[Federal Register: August 23, 2006 (Volume 71, Number 163)]
[Notices]
[Page 49477-49490]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23au06-110]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States of America v. Exelon Corporation and Public Service
Enterprise Group Incorporated; Proposed Final Judgment and Competitive
Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Hold Separate Stipulation and Order, and Competitive Impact Statement
have been filed with the United States District Court for the District
of Columbia in United States of America v. Exelon Corporation and
Public Service Enterprise Group Incorporated, Civil Action No.
1:06CV01138. On June 22, 2006, the United States filed a Complaint
alleging that the proposed acquisition by Exelon Corporation
(``Exelon'') of Public Service Enterprise Group Incorporated (``PSEG'')
would violate Section 7 of the Clayton Act, 15 U.S.C. 18. The Complaint
alleges that the acquisition would reduce competition substantially for
wholesale electricity in the Mid-Atlantic United States. Specifically,
the Complaint alleges that Exelon's acquisition of PSEG's electric
generation assets would enhance Exelon's ability and incentive to raise
wholesale electricity prices, resulting in increased retail electricity
prices for millions of residential, commercial, and industrial
customers. The proposed Final Judgment requires Exelon and PSEG to
divest six electric generation plants. The plants to be divested are
Cromby Generating Station and Eddystone Generating Station in
Pennsylvania and Hudson Generating Station, Linden Generating Station,
Mercer Generating Station, and Sewaren Generating Station in New
Jersey.
Copies of the Complaint, proposed Final Judgment, Hold Separate
Stipulation and Order, and Competitive Impact Statement are available
for inspection at the Department of Justice, Antitrust Division,
Antitrust Documents Group, 325 7th Street, NW., Room 215, Washington,
DC 20530 (telephone: 202-514-2481), on the Department of Justice's Web
site at http://www.usdoj.gov/atr, and at the Office of the Clerk of the
United States District Court for the District of Columbia. Copies of
these materials may be obtained from the Antitrust Division upon
request and payment of the copying fee set by Department of Justice
regulations.
Public comment is invited within sixty (60) days of the date of
this notice. Such comments, and responses thereto, will be published in
the Federal Register and filed with the Court. Comments should be
directed to Donna N. Kooperstein, Chief, Transportation, Energy &
Agriculture Section, Antitrust Division, Department of Justice, 325 7th
Street, NW., Suite 500, Washington, DC 20530 (telephone: 202-307-3278).
Patricia A. Brink,
Deputy Director of Operations, Antitrust Division.
United States District Court, District of Columbia
United States of America, U.S. Department of Justice, Antitrust
Division, 325 7th Street, NW., Suite 500, Washington, DC 20530,
Plaintiff, v. Exelon Corporation, 10 South Dearborn Street, Chicago, IL
60603, and Public Service Enterprise Group, Incorporated, 880 Park
Plaza, P.O. Box 1171, Newark, NJ 07101-1171, Defendants
Case No. 1:06CV01138
Judge: John D. Bates
Deck Type: Antitrust
Date Stamp: 06/22/2006
Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, brings this civil action to
enjoin the merger of Exelon Corporation (``Exelon'') and Public Service
Enterprise Group Incorporated (``PSEG'') and alleges as follows:
1. On December 20, 2004, Exelon entered into an agreement to merge
with PSEG. The transaction would create one of the largest electricity
companies in the United States, with total assets of $79 billion and
annual revenues of $27 billion.
2. Exelon and PSEG compete to sell wholesale electricity throughout
the Mid-Atlantic and in Illinois, North Carolina, West Virginia, and
Ohio.
3. Exelon and PSEG are the two largest electricity firms in the
area encompassing central and eastern Pennsylvania, New Jersey,
Delaware, the District of Columbia, and parts of Maryland and Virginia.
Together, they would account for more than 35 percent of the electric
generating capacity in this area and would have wholesale electricity
revenues of approximately $4 billion.
4. In the eastern portion of this area, which includes the densely
populated northern New Jersey and Philadelphia areas, Exelon and PSEG
together would account for more than 45 percent of the electric
generating capacity in this area and would have wholesale electricity
revenues of approximately $3 billion.
5. Exelon's merger with PSEG would eliminate competition between
them and give the merged firm the incentive and the ability to raise
wholesale electricity prices, resulting in increased retail electricity
prices for millions of residential, commercial, and industrial
customers in these areas.
6. Accordingly, the merger would substantially lessen competition
in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
I. Jurisdiction and Venue
7. This action is filed by the United States under Section 15 of
the Clayton Act, as amended, 15 U.S.C. 25, to prevent and restrain
Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. 18.
8. Exelon and PSEG are engaged in interstate commerce and in
activities substantially affecting interstate commerce. The Court has
jurisdiction over this action and the parties pursuant to Sections 15
and 16 of the Clayton Act, 15 U.S.C. 25, 26; and 28 U.S.C. 1331, 1337.
9. Exelon and PSEG transact business and are found in the District
of Columbia. Venue is proper under Section 12 of the Clayton Act, 15
U.S.C. 22; and 28 U.S.C. 1391(c).
II. The Defendants and the Transaction
10. Defendant Exelon is a Pennsylvania corporation, with its
headquarters in Chicago, Illinois. Exelon
[[Page 49478]]
owns Exelon Generation Company, LLC, which owns electric generating
plants located primarily in the Mid-Atlantic and the Midwest with a
total generating capacity of more than 25,000 megawatts (``MW'').
Exelon also owns two electricity retailers that buy wholesale
electricity and resell it to consumers: PECO Energy Company, a gas and
electric utility that serves customers in the Philadelphia area; and
Commonwealth Edison Company, an electric utility that serves customers
in northern Illinois.
11. Defendant PSEG is a New Jersey corporation, with its
headquarters in Newark, New Jersey. PSEG owns PSEG Power LLC, which
owns electric generating plants located primarily in New Jersey with a
total generating capacity of more than 15,000 MW. PSEG also owns a gas
and electric utility, Public Service Electric and Gas Company, that
serves customers in New Jersey.
12. Following Exelon's merger with PSEG, the combined company would
be known as Exelon Electric & Gas, with corporate headquarters in
Chicago.
III. Trade and Commerce
A. Background
13. Electricity supplied to retail customers is generated at
electric generating plants, which consist of one or more generating
units. An individual generating unit uses any one of several types of
generating technologies (including hydroelectric turbine, steam
turbine, combustion turbine, or combined cycle) to transform the energy
in fuels or the force of following water into electricity. The fuels
used by a generating unit include uranium, coal, oil, or natural gas.
14. Generating units vary considerably in their operating costs,
which are determined primarily by the cost of fuel and the efficiency
of the technology in transforming the energy in fuel into electricity.
``Baseload'' units--which typically include nuclear and some coal-fired
steam turbine units--have relatively low operating costs. ``Peaking''
units--which typically include oil- and gas-fired combustion turbine
units--have relatively high operating costs. ``Mid-merit'' units--which
typically include combined-cycle and some coal-fired steam turbine
units--have costs lower than those of peaking units but higher than
those of baseload units.
15. Once electricity is generated at a plant, an extensive set of
interconnected high-voltage lines and equipment, known as the
transmission grid, transports the electricity to lower voltage
distribution lines that relay the power to homes and businesses.
Transmission grid operators must closely monitor the grid to prevent
too little or too much electricity from flowing over the grid, either
of which might damage lines or generating units connected to the grid.
To prevent such damage and to prevent widespread blackouts from
disrupting electricity service, a grid operator will manage the grid to
prevent any more electricity from flowing over a transmission line as
that line approaches its operating limit (a ``transmission
constraint'').
16. In the Mid-Atlantic, the transmission grid is overseen by PJM
Interconnection, LLC (``PJM''), a private, non-profit organization
whose members include transmission line owners, generation owners,
distribution companies, retail customers, and wholesale and retail
electricity suppliers. The transmission grid administered by PJM is the
largest in the United States, providing electricity to approximately 51
million people in an area encompassing New Jersey, Pennsylvania,
Delaware, Maryland, Virginia, West Virginia, the District of Columbia,
and parts of North Carolina, Kentucky, Ohio, Indiana, Michigan,
Tennessee, and Illinois (the ``PJM control area'').
17. PJM oversees two auctions for the sale and purchase of
wholesale electricity: a day-ahead auction that clears the day before
the electricity is required, and a real-time auction that clears the
day the electricity is required. Generation owners located in the PJM
control area sell through these auctions to electricity retailers that
provide retail electric service in the PJM control area. Buyers and
sellers of wholesale electricity may also enter into contracts for the
sale and purchase of electricity with each other, or third parties,
outside of the PJM auction process; prices for these bilateral
contracts generally reflect expected auction prices.
18. In the day-ahead auction, each buyer typically submits to PJM
the amount of electricity the buyer expects to need each hour of the
next day. Then PJM adds up the amount of electricity buyers will need
to determine how much electricity will be demanded each hour. Each
seller submits to PJM an offer to sell electricity indicating the
amount of electricity it is willing to sell the next day and the price
at which it is willing to sell. Then PJM sorts the offers to sell from
lowest to highest offer price to determine how much electricity will be
supplied at any given price.
19. Subject to the physical and engineering limitations of the
transmission grid, PJM seeks to have generating units operated in
``merit'' order, from lowest to highest offer. In the day-ahead
auction, as long as transmission constraints are not expected, PJM
takes the least expensive offer first and then continues to accept
offers to sell at progressively higher prices until the needs for each
hour the next day are covered. In this way, PJM minimizes the total
cost of generating electricity required for the next day. The clearing
price for any given hour essentially is determined by the generating
unit with the highest offer price that is needed for that hour, and all
sellers for that hour receive that price regardless of their offer
price or their units' costs. In the real-time auction, which accounts
for differences between anticipated and actual supply and demand, PJM
accepts sellers' offers in merit order, subject to the physical and
engineering limitations of the transmission grid, until there is a
sufficient quantity of electricity to meet actual demand.
