Convergence Mergers: A New Competitive Settlement Model from Detroit

Electricity Journal

Volumn 14, Issue 8, 2001, Pages 13-18

  Hilke, John C ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

MERGERS AND ACQUISITIONS; PIPELINES;

DETROIT; DISTRIBUTION COMPANIES; LOCAL DISTRIBUTION NETWORKS; LOCAL DISTRIBUTIONS; SETTLEMENT MODELS;

GEOGRAPHICAL DISTRIBUTION;

EID: 0346485716     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1040-6190(01)00233-0     Document Type: Article

References (16)

1. DTE and MichCon reached an initial merger agreement on Oct. 4, 1999. Exelon won the bidding competition for the easement that was conducted by MichCon.
2. Under the easement agreement, electric displacement load (EDL) primarily means natural gas consumption for onsite generation or for electric displacement equipment (such as gas-fueled chillers, air compressors, commercial dishwashers and fryers, but not direct-fired space heating and hot water applications). There is also a small component of general generation that can be counted as EDL under the agreement. General generation can count as EDL up to 8,750,000 kWh per year per each unit of generation equipment; provided that this generation may not exceed 8,750,000 kWh at any contiguous customer location (Exhibit D of the Amended and Restated Easement Agreement). Available at http://www.ftc.gov/ apa/2001/03/michcon.htm (accessed Sept. 20, 2001).
3. See the FTC staff comment on the California Public Utility Commission's distributed generation and competition in electric distribution service proposals, California PUC Docket No. R98-12-015, March 17, 1999.
4. Ashwani K. Gupta, Chair's Message, American Society of Mechanical Engineers' Fuels and Combustion Technologies Division Newsletter, Spring 2001, at 1 & 2.
5. A primary advantage is that the natural gas delivery system is already in place. Other forms of fuel would likely entail higher costs (including substantial storage investments and delivery costs) and would likely involve higher environmental risks.
6. An exception may be large industrial customers who may be able practicably to obtain natural gas directly from independently owned pipelines that cross through an area.
7. The overlap area includes much of Southwest Michigan, including all or substantial portions of Macomb, Monroe, Oakland, Washtenaw, and Wayne counties. These counties include most of metropolitan Detroit.
8. For some uses, electric power and natural gas are not particularly close substitutes in some areas. The settlement acknowledges that direct space heating and hot water applications are unlikely to be demands for which electric power and natural gas are close substitutes in the Detroit area. This distinction is less likely to hold in areas with milder winters.
9. David Balto (White and Case LLD) and James Mongoven (FTC), Antitrust Merger Enforcement in the Natural Gas Industry, unpublished manuscript describing recent FTC matters in the natural gas pipeline industry. Available from the authors.
10. Storage capacity is readily available in Michigan outside of the MichCon system.
11. Section 6.a of the Amended and Restated Easement Agreement, supra note 2.
12. See, for example, Comment of the Staff of the Bureau of Economics, Regional Transmission Organizations, FERC Docket No. RM99-2-000, Aug. 16, 1999, Section I. FTC staff comments to FERC and to the states are available on the Commission's web page, www.ftc.gov/be/advofile.htm.
13. A major consulting firm has been designated as the auditor under the settlement.
14. One of Exelon's subsidiaries already does a portion of the gas distribution system expansion work in the MichCon service areas.
15. Amended and Restated Easement Agreement, Exhibit D, Section D-5.c.d., supra note 2.
16. Distinctions between the DTE case and a recent proposed merger of electric and gas distribution firms in Wisconsin include higher electric power rates in Michigan, greater rate flexibility in Michigan, lack of state review authority in Michigan, and a rising rival's cost element in Michigan (the Detroit Public Lighting Department). Although the unusually high natural gas prices we have seen lately, other things equal, discourage most forms of distributed generation, increasing environmental concerns, reliability concerns, and time-of-day metering options for electric power are likely to boost customer interest in distributed generation.