Order Code RS20922
May 24, 2001
CRS Report for Congress
Received through the CRS Web
Federal Agency Involvement in Reviewing
Mergers and Acquisitions of Electric Utilities
Michael V. Seitzinger
American Law Division
At least five federal agencies, excluding the Internal Revenue Commission, may
have some authority in the approval process of proposed mergers or acquisitions of
electric utilities. These agencies are the Department of Justice, the Federal Trade
Commission, the Nuclear Regulatory Commission, the Securities and Exchange
Commission, and the Federal Energy Regulatory Commission. Although all of the
agencies may have an important role, the Federal Energy Regulatory Commission likely
has the most extensive review authority of these agencies. Federal statutes set out the
review authority which the agencies may exercise.
This report briefly examines federal statutes which set out the authority which various
federal agencies may have in a proposed merger or acquisition of electric utilities. The
statutes examined in this report apply to the following federal agencies: the Department
of Justice, the Federal Trade Commission, the Nuclear Regulatory Commission, the
Securities and Exchange Commission, and the Federal Energy Regulatory Commission.
Tax effects, involving the Internal Revenue Commission, of a merger or acquisition are not
treated in this report.
The Department of Justice and the Federal Trade Commission
Both the Department of Justice and the Federal Trade Commission are charged with
enforcement of section 7 of the Clayton Act1 and of the Hart-Scott-Rodino Antitrust
Improvements Act.2 Section 7 of the Clayton Act states in part:
No person engaged in commerce or in any activity affecting
commerce shall acquire, directly or indirectly, the whole or any part
of the stock or other share capital and no person subject to the
15 U.S.C. § 18.
15 U.S.C. § 18a.
Congressional Research Service ˜ The Library of Congress
jurisdiction of the Federal Trade Commission shall acquire the whole
or any part of the assets of another person engaged also in commerce
or in any activity affecting commerce, where in any line of commerce
or in any activity affecting commerce in any section of the country,
the effect of such acquisition may be substantially to lessen
competition, or to tend to create a monopoly.
No person shall acquire, directly or indirectly, the whole or any
part of the stock or other share capital and no person subject to the
jurisdiction of the Federal Trade Commission shall acquire the whole
or any part of the assets of one or more persons engaged in
commerce or in any activity affecting commerce, where in any line of
commerce or in any activity affecting commerce in any section of the
country, the effect of such acquisition, of such stock or assets, or of
the use of such stock by the voting or granting of proxies or
otherwise, may be substantially to lessen competition, or to tend to
create a monopoly.
The Merger Guidelines issued by the Department of Justice provide guidance as to the
manner in which the Antitrust Division will analyze mergers and acquisitions. The
Guidelines are not binding upon the courts; however, they are considered persuasive.
The Hart-Scott-Rodino Antitrust Improvements Act requires that parties which meet
certain net sales or assets amounts and which wish to engage in merger or acquisition
transactions must submit premerger notification forms to the Department of Justice and
to the Federal Trade Commission. The reviewing agency has a specified amount of time
to review the proposed transaction, and during this time the transaction is not allowed to
Electric utilities which wish to merge or acquire other electric utilities, unless they are
exempted, must comply with the anti-monopolization prohibition of section 7 of the
Clayton Act and with the premerger notification requirements of Hart-Scott-Rodino.
Nuclear Regulatory Commission
The Nuclear Regulatory Commission is charged with issuing licenses concerning
activities associated with nuclear materials. These activities would include the transfer of
ownership of nuclear facilities. Pertinent provisions of the Atomic Energy Act concerning
these activities include the following provisions.