20. At times, transmission constraints prevent the generating units
with the lowest offers from meeting demand in a particular area within
the PJM control area. When that happens, PJM often calls on more
expensive units located within the smaller area bounded by the
transmission constraints (a ``constrained area''), and the clearing
price for the buyers in that area adjusts accordingly. Because more
expensive units are required to meet demand, the clearing price in a
constrained area will be higher than it would be absent the
transmission constraints.
21. PJM East. One historically constrained area within the PJM
control area includes the densely populated northern New Jersey and
Philadelphia areas. This area (``PJM East'') is defined by the
``Eastern Interface,'' a set of five major transmission lines that
divides New Jersey and the Philadelphia area from the rest of the PJM
control area. When the Eastern Interface is constrained, PJM is limited
in its ability to supply demand located east of the constraint with
electricity from generating units located west of the constraint. PJM
often responds to constraints on the Eastern Interface by calling on
additional generating units east of the constraint to run, generally
resulting in higher prices in PJM East because the cost of additional
generation east of the constraint is higher than the cost of additional
generation west of the constraint
22. In PJM East during 2005, more than $10 billion of wholesale
electricity was sold for resale to nearly 6 million retail customers.
[[Page 49479]]
23. PJM Central/East. A second constrained area in PJM includes PJM
East and central Pennsylvania. This area is defined by two major
transmission lines known as ``5004'' and ``5005'' that run from western
to central Pennsylvania and divide the area east of the lines (``PJM
Central/East'') from the rest of PJM. When the 5004 and 5005
transmission lines are constrained, PJM is limited in its ability to
supply demand located east of the constraint with electricity from
generating units located west of the constraint. PJM often responds to
constraints on the 5004 and 5005 lines by calling on additional
generating units east of the constraint to run, generally resulting in
higher prices in PJM Central/East because the cost of additional
generation east of the constraint is higher than the cost of additional
generation west of the constraint.
24. In PJM Central/East during 2005, more than $19 billion of
wholesale electricity was sold for resale to nearly 9 million retail
customers.
B. Relevant Product Market
25. Wholesale electricity is a relevant product market and a line
of commerce within the meaning of Section 7 of the Clayton Act. In the
event of a small but significant increase in the price of wholesale
electricity, insufficient purchasers would switch away to make that
increase unprofitable.
C. Relevant Geographic Markets
26. When the Eastern Interface is constrained, purchasers of
wholesale electricity for use in PJM East have limited ability to turn
to generation outside of PJM East. At such times, the amount of
electricity that could be purchased outside PJM East is insufficient to
make it unprofitable for generators located inside PJM East to seek a
small but significant price increase.
27. PJM East is a relevant geographic market and a section of the
country within the meaning of Section 7 of the Clayton Act.
28. When the 5004 and 5005 transmission lines are constrained,
purchasers of wholesale electricity in PJM Central/East have limited
ability to turn to generation outside of PJM Central/East. At such
times, the amount of electricity that could be purchased outside PJM
Central/East is insufficient to make it unprofitable for generators
located inside PJM Central/East to seek a small but significant price
increase.
29. PJM Central/East is a relevant geographic market and a section
of the country within the meaning of Section 7 of the Clayton Act.
IV. Anticompetitive Effects
A. Market Shares and Concentration
30. Exelon owns approximately 20 percent of the generating capacity
in PJM East. PSEG owns approximately 29 percent of the generating
capacity in PJM East. After the merger, Exelon would own approximately
49 percent of the total generating capacity in PJM East.
31. Using a measure of market concentration called the Herfindahl-
Hirschman Index (``HHI''), explained in Appendix A, Exelon's merger
with PSEG would yield a post-merger HHI in PJM East of more than 2,700,
representing an increase of more than 1,100.
32. Exelon owns approximately 19 percent of the generating capacity
in PJM Central/East. PSEG owns approximately 21 percent of the
generating capacity in PJM Central/East. After the merger, Exelon would
own approximately 40 percent of the total generating capacity in PJM
Central/East.
33. Exelon's merger with PSEG would yield a post-merger HHI in PJM
Central/East of approximately 2,100, representing an increase of
approximately 800.
B. Effect of Transaction
34. In addition to owning a significant share of overall generating
capacity in PJM East and PJM Central/East, the merged firm will own
generating units with a wide range of operating costs, including low-
cost baseload units that provide the incentive to exercise market
power, mid-merit units that provide the ability and incentive to
exercise market power, and certain peaking units that provide
additional ability to exercise market power in times of high demand.
The combination of Exelon's and PSEG's generating units would
significantly enhance Exelon's ability and incentive to reduce output
and raise prices in PJM East and PJM Central/East.
35. The merger would enhance Exelon's ability to reduce output and
raise prices in PJM East and PJM Central/East by increasing its share
of mid-merit and peaking capacity in those markets. With a greater
share of mid-merit and peaking capacity, Exelon would more often be
able to reduce output and raise clearing prices at relatively low cost
to it by withholding capacity. Exelon could withhold capacity in
several ways. For example, it could submit high offers in the PJM
auctions for some of the capacity from its mid-merit units such that
they are not all called on to produce electricity. By reducing its
output, Exelon could force PJM to turn to more expensive units to meet
demand, resulting in higher clearing prices in PJM East and PJM
Central/East.
36. The merger would enhance Exelon's incentive to reduce output
and raise price in PJM East and PJM Central/East by increasing the
amount of baseload and mid-merit capacity it owns in these markets.
With a greater amount of baseload and mid-merit capacity, Exelon would
more often find it profitable to reduce output and raise market-
clearing prices by withholding capacity. For example, as clearing
prices increase due to its withholding certain of its mid-merit
capacity, Exelon would earn those higher prices on its expanded post-
merger baseload capacity, which almost always runs, making it more
likely that the benefit of increased revenues on its baseload capacity
would outweigh the cost of withholding mid-merit capacity.
37. Increasing Exelon's incentive and ability to profitably
withhold output makes it likely that Exelon will exercise market power
after its merger with PSEG, resulting in significant harm to
competition and increased prices. Thus, the effect of the merger may be
substantially to lessen competition in violation of Section 7 of the
Clayton Act.
V. Entry
38. Entry into the wholesale electricity market through the
addition of new generating capacity in PJM East or PJM Central/East or
the addition of new transmission capacity that would relieve the
constraints that limit the flow of electricity into PJM East or PJM
Central/East would take many years, especially considering the
necessary environmental, safety, and zoning approvals.
39. Entry into the PJM East or PJM Central/East wholesale
electricity market would not be timely, likely, and sufficient in its
magnitude, character, and scope to deter or counteract an
anticompetitive price increase.
VI. Violation Alleged
40. The effect of Exelon's proposed merger with PSEG, if it were
consummated, may be substantially to lessen competition for wholesale
electricity in PJM East and PJM Central/East in violation of Section 7
of the Clayton Act, 15 U.S.C. 18. Unless restrained, the transaction
would likely have the following effects, among others:
a. competition in the market for wholesale electricity in PJM East
would be substantially lessened;
b. prices for wholesale electricity in PJM East would increase;
[[Page 49480]]
c. competition in the market for wholesale electricity in PJM
Central/East would be substantially lessened; and
d. prices for wholesale electricity in PJM Central/East would
increase.
VII. Request for Relief
The United States requests:
41. that Exelon's proposed merger with PSEG be adjudged a violation
of Section 7 of the Clayton Act, 15 U.S.C. 18;
42. that Defendants be permanently enjoined and restrained from
carrying out the Agreement and Plan of Merger dated December 20, 2004,
or from entering into or carrying out any agreement, understanding, or
plan by which Exelon would merge with or acquire PSEG, its capital
stock or any of its assets;
43. that the United States be awarded the costs of this action; and
44. that the United States have such other relief as the Court may
deem just and proper.
Dated: June 22, 2006.
Respectfully submitted.
For Plaintiff United States:
Thomas O. Barnett,
Assistant Attorney General.
J. Bruce McDonald,
Deputy Assistant Attorney General.
Dorothy B. Fountain,
Deputy Director of Operations.
Donna N. Kooperstein,
Chief, Transportation, Energy & Agriculture Section.
William H. Stallings,
Assistant Chief, Transportation, Energy & Agriculture Section.
Mark J. Niefer (DC Bar 470370),
Jade Alice Eaton (DC Bar 939629),
Tracy Lynn Fisher (MN Bar 315837),
Jennifer L. Cihon (OH Bar 0068404),
J. Richard Doidge (MA Bar 600158),
Angela L. Hughes (DC Bar 303420),
J. Chandra Mazumdar (WI Bar 1030967),
James A. Ryan,
John M. Snyder (DC Bar 456921),
Stephanie Toussaint (TX Bar 24045253),
Janet Urban,
David S. Zlotow (CA Bar 235340),
Trial Attorneys, U.S. Department of Justice, Antitrust Division,
Transportation, Energy & Agriculture Section, 325 7th Street, NW.,
Suite 500, Washington, DC 20004. Telephone: (202) 307-6318.
Facsimile: (202) 307-2784.
Appendix A--Definition of HHI
The term ``HHI'' means the Herfindahl-Hirschman Index, a
commonly accepted measure of market concentration. The HHI is
calculated by squaring the market share of each firm competing in
the market and then summing the resulting numbers. For example, for
a market consisting of four firms with shares of 30, 30, 20, and 20
percent, the Hill is 2,600 (30\2\ + 30\2\ + 20\2\ + 20\2\ = 2,600).
The HHI takes into account the relative size and distribution of the
firms in a market. It approaches zero when a market is occupied by a
large number of firms of relatively equal size and reaches its
maximum of 10,000 when a market is controlled by a single firm. The
HID increases both as the number of firms in the market decreases
and as the disparity in size between those firms increases.
