinction between mergers and acquisitions
that are likely to be beneficial and those that are likely to raise costs to
ratepayers. All mergers and acquisitions would be subject to the same onerous
burden; even those that the PSC would quickly conclude raise no competitive
concerns.
In short,
HB 6358 is a regulators wish-list of powers to review mergers involving
utilities at a leisurely pace, with all the documentation they might possibly
want to review delivered to them months in advance. The PSC would not have to
consider the cost imposed on utilities or the market factors behind any future
mergers, and would have no confidentiality restrictions on how the PSC uses the
information. Moreover, the opinions the PSC issues would be merely advisory, not
binding, so the PSC would face little accountability for its actions.
It is perhaps understandable that the PSC would want
to expand its regulatory powers with little regard for the burden imposed on
utilities and their customers. But rather than cater to the desires and
convenience of the regulators, the Michigan legislature should consider the
costs imposed on Michigan utilities and predictably passed on to their
customers.
At a time when Michigan electricity rates are
significantly higher than those is surrounding states, it is unclear what
benefits, if any, Michigan ratepayers would gain from giving the PSC authority
to duplicate what other government agencies are already doing. What is more
clear is that HB 6358 would impose substantial costs on Michigan utilities and
probably deter restructuring changes that could bring Michigan electricity rates
more in line with those in nearby states.
#####
Theodore Bolema, an attorney and faculty member at the
Central Michigan University College of Business Administration, is an adjunct
scholar of the Mackinac Center for Public Policy, a research and
educational institute headquartered in Midland, Mich. Permission to reprint in
whole or in part is hereby granted, provided that the author and the Center are
properly cited.