It shall be unlawful, except as provided in section 91, for any
person within the United States to transfer or receive in interstate
commerce, manufacture, produce, transfer, acquire, possess, use,
import, or export any utilization or production facility except under
and in accordance with a license issued by the Commission pursuant
to section 103 or 104.3
42 U.S.C. § 2131.
The Commission is authorized to issue licenses to persons
applying therefor to transfer or receive in interstate commerce,
manufacture, produce, transfer, acquire, possess, use, import, or
export under the terms of an agreement for cooperation arranged
pursuant to section 123, utilization or production facilities for
industrial or commercial purposes. Such licenses shall be issued in
accordance with the provisions of chapter 16 and subject to such
conditions as the Commission may by rule or regulation establish to
effectuate the purposes and provisions of this Act.4
Securities and Exchange Commission
The Securities and Exchange Commission administers the Public Utility Holding
Company Act (PUHCA).5 Among other requirements, PUHCA requires the registration
of public utility holding company systems, the regulation of some types of acquisitions, an
examination of holding company systems by the Securities and Exchange Commission to
simplify and limit their operations, and the divestiture of properties which have been found
to be harmful to the functioning of a holding company system. When a holding company
obtains control of at least 10% of the voting securities of another electric utility, the
Securities and Exchange Commission will review the merger. Mergers and acquisitions
by such holding company systems must be approved by the Securities and Exchange
Unless the acquisition has been approved by the Commission
under section 79j of this title, it shall be unlawful–
(1) for any registered holding company or any
subsidiary company thereof, by use of the mails or any
means or instrumentality of interstate commerce or
otherwise to acquire, directly or indirectly, any securities or
utility assets or any other interest in any business;
(2) for any person, by use of the mails or any means
or instrumentality of interstate commerce, to acquire,
directly or indirectly, any security of any public-utility
company, if such person is an affiliate under clause (A) of
paragraph (11) of subsection (a) of section 79b of this title,
of such company and of any other public utility or holding
company, or will by virtue of such acquisition become such
The Securities and Exchange Commission is charged with making certain that an
acquisition or merger will be in the public interest.
42 U.S.C. § 2133(a).
15 U.S.C. §§ 79 et seq.
15 U.S.C. § 79i(a).
If the requirements of subsection (f) of this section are satisfied,
the Commission shall approve the acquisition unless the Commission
(1) such acquisition will tend towards interlocking
relations or the concentration of control of public-utility
companies, of a kind or to an extent detrimental to the
public interest or the interest of investors or consumers....7
Notwithstanding the provisions of subsection (b) of this section,
the Commission shall not approve–
(2) the acquisition of securities or utility assets of a
public-utility or holding company unless the Commission
finds that such acquisition will serve the public interest by
tending towards the economical and efficient development
of an integrated public-utility system....8
Federal Energy Regulatory Commission
The Federal Energy Regulatory Commission (FERC) probably has the most extensive
review authority of the federal agencies which have a role in the approval process of
proposed mergers and acquisitions of electric utilities. Before such a proposed merger or
acquisition is allowed to take place, FERC must give its approval. In considering the
proposal, FERC may consider the public interest.
(a) No public utility shall sell, lease, or otherwise dispose of the
whole of its facilities subject to the jurisdiction of the Commission, or
any part thereof of a value in excess of $50,000, or by any means
whatsoever, directly or indirectly, merge or consolidate such facilities
or any part thereof with those of any other person, or purchase,
acquire, or take any security of any other public utility, without first
having secured an order of the Commission authorizing it to do so.
Upon application for such approval the Commission shall give
reasonable notice in writing to the Governor and State commission of
each of the States in which the physical property affected, or any part
thereof, is situated, and to such other persons as it may deem
advisable. After notice and opportunity for hearing, if the
Commission finds that the proposed disposition, consolidation,
acquisition, or control will be consistent with the public interest, it
shall approve the same.
(b) The Commission may grant any application for an order
under this section in whole or in part and upon such terms and
15 U.S.C. § 79j(b)(1).
15 U.S.C. § 79j(c)(2).
conditions as it finds necessary or appropriate to secure the
maintenance of adequate service and the coordination in the public
interest of facilities subject to the jurisdiction of the Commission.
The Commission may from time to time for good cause shown make
such orders supplemental to any order made under this section as it
may find necessary or appropriate.9
Because FERC is charged with assuring that electricity rates are just and reasonable,
the rate schedule is one of the considerations which FERC will consider in reviewing the
proposed merger or acquisition.
All rates and charges made, demanded, or received by any public
utility for or in connection with the transmission or sale of electric
energy subject to the jurisdiction of the Commission, and all rules and
regulations affecting or pertaining to such rates or charges shall be
just and reasonable, and any such rate or charge that is not just and
reasonable is hereby declared to be unlawful.10
16 U.S.C. § 824b.
16 U.S.C. § 824d(a).