Markets in which the HHI is between 1,000 and 1,800 are
considered to be moderately concentrated, and markets in which the
HHI is in excess of 1,800 points are considered to be highly
concentrated. See Horizontal Merger Guidelines ] 1.51 (revised Apr.
8, 1997). Transactions that increase the HHI by more than 100 points
in highly concentrated markets presumptively raise significant
antitrust concerns under the Department of Justice and Federal Trade
Commission. See id.
Certificate of Service
I hereby certify that on June 22, 2006, I caused a copy of the
foregoing Complaint, proposed Final Judgment, Hold Separate Stipulation
and Order, and Plaintiff United States' Explanation of Procedures for
Entry of the Final Judgment to be served on counsel for defendants in
this matter in the manner set forth below:
By electronic mail and hand delivery:
Counsel for Defendant Exelon Corporation, John M. Nannes (DC Bar
195966), John H. Lyons (DC Bar 453191), Skadden,
Arps, Slate, Meagher & Flom LLP, 1440 New York Avenue, NW., Washington,
DC 20005. Telephone: (202) 371-7500. Facsimile: (202) 661-9191.
Counsel for Defendant Public Service Enterprise Group Incorporated,
Douglas G. Green (DC Bar 183343), Steptoe & Johnson LLP, 1330
Connecticut Avenue, NW., Washington, DC 20036. Telephone: (202) 429-
3000. Facsimile: (202) 429-3902.
Mark J. Niefer (DC Bar 470370),
Department of Justice, Antitrust Division, 325 Seventh Street, NW.,
Suite 500, Washington, DC 20530. Telephone: (202) 307-6318.
Facsimile: (202) 307-2784.
United States District Court for the District of Columbia
United States of America, Plaintiff; v. Exelon Corporation and Public
Service Enterprise Group Incorporated, Defendants
Case No.: 1:06CV01138
Judge: John D. Bates
Deck Type: Antitrust
Filed: 06/22/06
Proposed Final Judgment
And Whereas, Plaintiff, United States of America, filed its
Complaint on June 22, 2006, relating to the proposed merger of
Defendants Exelon Corporation (``Exelon'') and Public Service
Enterprise Group Incorporated (``PSEG'');
And Whereas, Defendants, by their respective attorneys, have
consented to the entry of this Final Judgment without trial or
adjudication of any issue of fact or law, and without this Final
Judgment constituting any evidence against or admission by any party
regarding any issue of fact or law;
And Whereas, Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
And Whereas, the essence of this Final Judgment is the prompt
divestiture of certain assets by Defendants to assure that competition
is not substantially lessened;
And Whereas, the United States requires Defendants to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Complaint;
And Whereas, Defendants have represented to the United States that
the divestitures required below can and will be made, subject to
receipt of necessary regulatory approvals, and that Defendants will
later raise no claim of mistake, hardship, or difficulty of compliance
as grounds for asking the Court to modify any of the provisions
contained below;
Now Therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is Ordered, Adjudged, and Decreed:
I. Jurisdiction
The Court has jurisdiction over the subject matter of and each of
the parties to this action. The Complaint states a claim upon which
relief may be granted against Defendants under Section 7 of the Clayton
Act, as amended, 15 U.S.C.
II. Definitions
As used in this Final Judgment:
A. ``Acquire'' means obtain any interest in any electricity
generating facility, including real property, deeded development rights
to real property, capital equipment, buildings, or fixtures.
B. ``Acquirer'' or ``Acquirers'' means the entity or entities to
whom Defendants divest any of the Divestiture Assets or with whom
Defendants have entered into definitive contracts to sell any of the
Divestiture Assets.
C. ``Control'' means have the ability, directly or indirectly, to
set the level of, dispatch, or offer the output of one or more units of
an electricity generating
[[Page 49481]]
facility or to operate one or more units of an electricity generating
facility.
D. ``Designated Utility Zones'' means the service territories in
which the following companies on June 1, 2006, owned the wires through
which electricity is distributed:
1. Atlantic City Electric Company,
2. Baltimore Gas and Electric Company,
3. Delmarva Power and Light Company,
4. Jersey Central Power and Light Company,
5. Metropolitan Edison Company,
6. Rockland Electric Company,
7. PECO Energy Company,
8. Potomac Electric Power Company,
9. PPL Electric Utilities Corporation, and
10. Public Service Electric and Gas Company.
E. ``Divestiture Assets'' means the following facilities: (1)
Cromby Generating Station, 100 Cromby Rd. at Phoenixville, PA, 19460;
(2) Eddystone Generating Station, Number 1 Industrial Hwy. at
Eddystone, PA, 19022; (3) Hudson Generating Station, Duffield & Van
Keuren Aves. at Jersey City, NJ, 07306; (4) Linden Generating Station,
4001 South Wood Ave. at Linden, NJ, 07036; (5) Mercer Generating
Station, 2512 Lamberton Rd. at Hamilton, NJ, 08611; and (6) Sewaren
Generating Station, 751 Cliff Rd. at Sewaren, NJ, 07077; and
a. For each of those facilities, all of Defendants' rights, titles,
and interests in any tangible and intangible assets relating to the
generation, dispatch, and offering of electricity at the facility;
including the land; buildings; fixtures; equipment; fixed assets;
supplies; personal property; non-consumable inventory on site as of
June 1, 2006; furniture; licenses, permits, and authorizations issued
by any governmental organization relating to the facility (including
environmental permits and all permits from federal or state agencies
and all work in progress on permits or studies undertaken in order to
obtain permits); plans for design or redesign of the facility or any
assets at the facility; agreements, leases, commitments, and
understandings pertaining to the facility and its operation; records
relating to the facility or its operation, wherever kept and in
whatever form (excluding records of past offers submitted to PJM); all
equipment associated with connecting the facility to PJM (including
automatic generation control equipment); all remote start capability or
equipment located on site; and all other interests, assets, or
improvements at the facility customarily used in the generation,
dispatch, or offer of electricity from the facility; provided, however,
that ``Divestiture Assets'' shall not include (i) electric and gas
distribution or transmission assets located in, or appurtenant to, the
boundaries of the facility, or (ii) any communications links between
the facility and Defendants, which will be disconnected.
b. At the option of the Acquirer of the Linden Generating Station,
the natural gas pipeline facilities connecting any assets at the Linden
Generating Station (including the assets listed in Section ILE.a. for
the Linden Generating Station), to an interconnection with the Texas
Eastern Gas Transmission LP, and all of Defendants' rights, titles, and
interests in any tangible and intangible assets relating to the
delivery of natural gas from the Texas Eastern Gas Transmission LP
interconnection with the Linden Generating Station, including the land;
buildings; fixtures; equipment; fixed assets; supplies; personal
property; non-consumable inventory on site as of June I, 2006;
furniture; licenses, permits, and authorizations issued by any
governmental organization relating to the facility (including
environmental permits and all permits from federal or state agencies
and all work in progress on permits or studies undertaken in order to
obtain permits); plans for design or redesign of the facility or any
assets at the facility; agreements, leases, commitments, and
understandings pertaining to the facility and its operation; records
relating to the facility or its operation, wherever kept and in
whatever form, and all other interests, assets, or improvements
customarily used in the delivery of natural gas from the
interconnection of the Texas Eastern Gas Transmission LP to the Linden
Generating Station.
To the extent that any licenses, permits, or authorizations
described in Section IIE.a. or Section II.E.b. are nontransferable,
Defendants will use their best efforts to obtain the necessary consent
for assignment to the Acquirer or Acquirers of the license, permit, or
authorization.
F. ``Exelon'' means Exelon Corporation, a Pennsylvania corporation
headquartered in Chicago, Illinois, its successors and assigns, and its
subsidiaries, divisions, groups, affiliates, partnerships, joint
ventures (not including Exelon's participation in the ownership,
operation, dispatch, or offering of output of the Keystone Generating
Station or the Conemaugh Generating Station), and their directors,
officers, managers, agents, and employees.
G. ``Exelon/PSEG Transaction'' means the merger of Exelon and PSEG
that is the subject of HSR Transaction Identification No. 2005-696,
which was filed pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, 15 U.S.C.A. 18a (West 1997)
(``HSR Act''), including any changes in the terms of that merger that
do not necessitate a new Hart-Scott-Rodino filing.
H. ``Good Utility Practice'' means any of the practices, methods,
and acts engaged in or approved by a significant portion of the
electric utility industry during the relevant time period, or any of
the practices, methods, and acts which, in the exercise of reasonable
judgment in light of the facts known at the time the decision is made,
could have been expected to accomplish the desired result at a
reasonable cost consistent with good business practices, reliability,
safety, and expedition. ``Good Utility Practice'' is not intended to be
limited to the optimum practice, method, or act to the exclusion of all
others, but rather is intended to include acceptable practices,
methods, or acts generally accepted in the region.
I. ``Including'' means including but not limited to.
J. ``Person'' means any natural person, corporation, association,
firm, partnership, or other business or legal entity.
K. ``PJM'' means PJM Interconnection, LLC.
L. ``PSEG'' means Public Service Enterprise Group Incorporated, a
New Jersey corporation headquartered in Newark, New Jersey, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships, joint ventures (not including PSEG's
participation in the ownership, operation, dispatch, or offering of
output of the Keystone Generating Station, the Conemaugh Generating
Station, or the Yards Creek Generating Station), and their directors,
officers, managers, agents, and employees.
III. Applicability
A. This Final Judgment applies to Defendants Exelon and PSEG, as
defined above, and all other persons in active concert or participation
with any of them who receive actual notice of this Final Judgment by
personal service or otherwise.
B. Defendants shall require, as a condition of the sale or other
disposition of all or substantially all of their electricity generating
facilities in the Designated Utility Zones or of lesser business units
that include the Divestiture Assets, that the purchaser agrees to be
bound by the provisions of
[[Page 49482]]
this Final Judgment, provided, however, that Defendants need not obtain
such an agreement from the Acquirers of the Divestiture Assets.
IV. Divestitures
A. Defendants are hereby ordered and directed, in accordance with
the terms of this Final Judgment, to sell the Divestiture Assets to
Acquirers acceptable to the United States in its sole discretion.
Defendants shall enter into definitive contracts for sale of the
Divestiture Assets within 150 days after consummation of the Exelon/
PSEG Transaction. The United States, in its sole discretion, may extend
the time period set forth in Section IV.A. for entering into definitive
contracts for sale for an additional period not to exceed thirty (30)
calendar days and shall notify the Court in such circumstances.
Defendants shall use their best efforts as expeditiously and timely as
possible (1) to enter into these contracts, and (2) after obtaining the
United States' approval of the Acquirers, to seek the necessary
approvals of the sale of Divestiture Assets from regulatory agencies
with jurisdiction over the Exelon/PSEG Transaction. Defendants shall
consummate the contracts for sale no later than twenty-one (21)
calendar days after receiving, for each Divestiture Asset, the last
necessary regulatory approval required for that Divestiture Asset.
B. In accomplishing the requirements imposed by Section IV.A.,
Defendants promptly shall make known, by usual and customary means, the
availability for sale of the Divestiture Assets. Defendants shall
inform any person making an inquiry regarding a possible purchase of
the Divestiture Assets that the sales are being made pursuant to this
Final Judgment and provide such person with a copy of this Final
Judgment. Defendants shall also offer to furnish to prospective
Acquirers who have been invited to submit binding bids, subject to
reasonable protection for confidential commercial information, all
information and documents relating to the Divestiture Assets
customarily provided in a due diligence process, except such
information subject to attorney-client privilege or the attorney work-
product doctrine. Defendants shall make available such information to
the United States at the same time that such information is made
available to any other person.
C. Subject to reasonable protection for confidential commercial
information, Defendants shall permit prospective Acquirers who have
been invited to submit binding bids for the Divestiture Assets to have
reasonable access to their personnel and to make such inspection of the
Divestiture Assets and any and all of their financial, operational, or
other documents and information customarily provided as part of a due
diligence process, as well as access to any and all environmental and
other permit documents and information.
D. Defendants shall provide to each Acquirer of any of the
Divestiture Assets, and to the United States, the name and most recent
contact information (if known) for each individual who is currently, or
who, to the best of Defendants' knowledge, has, at any time since
January 1, 2006, been stationed at a specific Divestiture Asset and
involved in the operation, dispatch, or offering of the output, of that
Divestiture Asset to be purchased by the Acquirer. Defendants shall not
impede or interfere with any negotiations by the Acquirer or Acquirers
to employ such persons.
E. Defendants also agree to preserve the Divestiture Assets in a
condition and state of repair at least equal to their condition and
state of repair as of the date the Complaint was filed, ordinary wear
and tear excepted, and consistent with Good Utility Practice.
F. Defendants shall warrant to the Acquirers of the Divestiture
Assets that each asset (other than assets retired in place as of June
1, 2006) will be operational, consistent with Good Utility Practice, on
the date of sale, subject to legal or regulatory restrictions on any of
the Divestiture Assets in existence on the date of sale.
G. Defendants shall warrant to the Acquirers of the Divestiture
Assets that there are no undisclosed material defects in the
environmental, zoning, or other permits pertaining to the operation of
each asset, and that following the sale of the Divestiture Assets,
Defendants will not undertake, directly or indirectly, any challenges
to any permits or certifications relating to the operation of the
Divestiture Assets, or otherwise take any action to impede the
divestiture or operation of the Divestiture Assets.
H. The divestitures, whether accomplished by Defendants pursuant to
Section IV, or by the trustee appointed pursuant to Section V of this
Final Judgment, shall be accomplished in such a way as to satisfy the
United States, in its sole discretion, that the Divestiture Assets can
and will be used by the Acquirers as part of viable, ongoing businesses
engaged in the provision of electric generation services. The
divestitures, whether pursuant to Sections IV or V of this Final
Judgment, (1) shall be made to Acquirers that, in the United States'
sole judgment, have the intent and capability (including the necessary
managerial, operational, technical, and financial capability) of
competing effectively in the business of the provision of electric
generation services; and (2) shall be accomplished so as to satisfy the
United States, in its sole discretion, that none of the terms of any
agreement between the Acquirers and Defendants give Defendants the
ability unreasonably to raise the Acquirers' costs, to lower the
Acquirers' efficiency, or otherwise to interfere in the ability of the
Acquirers to compete effectively.
V. Appointment of Trustee
A. If Defendants have not entered into definitive contracts for
sale of the Divestiture Assets within the time specified in Section
IV.A. of this Final Judgment, Defendants shall notify the United States
of that fact in writing. Upon application of the United States, the
Court shall appoint a trustee selected by the United States and
approved by the Court to effect the divestiture of the Divestiture
Assets, including the application for necessary regulatory approvals.
Until such time as a trustee is appointed, Defendants shall continue
their efforts to effect the sale of the Divestiture Assets as specified
in Section IV.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestitures at the earliest possible time to Acquirers acceptable to
the United States, in its sole discretion, at such price and on such
terms as are then obtainable upon reasonable effort by the trustee,
subject to the provisions of Sections IV, V, and VI of this Final
Judgment, and shall have such other powers as the Court deems
appropriate. Subject to Section V.D. of this Final Judgment, the
trustee shall have the power and authority to hire at the cost and
expense of Defendants any investment bankers, attorneys, or other
agents, who shall be solely accountable to the trustee, reasonably
necessary in the judgment of the trustee to assist in the divestitures.
C. Defendants shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. Any such objections by
Defendants must be conveyed in writing to the United States and the
trustee within ten (10) calendar days after the trustee has provided
the notice required under Section VI of this Final Judgment.
D. The trustee shall serve at the cost and expense of Defendants,
on such terms and conditions as the United
[[Page 49483]]
States approves, and shall account for all monies derived from the sale
of the assets sold by the trustee and all costs and expenses so
incurred. After approval by the Court of the trustee's accounting,
including fees for its services and those of any professionals and
agents retained by the trustee, all remaining money shall be paid to
Defendants, and the trust shall then be terminated. The compensation of
the trustee and of any professionals and agents retained by the trustee
shall be reasonable in light of the value of the Divestiture Assets and
based on a fee arrangement providing the trustee with an incentive
based on the price and terms of the divestitures and the speed with
which they are accomplished, but timeliness is paramount.
E. Defendants shall use their best efforts to assist the trustee in
accomplishing the required divestiture, including their best efforts to
effect all necessary regulatory approvals. The trustee and any
consultants, accountants, attorneys, and other persons retained by the
trustee shall have full and complete access to the personnel, books,
records, and assets at the facilities to be divested, and Defendants
shall develop financial or other information relevant to the assets to
be divested customarily provided in a due diligence process as the
trustee may reasonably request, subject to reasonable protection for
confidential commercial information. Defendants shall permit
prospective Acquirers who have been invited to submit binding bids for
any of the Divestiture Assets to have reasonable access to their
personnel and to make such inspection of the Divestiture Assets and any
and all financial, operational, or other documents and other
information as may be relevant to the divestitures required by this
Final Judgment, subject to reasonable protection for confidential
commercial information. Defendants shall take no action to interfere
with or to impede the trustee's accomplishment of the divestitures.
F. After its appointment, the trustee shall file monthly reports
with the United States and the Court setting forth the trustee's
efforts to accomplish the divestitures ordered under this Final
Judgment; provided however, that to the extent such reports contain
information that the trustee deems confidential, such reports shall not
be filed in the public docket of the Court. Such reports shall include
the name, address, and telephone number of each person who, during the
preceding month, made an offer to acquire, expressed an interest in
acquiring, entered into negotiations to acquire, or was contacted or
made an inquiry about acquiring, any interest in the Divestiture
Assets, and shall describe in detail each contact with any such person
during that period. The trustee shall maintain full records of all
efforts made to divest the Divestiture Assets.
G. If the trustee has not accomplished such divestitures within
sixty (60) calendar days after its appointment, the trustee shall file
promptly with the Court a report setting forth (1) the trustee's
efforts to accomplish the required divestitures; (2) the reasons, in
the trustee's judgment, why the required divestitures have not been
accomplished; and (3) the trustee's recommendations. To the extent such
reports contain information that the trustee deems confidential, such
reports shall not be filed in the public docket of the Court. The
trustee shall at the same time furnish such report to the United
States, who shall have the right to make additional recommendations
consistent with the purpose of the trust. The Court shall enter
thereafter such orders as it shall deem appropriate to carry out the
purpose of this Final Judgment which may, if necessary, include
extending this Final Judgment and the term of the trustee's appointment
by a period requested by the United States.
VI. Notice of Proposed Divestitures
A. Within two (2) business days after signing a definitive contract
for sale of any of the Divestiture Assets, Defendants or the trustee,
whichever is then responsible for effecting the divestiture required
herein, shall notify the United Stales of any proposed divestiture
required by Sections IV or V of this Final Judgment, and submit to the
United States a copy of the proposed contract for sale and any other
agreements with the Acquirer relating to the Divestiture Assets. If the
trustee is responsible, it shall similarly notify Defendants. The
notice shall set forth the details of the proposed divestiture
(including the name, address, and telephone number of the proposed
Acquirer), and list the name, address, and telephone number of each
person not previously identified who offered or expressed an interest
in or desire to acquire the Divestiture Assets, together with full
details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from Defendants,
the proposed Acquirers, any other third party, or the trustee if
applicable, additional information concerning the proposed divestiture,
the proposed Acquirers, and any other potential Acquirers. Defendants
and the trustee shall furnish any additional information requested
within fifteen (15) calendar days of the receipt of the request, unless
the parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from Defendants, the
proposed Acquirers, any third party, and the trustee, whichever is
later, the United States shall provide written notice to Defendants and
the trustee, if there is one, stating whether or not it objects to the
proposed divestiture, provided, however, that the United States may
extend the period for its review up to an additional thirty (30)
calendar days. If the United States provides written notice that it
does not object, the divestiture may be consummated, subject only to
Defendants' limited right to object to the sale under Section V.C. of
this Final Judgment. Absent written notice that the United States does
not object to the proposed Acquirer, or upon objection by the United
States, a divestiture proposed under Section IV or Section V shall not
be consummated. Upon objection by Defendants under Section V.C., a
divestiture proposed under Section V shall not be consummated unless
approved by the Court.
VII. Affidavits
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter and every thirty (30) calendar days thereafter until the
Divestiture Assets have been sold, whether pursuant to Sections IV or V
of this Final Judgment, Defendants shall deliver to the United States
an affidavit as to the fact and manner of compliance with Sections IV
or V of this Final Judgment. Each such affidavit shall include the
name, address, and telephone number of each person who, during the
preceding thirty days, made an offer to acquire, expressed an interest
in acquiring, entered into negotiations to acquire, or was contacted or
made an inquiry about acquiring, any interest in the Divestiture
Assets, and shall describe in detail each contact with any such person
during that period. Each such affidavit shall also include a
description of the efforts that Defendants have taken to solicit
purchasers for the Divestiture Assets and to provide required
information to prospective purchasers including the limitations, if
any, on such information. Assuming the information set forth in the
affidavit is true and complete, any objection by the United States to
[[Page 49484]]
information provided by Defendants, including limitation on
information, shall be made within fourteen (14) calendar days of
receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, Defendants shall deliver to the United States an
affidavit that describes in detail all actions Defendants have taken
and all steps Defendants have implemented on an ongoing basis to comply
with Section IX of this Final Judgment. The affidavit also shall
include a description of Defendants' efforts to maintain the
Divestiture Assets in operable condition at no less than current
capacity configurations with current levels of staffing and management
and to otherwise comply with the Hold Separate Stipulation and Order.
Defendants shall deliver to the United States an affidavit describing
any changes to the efforts and actions outlined in Defendants' earlier
affidavit(s) filed pursuant to this Section within fifteen (15)
calendar days after the change is implemented.
C. Defendants shall keep all records of all efforts made to
preserve and divest the Divestiture Assets until one year after such
divestitures have been completed.
VIII. Financing
Defendants shall not finance all or any part of any purchase made
pursuant to Sections IV or V of this Final Judgment.
IX. Hold Separate
Until the divestitures required by this Final Judgment have been
accomplished, Defendants shall take all steps necessary to comply with
the Hold Separate Stipulation and Order entered by the Court.
Defendants shall take no action that would jeopardize, delay, or impede
the divestiture order by the Court.
X. No Reacquisition
Defendants may not acquire or control any of the Divestiture Assets
during the term of this Final Judgment.
XI. Prior Approval
A . Without the prior approval of the United States, Defendants
shall not acquire any electricity generating facility, or enter into
any contract to obtain control of, an electricity generating facility
or of one or more units of an electricity generating facility in the
Designated Utility Zones, which facility or units are in existence as
of June I, 2006, or are listed in Attachment A. Such prior approval
shall be within the sole discretion of the United States.
This prior approval requirement shall not apply to:
1. Upgrades, expansions, or uprates of existing units up to the
amount of such upgrades, expansions, or uprates;
2. Units that are rebuilt, repowered, or activated out of inactive
status after June 1, 2006, as long as such rebuild, repowering, or
activation, if done by Defendants, begins within one year of purchase
of the facility that includes the unit; and
3. Acquisitions of a facility of 25 megawatts or less of summer net
capability, as defined by PJM, or contracts to control 25 megawatts or
less of summer net capability, as defined by PJM, provided, however,
that Defendants do not acquire, or enter into contracts to obtain
control of, more than 100 megawatts of summer net capability from units
at a single facility during a single calendar year. For the purpose of
Section XI.A.3., the summer net capability of a unit that is an
intermittent capacity resource, as defined by PJM, will be measured as
of the date of acquisition of the unit, or of entry into the contract
to control the unit, in accordance with the methodology used by PJM for
calculating capacity values for intermittent capacity resources.
B. Unless a transaction subject to Section XI.A. is otherwise
subject to the reporting and waiting period requirements of the HSR
Act:
1. Defendants shall provide notification to the United States
within five (5) calendar days of acceptance of any contract subject to
Section XI.A. and shall submit copies of the contracts and any
management or strategic plans discussing the proposed transaction, and
the names of the principal representatives of the parties to the
agreement who negotiated the agreement. Defendants shall send the
required materials to Chief, Transportation, Energy, and Agriculture
Section, Antitrust Division, United States Department of Justice, 325
Seventh Street, NW., Suite 500, Washington, DC 20530. Should oversight
of this Final Judgment be the responsibility of another section of the
Antitrust Division, the required materials shall be sent to the chief
of the section responsible for oversight of this Final Judgment;
2. Within thirty (30) calendar days of the receipt of the required
materials, if the transaction is not reportable under the HSR Act, the
United States will determine whether it requires additional information
from the parties to the contract. If the United States makes such a
request for additional information, the parties will provide the
information requested.
C. Once the parties have provided all of the information requested
under Section XIB. or under the HSR Act, the United States must notify
Defendants within thirty (30) calendar days if the United States
disapproves the proposed transaction.
D. Section XI.A. shall be broadly construed and any ambiguity or
uncertainty shall be resolved in favor of requiring prior approval.
E. Nothing in this Section limits Defendants' responsibility to
comply with the requirements of the HSR Act with respect to any
acquisition.
XII. Compliance Inspection
For purposes of determining or securing compliance with this Final
Judgment, or of determining whether this Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time duly authorized representatives of the United States
Department of Justice, including consultants and other persons retained
by the United States, shall, upon written request of a duly authorized
representative of the Assistant Attorney General in charge of the
Antitrust Division, and on reasonable notice to Defendants, be
permitted:
1. Access during Defendants' office hours to inspect and copy, or
at the United States' option, to require Defendants to provide copies
of, all books, ledgers, accounts, records, and documents in the
possession, custody, or control of Defendants, relating to any matters
contained in this Final Judgment; and
2. To interview, either informally or on the record, Defendants'
officers, employees, or agents, who may have their individual counsel
present, regarding such matters. The interviews shall be subject to the
reasonable convenience of the interviewee and without restraint or
interference by Defendants.
B. Upon the written request of a duly authorized representative of
the Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports, or responses to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, except in the course of legal proceedings
[[Page 49485]]
to which the United States is a party (including grand jury
proceedings), or for the purpose of securing compliance with this Final
Judgment, or as otherwise required by law.
If at the time information or documents are furnished by Defendants
to the United States, Defendants represent and identify in writing the
material in any such information or documents to which a claim of
protection may be asserted under Rule 26(c)(7) of the Federal Rules of
Civil Procedure, and Defendants mark each pertinent page of such
material, ``Subject to claim of protection under Rule 26(c)(7) of the
Federal Rules of Civil Procedure,'' then the United States shall give
Defendants ten (10) calendar days notice prior to divulging such
material in any legal proceeding (other than a grand jury proceeding).
XIII. Retention of Jurisdiction
The Court retains jurisdiction to enable any party to this Final
Judgment to apply to the Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XIV. Expiration of Final Judgment
Unless the Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XV. Public Interest Determination
Based on the record in this case, entry of this Final Judgment is
in the public interest, and the parties have complied with the
procedures of the Antitrust Procedures and Penalties Act, 15 U.S.C. 16.
Dated:-----------------------------------------------------------------
[fxsp0]----------------------------------------------------------------
United States District Judge
Attachment A
----------------------------------------------------------------------------------------------------------------
Identification number PJM
State Queue, http://www.pjm.com Substation
----------------------------------------------------------------------------------------------------------------
DE.................................. Q42......................... Indian River.
NJ.................................. P23......................... Bayonne 138 kV.
NJ.................................. Q08......................... Red Oak 230 kV.
NJ.................................. Q11......................... Red Oak 230 kV.
NJ.................................. Q26......................... Churchtown 230 kV.
NJ.................................. Q41......................... Mt. Hope Mine 34.5 kV.
PA.................................. CO2......................... South Lebanon 230 kV.
PA.................................. G06......................... Martins Creek 4.
PA.................................. M11......................... Susquehanna 1.
PA.................................. M12......................... Susquehanna 2.
PA.................................. P04......................... Peach Bottom 500 kV.
PA.................................. Q20......................... Holtwood.
PA.................................. Q28......................... Eldred-Frackville 230kV.
----------------------------------------------------------------------------------------------------------------
United States District Court for the District of Columbia
United States of America, Plaintiff; v. Exelon Corporation and
Public Service Enterprise Group Incorporated, Defendants
Case No. 1:06CV01138
Judge: John D. Bates
Deck Type: Antitrust
Filed: August 10, 2006
Competitive Impact Statement
The United States, pursuant to Section 2(b) of the Antitrust
Procedures and Penalties Act (''APPA'' or ``Tunney Act''), 15 U.S.C.
16(b)-(h), files this Competitive Impact Statement relating to the
proposed Final Judgment submitted for entry in this civil antitrust
proceeding.
I. Nature and Purpose of the Proceeding
On December 20, 2004, Defendants entered into an Agreement and Plan
of Merger under which Exelon Corporation (``Exelon'') would merge with
Public Service Enterprise Group Incorporated (``PSEG''). On June 22,
2006, the United States filed a civil antitrust Complaint seeking to
enjoin the proposed merger. The Complaint alleges that the merger
likely would lessen competition substantially for wholesale electricity
in sections of the United States in violation of Section 7 of the
Clayton Act, 15 U.S.C. 18. This loss of competition would result in
increased wholesale electricity prices, raising retail electricity
prices for millions of residential, commercial, and industrial
customers in parts of the Mid-Atlantic states.
At the same time the Complaint was filed, the United States filed a
Hold Separate Stipulation and Order (``Stipulation'') and proposed
Final Judgment that are designed to eliminate the anti competitive
effects of the merger. Under the proposed Final Judgment, as explained
more fully below, Defendants are required to divest six electric
generating plants (collectively the ``Divestiture Assets''). The
Stipulation and proposed Final Judgment require Defendants to take
certain steps to ensure that these assets are preserved and maintained
and that competition is maintained during the pendency of the ordered
divestiture.
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment would terminate this action, except that
the Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations of
it. Defendants have also stipulated that they will comply with the
terms of the Stipulation and the proposed Final Judgment from the date
of the signing of the Stipulation, pending entry of the proposed Final
Judgment by the Court and the required divestiture. Should the Court
decline to enter the proposed Final Judgment, Defendants have also
committed to abide by its requirements and those of the Stipulation
until the expiration of the time for appeal.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Defendants and the Proposed Transaction
Defendant Exelon is a Pennsylvania corporation, with its
headquarters in Chicago, Illinois; it owns Exelon Generation Company,
LLC, which owns electric generating plants located primarily in the
Mid-Atlantic and the Midwest with a total generating capacity of more
than 25,000 megawatts (``MW''). Defendant PSEG is a New Jersey
corporation, with its headquarters in
[[Page 49486]]
Newark, New Jersey; it owns PSEG Power LLC, which owns electric
generating plants located primarily in New Jersey with a total
generating capacity of more than 15,000 MW. By combining the generating
plants owned by Exelon and PSEG, the proposed merger would enhance the
ability and incentive of the merged firm to reduce output and raise
prices for wholesale electricity in two areas of the Mid-Atlantic where
Defendants are the largest generators of electricity. Thus, the
transaction as originally proposed would lessen competition
substantially in violation of Section 7 of the Clayton Act, 15 U.S.C.
18.
B. Wholesale Electricity in the Mid-Atlantic
Electricity supplied to retail customers is generated at electric
generating plants, which consist of one or more generating units. An
individual generating unit uses anyone of several types of generating
technologies (including hydroelectric turbine, steam turbine,
combustion turbine, or combined cycle) to transform the energy in fuels
or the force of flowing water into electricity. The generating units
typically are fueled by uranium, coal, oil, or natural gas.
Generating units vary considerably in their operating costs, which
are determined primarily by the cost of fuel and the efficiency of the
unit's technology in transforming the energy in fuel into electricity.
``Baseload'' units--which typically include nuclear and some coal-fired
steam turbine units-- have relatively low operating costs. ``Peaking''
units--which typically include oil- and gas-fired combustion turbine
units--have relatively high operating costs. ``Mid-merit'' units which
typically include combined cycle and some coal-fired steam turbine
units--have costs lower than those of peaking units but higher than
those of baseload units.
Once electricity is generated at a plant, an extensive set of
interconnected high-voltage lines and equipment, known as the
transmission grid, transports the electricity to lower voltage
distribution lines that relay the power to homes and businesses.
Transmission grid operators must closely monitor the grid to prevent
too little or too much electricity from following over the grid, either
of which might damage lines or generating units connected to the grid.
To prevent such damage and to prevent widespread blackouts from
disrupting electricity service, a grid operator will manage the grid to
prevent any more electricity from flowing over a transmission line as
that line approaches its operating limit (a ``transmission
constraint'').
In the Mid-Atlantic, the transmission grid is overseen by PJM
Interconnection, LLC (``PJM''), a private, non-profit organization
whose members include transmission line owners, generation owners,
distribution companies, retail customers, and wholesale and retail
electricity suppliers. The transmission grid administered by PJM is the
largest in the United States, providing electricity to approximately 51
million people in an area encompassing all or parts of New Jersey,
Pennsylvania, Delaware, Maryland, Virginia, West Virginia, the District
of Columbia, North Carolina, Kentucky, Ohio, Indiana, Michigan,
Tennessee, and Illinois (the PJM control area'').
PJM oversees two auctions for the sale and purchase of wholesale
electricity: A day-ahead auction that clears the day before electricity
is to be generated and delivered, and a real-time auction that clears
the day electricity is delivered. In these auctions, generation owners
located in the PJM control area submit offers to sell electricity and
electricity retailers submit bids to purchase electricity. Buyers
submit bids that indicate the amount of electricity they are willing to
buy at different prices. Sellers submit offers that indicate the amount
of electricity they are willing to sell at different prices. PJM adds
up the bids and offers to determine the total demand and supply for
electricity. The amount of electricity that actually is generated and
delivered is determined by the PJM auctions. Buyers and sellers of
wholesale electricity may also enter into contracts with each other or
with third parties, outside of the PJM auction process; the prices of
these contracts generally reflect expected auction prices.
Subject to the physical and engineering limitations of the
transmission grid, PJM seeks to have generating units operated in
``merit'' order, from lowest to highest offer. In the day-ahead
auction, as long as transmission constraints are not expected, PJM
takes the least expensive offer first and then continues to accept
offers to sell at progressively higher prices until the needs for each
hour of the next day are covered. In this way, PJM minimizes the total
cost of generating electricity required for the next day. The clearing
price for any given hour essentially is determined by the generating
unit with the highest offer price that is needed for that hour, and all
sellers for that hour receive that price regardless of their offer
price or their units' costs. In the real-time auction, which accounts
for differences between anticipated and actual supply and demand, PJM
also accepts sellers' offers in merit order until there is a sufficient
quantity of electricity to meet actual demand, subject to the physical
and engineering limitations of the transmission grid.
At times, transmission constraints prevent the generating units
with the lowest offers from meeting demand in a particular area within
the PJM control area. When that happens, PJM often calls on more
expensive units located within the smaller area bounded by the
transmission constraints (a ``constrained area), and the clearing price
for the buyers in that area adjusts accordingly. Because more expensive
units are required to meet demand, the clearing price in a constrained
area will be higher than it would be absent the transmission
constraints.
PJM East. One historically constrained area within the PJM control
area includes the densely populated northern New Jersey and
Philadelphia areas. This area, referred to in the Complaint as ``PJM
East,'' is defined by the ``Eastern Interface,'' a set of five major
transmission lines that divides New Jersey and the Philadelphia area
from the rest of the PJM control area. When the Eastern Interface is
constrained, PJM is limited in its ability to meet demand located east
of the constraint with electricity from generating units located west
of the constraint. PJM often responds to constraints on the Eastern
Interface by calling on additional generating units east of the
constraint to run, generally resulting in higher prices in PJM East
than otherwise would exist because the cost of additional generation
east of the constraint is higher than the cost of additional generation
west of the constraint.
PJM Central/East. A second constrained area in PJM includes PJM
East, central Pennsylvania, and eastern Maryland. This area is defined
by two major transmission lines known as ``5004'' and ``5005'' that run
from western to central Pennsylvania and divide central Pennsylvania,
eastern Maryland, and PJM East (``PJM Central/East'') from the rest of
PJM. When the 5004 and 5005 transmission lines are constrained, PJM is
limited in its ability to supply demand located east of the constraint
with electricity from generating units located west of the constraint.
PJM often responds to constraints on the 5004 and 5005 lines by calling
on additional generating units east of the constraint to run, generally
resulting in higher prices in PJM Central/East than otherwise would
exist because the cost of additional
[[Page 49487]]
generation east of the constraint is higher than the cost of additional
generation west of the constraint.
C. Product Market
The Complaint alleges that wholesale electricity, electricity that
is generated and sold for resale, is a relevant antitrust product
market. Wholesale electricity demand is a function of retail
electricity demand: Electricity retailers, who buy wholesale
electricity to serve their customers, must provide exactly the amount
of electricity their customers require. Retail electricity consumers'
demand, however, is largely insensitive to changes in retail price;
thus, an increase in retail prices due to an increase in wholesale
prices will have little effect on the quantity of retail electricity
demanded and little effect on the quantity of wholesale electricity
demanded. As a result, a small but significant increase in the
wholesale price of electricity would not cause a significant number of
retail electricity consumers to substitute other energy sources for
electricity or otherwise reduce their consumption of electricity.
D. Geographic Markets
The Complaint alleges that ``PJM East'' and ``PJM Central/East''
are relevant antitrust geographic markets defined by transmission lines
in the PJM control area: PJM East is defined by the Eastern Interface,
and PJM Central/East is defined by the 5004 and 5005 transmission
lines. When these lines approach their operating limits, purchasers of
electricity have limited ability to purchase electricity generated
outside the relevant geographic market to meet their needs. At such
times, the amount of electricity that could be purchased outside PJM
East or PJM Central/East is insufficient to make it unprofitable for
generators located inside those areas to make a small but significant
price increase. Thus, PJM East and PJM Central/East are relevant
antitrust geographic markets.
E. The Competitive Effects of the Transaction on Wholesale Electricity
The Complaint alleges that Exelon's proposed merger with PSEG would
eliminate competition between them and give the merged firm the
incentive and ability profitably to raise wholesale electricity prices,
resulting in increased retail prices for millions of residential,
commercial, and industrial customers in PJM East and PJM Central/East.
In PJM East during 2005, more than $10 billion of wholesale electricity
was sold for resale to nearly 6 million retail customers; in PJM
Central/East during 2005, more than $19 billion of wholesale
electricity was sold for resale to nearly 9 million retail customers.
In PJM East and PJM Central/East, the merged firm would own a
substantial share of total generating capacity in highly concentrated
markets. More importantly, in both geographic markets the merged firm
would own low-cost baseload units that provide incentive to raise
prices, mid-merit units that provide incentive and ability to raise
prices, and certain peaking units that provide additional ability to
raise prices in times of high demand.
Market shares in PJM East and PJM Central/East. In PJM East, Exelon
currently owns approximately 20 percent of the generating capacity and
PSEG currently owns approximately 29 percent of the generating
capacity. After the merger, Exelon would own approximately 49 percent
of the total generating capacity in PJM East. In PJM Central/East,
Exelon currently owns approximately 19 percent of the generating
capacity and PSEG currently owns approximately 21 percent of the
generating capacity. After the merger, Exelon would own approximately
40 percent of the total generating capacity in PJM Central/East.
Concentration in PJM East and PJM Central/East. The U.S. Department
of Justice and the Federal Trade Commission's 1992 Horizontal Merger
Guidelines consider markets in which the post-merger Herfindahl-
Hirschman Index (``HHI''), a measure of concentration explained in
Appendix A of the Complaint, exceeds 1800 points to be highly
concentrated. Transactions that increase the HHI by more than 100
points in highly concentrated markets presumptively raise significant
antitrust concerns under the Horizontal Merger Guidelines.\1\ Exelon's
merger with PSEG would yield a post-merger HHI in PJM East of
approximately 2750 points, representing an increase of more than 1100
points. Exelon's merger with PSEG would yield a post-merger HHI in PJM
Central/East of approximately 2080 points, representing an increase of
approximately 790 points. Thus, the proposed merger raises a
presumption of significant antitrust concerns in PJM East and PJM
Central/East.
---------------------------------------------------------------------------
\1\ See U.S. Department of Justice and Federal Trade Commission,
Horizontal Merger Guidelines Sec. 1.51 (April 2, 1992) available at
http://www.usdoj.gov/atr/public/guidelines/hmg.htm.
---------------------------------------------------------------------------
Increased ability and incentive profitably to withhold output and
raise prices. The Complaint alleges that the proposed merger would
substantially lessen competition. The combination of PSEG and Exelon's
generating units would increase the merged firm's ability and incentive
to withhold selected output, forcing PJM to turn to more expensive
units to meet demand, resulting in higher clearing prices in PJM East
and PJM Central/East.
Baseload units, such as nuclear steam and some hydroelectric units,
typically generate electricity around the clock during most of the
year; certain lower-cost mid-merit units, including some coal-fired
steam units, generate electricity for a substantial number of hours
during the year. When they are running, such baseload and mid-merit
units are positioned to benefit from an increase in wholesale
electricity prices. Because they run so frequently, these units provide
a relatively significant incentive to withhold output and raise prices.
Mid-merit units also provide substantial ability to withhold output
to increase the market clearing price. Mid-merit units have costs that
are close to clearing prices for a substantial number of hours during
the year. Because their costs are so close to clearing prices, the
opportunity cost of withholding output from these units--the lost
profit on the withheld output--is smaller than it would be for low-cost
base load units. This fact is also true of certain peaking units during
times of the year when demand is higher.
By giving the merged firm an increased amount of baseload and mid-
merit capacity, combined with an increased share of mid-merit and
peaking capacity, the merger substantially increases the likelihood
that Exelon would find it profitable to withhold output and raise
price. With its increased share of mid-merit and peaking capacity, the
merged firm would more often be able to reduce output and raise market
clearing prices at relatively low cost to it. And with its increased
amount of baseload and mid-merit capacity, the merger would make it
more likely that the increased revenue on the merged firm's baseload
and mid-merit capacity would outweigh the cost of withholding its
higher-cost mid-merit and peaking capacity. Thus the merger facilitates
Exelon's incentive and ability to reduce output and raise market
prices.
F. Entry
The Complaint alleges that entry through the construction of new
generation or transmission capacity would not be timely, likely, and
sufficient to deter or counteract an anti competitive price increase.
Given the necessary environmental, safety, and zoning approvals
required, it would take many years for such new entry to take place.
Thus, entry via new generation or
[[Page 49488]]
transmission capacity would, at a minimum, not be timely.
III. Explanation of the Proposed Final Judgment
The proposed Final Judgment would preserve the competition that
would have been lost in PJM East and PJM Central/East had Exelon's
merger with PSEG gone forward as proposed. Within 150 days after
consummation of their merger, Defendants must sell all of their rights,
titles, and interests in the Divestiture Assets. The assets and
interests will be sold to purchasers acceptable to the United States in
its sole discretion. In addition, the Final Judgment prohibits the
merged company from reacquiring or controlling any of the Divestiture
Assets, as well as limits its ability to acquire, or enter into
contracts to control, generating units in PJM East or PJM Central/East.
A. Divestiture
The Complaint alleges that the merger would significantly enhance
the merged firm's ability and incentive profitably to reduce output and
raise prices in PJM East and PJM Central/East. The divestiture
requirements of the proposed Final Judgment will maintain competition
for wholesale energy in these geographic markets by allowing
independent competitors to acquire the Divestiture Assets. The
Divestiture Assets are six generating plants located inPJ East and PJM
Central/East that comprise mid-merit and peaking units:
Cromby Generating Station, 100 Cromby Rd. at Phoenixville,
PA 19460;
Eddystone Generating Station, Number 1 Industrial Hwy. at
Eddystone, PA 19022;
Hudson Generating Station, Duffield & Van Keuren Aves. at
Jersey City, NJ 07306;
Linden Generating Station, 4001 South Wood Ave. at Linden,
NJ 07036;
Mercer Generating Station, 2512 Lamberton Rd. at Hamilton,
NJ 08611; and
Sewaren Generating Station, 751 Cliff Rd. at Sewaren, NJ
07077.
The Divestiture Assets include all of the merged firm's coal-fired
steam units in PJM East and PJM Central/East (located at the Eddystone,
Cromby, Hudson, and Mercer plants); one of the merged firm's two
combined cycle units (located at the Linden plant); and several
efficient peaking units (located at the Eddystone, Cromby, Linden,
Hudson, and Sewaren plants).
Effect of divestiture on market shares and concentration.
Divestiture of these plants will reduce market shares and concentration
substantially relative to what they would have been absent divestiture.
Absent divestiture, the merged finn's share of capacity would be
approximately 49 percent in PJM East and 40 percent in PJM Central/
East. With divestiture, the merged firm's share of capacity will be
approximately 32 percent in PJM East and 29 percent in PJM Central/
East.
The pre-merger HHI concentration levels for PJM East and Central
East are approximately 1590 points and 1290 points, respectively.
Absent divestiture, the post-merger HHIs would increase to highly
concentrated levels of approximately 2750 points and 2080 points,
respectively. The divestiture, however, significantly reduces these
levels.
Effect of divestiture on ability and incentive profitably to
withhold output and raise prices. Although the divestiture will
substantially reduce market shares and concentration levels compared to
the levels that would have prevailed absent divestiture, the purpose of
the divestiture is to preserve competition, not merely maintain HHIs or
market shares at their premerger levels.\2\ Accordingly, the proposed
Final Judgment seeks to restore effective competition by depriving
Exelon of key assets that would have made it profitable for it to
withhold output and raise prices in PJM East and PJM Central/East.
Divestiture of the six generating plants deprives the merged firm of
key generating plants whose output it would otherwise have had the
ability profitably to withhold. At the same time, the divestiture
reduces the incentive the merged firm otherwise would have had to
withhold output. In this way, the proposed Final Judgment assures that
the merger is not likely to lead to consumer harm.
---------------------------------------------------------------------------
\2\ C.f. U.S. Department of Justice, Antitrust Division Policy
Guide to Merger Remedies Sec. II (October 2004), available at
http://www.usdoj.gov/atr/public/guidelines/205108.htm (``Restoring
competition requires replacing the competitive intensity lost as a
result of the merger rather than focusing narrowly on returning to
premerger HHI levels'').
---------------------------------------------------------------------------
The proposed Final Judgment requires divestiture of generating
units that would have significantly enhanced the merged firm's ability
profitably to withhold output. These units include all of the merged
firm's coal-fired steam units in PJM East and PJM Central/East (located
at the Eddystone, Cromby, Hudson, and Sewaren plants); one of the
merged firm's two combined cycle units (located at the Linden plant);
and several efficient peaking units (located at the Eddystone, Cromby,
Linden, Hudson, and Sewaren plants). Because their operating costs are
relatively close to clearing prices for a substantial number of hours
during the year, the opportunity cost of withholding output from these
units--the lost profit on withheld output from them--is relatively
small. Without these units, Exelon will be left with few assets in PJM
East and PJM Central/East that operate close to clearing prices for a
substantial number of hours of the year. This will increase
significantly the opportunity cost of withholding output and make it
less likely to be profitable. Thus the divestiture will substantially
limit the ability of the merged firm profitably to withhold output and
thereby raise prices.
The divestiture will also reduce the merged firm's incentive to
withhold output and raise prices.\3\ Certain of the divested assets--
the coal-fired steam and combined cycle units--have operating costs
that are below the market clearing price for a substantial portion of
the year and which therefore are frequently in a position to benefit
from an increase in the market clearing price. Divestiture of these
units will reduce the potential gains to the merged firm of withholding
output and thus reduce the incentive of the merged firm to withhold
output in the first place.
---------------------------------------------------------------------------
\3\ Post divestiture, Exelon will retain a significant amount of
low-cost, baseload nuclear capacity. Although this capacity may
provide Exelon with incentive to exercise market power by
withholding output, the divestiture called for by the proposed Final
Judgment substantially limits Exelon's ability to withhold output.
Moreover, it is not likely that Exelon will withhold output from
nuclear units given the large opportunity cost--the lost profit on
withheld nuclear output--of withholding.
---------------------------------------------------------------------------
Requirements regarding divestiture. Defendants must take all
reasonable steps necessary to accomplish the divestiture quickly and
shall cooperate with prospective purchasers. Defendants must also
provide acquirers information relating to personnel that are or have
been involved, at any time since January 1, 2006, in the operation of,
or provision of generation services by, the Divestiture Assets.
Defendants further must refrain from interfering with any negotiations
by the acquirer or acquirers to employ any of the personnel that are or
have been involved in the operation of any of the Divestiture Assets.
Moreover, the proposed Final Judgment restricts Defendants from
reacquiring any of the Divestiture Assets during the term of the
proposed Final Judgment. Finally, the proposed Final Judgment requires
that Defendants, with certain exceptions, obtain advance approval from
the Department of Justice, for the entire duration of the Final
Judgment, to acquire or enter into contracts to control any generating
plants within the utility
[[Page 49489]]
zones within PJM East or PJM Central/East.
B. Use of a Divestiture Trustee
In the event that Defendants do not accomplish the divestiture
within the periods prescribed in the proposed Final Judgment, the
proposed Final Judgment provides that the Court will appoint a trustee
selected by the United States to effect the divestiture. If a trustee
is appointed, the proposed Final Judgment provides that Defendants will
pay all the costs and expenses of the trustee. The trustee's commission
will be structured so as to provide an incentive for the trustee based
on the price obtained and the speed with which the divestiture is
accomplished. After his or her appointment becomes effective, the
trustee will file monthly reports with the Court and the United States
setting forth his or her efforts to accomplish the divestiture. At the
end of sixty (60) days, if the divestiture has not been accomplished,
the trustee and the United States will make recommendations to the
Court, which shall enter such orders as appropriate to carry out the
purpose of the trust, including extending the trust or the term of the
trustee's appointment.
IV. Explanation of the Hold Separate Stipulation and Order
The Stipulation entered into by the United States and Defendants
ensures that the Divestiture assets are preserved and maintained and
that competition is maintained during the pendency of the ordered
divestiture. First, the Stipulation includes terms requiring that
Defendants maintain the Divestiture Assets as economically viable and
competitive facilities. Second, the Stipulation includes terms ensuring
that Defendants do not withhold output from the wholesale electricity
market. In particular, the Stipulation requires that Defendants offer
the output from certain generating units that they continue to own
after consummation for sale into the PJM auctions at no more than
specified price levels until the Divestiture Assets are sold. The
Stipulation also calls for appointment of an auditor to ensure that
Defendants offer their units at no more than the specified price levels
and that they do not withhold the output of generating units to raise
prices. These requirements seek to ensure that Defendants will not
offer their units into the PJM auctions in a way that allows Defendants
to raise the market clearing price.
Requiring Defendants to hold the Divestiture Assets separate and
distinct, a typical requirement in Antitrust Division hold separate
stipulation and orders, would not have prevented competitive harm in
the interim period from consummation to divestiture. The operator of
the Divestiture Assets would have recognized that reducing their output
would increase the clearing price and benefit Defendants' remaining
generating units. Therefore, the Stipulation requires that Defendants
maintain offers for output of the Divestiture Assets at the specified
levels. Defendants are relieved of the requirement to offer their units
at no more than specified levels if they transfer to a third party the
rights to offer and receive the revenues from the sale of the complete
output of the Divestiture Assets.
Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
16(a), the proposed Final Judgment has no prima facie effect in any
subsequent private lawsuit that may be brought against Defendants.
VI. Procedures Available for Modification of the Proposed Final
Judgment
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register. All comments received during
this period will be considered by the Department of Justice, which
remains free to withdraw its consent to the proposed Final Judgment at
any time prior to the Court's entry of judgment. The comments and the
response of the United States will be filed with the Court and
published in the Federal Register.
Written comments should be submitted to: Donna N. Kooperstein,
Chief, Transportation, Energy & Agriculture Section, Antitrust
Division, United States Department of Justice, 325 Seventh Street, NW.,
Suite 500, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VII. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against Defendants. The
United States could have continued the litigation and sought
preliminary and permanent injunctions against Exelon's acquisition of
certain PSEG assets. The United States is satisfied, however, that the
divestiture of assets described in the proposed Final Judgment will
preserve competition in the market for wholesale electricity in PJM
East and PJM Central/East.
VIII. Standard of Review Under the APPA for the Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a sixty (60) day
comment period, after which the Court shall determine whether entry of
the proposed Final Judgment ``is in the public interest.'' 15 U.S.C.
16(e)(I). In making that determination, the Court shall consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) & (B).\4\ As the United States Court of Appeals
for the
[[Page 49490]]
District of Columbia Circuit has held, under the APPA a court
considers, among other things, the relationship between the remedy
secured and the specific allegations set forth in the government's
complaint, whether the decree is sufficiently clear, whether
enforcement mechanisms are sufficient, and whether the decree may
positively harm third parties. See United States v. Microsoft Corp., 56
F.3d 1448, 1458-62 (D.C. Cir. 1995).
---------------------------------------------------------------------------
\4\ In 2004, Congress amended the APPA to ensure that courts
take into account the above-quoted list of relevant factors when
making a public interest determination. Compare 15 U.S.C. 16(e)
(2004) with 15 U.S.C. Sec. 16(e)(1) (2006) (substituting ``shall''
for ``may'' in directing relevant factors for court to consider and
amending list of factors to focus on competitive considerations and
to address potentially ambiguous judgment terms). This amendment
does not affect the substantial precedent in this and other Circuits
analyzing the scope and standard of review for Tunney Act
proceedings.
---------------------------------------------------------------------------
With respect to the adequacy of the relief secured by the decree, a
court may not ``engage in an unrestricted evaluation of what relief
would best serve the public.'' United States v. BNS, Inc., 858 F.2d
456, 462 (9th Cir. 1988) (citing United States v. Bechtel Corp., 648
F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62.
Courts have held that:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 1648 F.2d at 666 (emphasis added) (citations omitted).\5\ In
making its public interest determination, a district court must accord
due respect to the government's prediction as to the effect of proposed
remedies, its perception of the market structure, and its views of the
nature of the case. United States v. Archer-Daniels-Midland Co., 272
F.Supp.2d 1, 6 (D.D.C. 2003).
---------------------------------------------------------------------------
\5\ Cf BNS, 858 F.2d at 464 (holding that the court's ``ultimate
authority under the [APPA] is limited to approving or disapproving
the consent decree''); United States v. Gillette Co.. 406 F. Supp.
713, 716 (D. Mass. 1975) (noting that, in this way, the court is
constrained to ``look at the overall picture not hypercritically,
nor with a microscope, but with an artist's reducing glass''); see
generally Microsoft, 56 F.3d at 1461 (discussing whether ``the
remedies [obtained in the decree are] so inconsonant with the
allegations charged as to fall outside of the `reaches of the public
interest' '').
---------------------------------------------------------------------------
Court approval of a final judgment requires a standard more
flexible and less strict than the standard required for a finding of
liability. ``[A] proposed decree must be approved even if it falls
short of the remedy the court would impose on its own, as long as it
falls within the range of acceptability or is `within the reaches of
public interest.' '' United States v. Am. Tel. & Tel. Co., 552 F. Supp.
131, 151 (D.D.C. 1982) (citations omitted) (quoting United States v.
Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom.
Maryland v. United States, 460 U.S. 1001 (1983); see also United States
v. Alcan Aluminum Ltd., 605 F.Supp. 619, 622 (W.D. Ky. 1985) (approving
the consent decree even though the court would have imposed a greater
remedy).
Moreover, the Court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint, and does not authorize the Court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's
authority to review the decree depends entirely on the government's
exercising its prosecutorial discretion by bringing a case in the first
place,'' it follows that ``the court is only authorized to review the
decree itself,'' and not to ``effectively redraft the complaint'' to
inquire into other matters that the United States did not pursue. Id.
at 1459-60.
In its 2004 amendments to the Tunney Act, Congress made clear its
intent to preserve the practical benefits of utilizing consent decrees
in antitrust enforcement, adding the unambiguous instruction
``[n]othing in this section shall be construed to require the court to
conduct an evidentiary hearing or to require the court to permit anyone
to intervene.'' 15 U.S.C. 16(e)(2). This language codified the intent
of the original 1974 statute, expressed by Senator Tunney in the
legislative history: ``[t]he court is nowhere compelled to go to trial
or to engage in extended proceedings which might have the effect of
vitiating the benefits of prompt and less costly settlement through the
consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of
Senator Tunney). Rather:
[a]bsent a showing of corrupt failure of the government to discharge
its duty, the Court, in making its public interest finding, should *
* * carefully consider the explanations of the government in the
competitive impact statement and its responses to comments in order
to determine whether those explanations a reasonable under the
circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. (CCH) ]
61,508, at 71,980 (W.D. Mo. 1977).
IX. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: August 10, 2006.
Respectfully submitted,
Mark J. Niefer (DC Bar 470370),
Jade Alice Eaton (DC Bar 939629),
Tracy Lynn Fisher (MN Bar 315837).
Certificate of Service
I hereby certify that on August 10, 2006, I caused a copy of the
foregoing Competitive Impact Statement to be served on counsel for
Defendants in this matter in the manner set forth below:
By electronic mail and hand delivery:
Counsel for Defendant Exelon Corporation, John M. Nannes, Esq. (DC Bar
195966), Skadden, Arps, Slate, Meagher & Flom LLP and
Affiliates, 1440 New York Ave., NW., Washington, DC 20005-2111. Tel:
(202) 371-7090. Fax: (202) 661-9191.
Counsel for Defendant Public Service Enterprise Group, Inc., Douglas G.
Green, Esq. (DC Bar 183343), Steptoe & Johnson, LLP, 1330
Connecticut Ave., NW., Washington, DC 20036-1795. Tel: (202) 429-6264.
Fax: (202) 429-3902.
Mark J. Niefer (DC Bar 470370),
Department of Justice, Antitrust Division, 325 Seventh Street, NW.,
Suite 500, Washington, DC 20530. Tel: (202) 307-6318. Fax: (202)
307-2784.
[FR Doc. 06-7043 Filed 8-22-06; 8:45 am]
BILLING CODE 4410-11-M