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###### Federal Trade Commission

# AGENCY:

Federal Trade Commission. 

# ACTION:

Notice requesting comments on retail electricity competition plans. 

# SUMMARY:

Many States have enacted and, in some cases, begun to implement legislation designed to introduce competition into the retail sale of electricity in order to encourage lower prices, better service, and greater innovation. Recently, however, substantial price increases and reliability problems in some of the areas undergoing a transition to competition raise questions about how electricity restructuring can best be designed to benefit retail customers. The Federal Trade Commission seeks to gather information about the results, to date, of different regulatory approaches to the issues that arise in restructuring the retail sale of electricity. The Commission will produce a report that discusses the advantages and disadvantages associated with different approaches to particular issues and that identifies, if warranted, areas in which additional federal legislative or regulatory action may be desirable. 

# DATES:

Comments are due on April 3, 2001. 

# ADDRESSES:

                        Any interested person may submit a written comment that will be considered part of the public record. Written presentations should be submitted in both hard copy and electronic form. Six hard copies of each submission should be addressed to Donald S. Clark, Office of the Secretary, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580. Submissions should be captioned “V010003—Comments Regarding Retail Electricity Competition.” Electronic submissions may be sent by electronic mail to retailelectricity@ftc.gov. Alternatively, electronic submissions may be filed on a 3                        1/2                         inch computer disk with a label on the disk stating the name of the submitter and the name and version of the word processing program used to create the document.                     

# FOR FURTHER INFORMATION CONTACT:

                        Michael Wroblewski, Policy Planning, Federal Trade Commission, 600 Pennsylvania Ave., NW., Washington, DC 20580, 202-326-2155,                         *mwroblewski@ftc.gov*                         or John Hilke, Bureau of Economics, Federal Trade Commission, 1961 Stout Street, C/O HHS RM. 325, Denver, CO 80294-0101, 303-844-3565,                         *jhilke@ftc.gov.*

# SUPPLEMENTARY INFORMATION:

## Overview 

                    In recent years, many states and the Federal government have taken steps to encourage competition in the generation sector of the electric power industry. To date, 24 states and the District of Columbia have set dates to allow customers to choose their electric power supplier. In light of recent reliability problems and increases in electricity prices in California and the western                           ( print page 13537)                        states generally, however, some States have delayed, or are considering delaying, implementation of retail competition plans. For example, Nevada, Montana, West Virginia, and Arkansas have decided to delay, or have considered delaying, the transition to competition that they had previously established, while others have determined that restructuring is not in the public interest at this time (                    *e.g.*, Louisiana, Colorado, Alabama, and Mississippi).                 

                    Competition among market participants will ordinarily provide customers with the benefits of lower prices than would otherwise prevail, higher quality products and services, increased variety of products and services, and enhanced rates of innovation.[1]                                          Effective competition may not develop instantaneously, however, after decades of pervasive regulation and local franchised monopolies. Moreover, the effectiveness of competition may be affected greatly by the rules that govern the operation of the market and that provide incentives to guide market participants' behavior.                 

In light of the recent increases in electric power prices and reliability difficulties, the Chairman of the Energy and Commerce Committee of the United States House of Representatives, W.J. “Billy” Tauzin, and the Chairman of the Subcommittee on Energy and Air Quality, Joe Barton, have requested that the Commission examine various state retail competition programs and describe those features that appear to have resulted in consumer benefits and those that have not yielded consumer benefits. In addition, the Commission has been asked to examine possible jurisdictional limitations on the states' authority to design successful retail competition plans. To comply with this request, the Commission will update its July 2000 Staff Report: Competition and Consumer Protection Perspectives on Electric Power Regulatory Reform. 

                    For the updated report, the Commission seeks additional information about the benefits and drawbacks of state retail electricity competition plans. The Commission proposes to examine state plans that allow customers to choose their generation supplier, and state plans with unique approaches to retail electricity competition. These states may include, but are not limited to, Arizona, California, Illinois, Maine, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Texas. The Commission will work with the states to understand the various features of plans (                    *e.g.*, standardized labeling rules, supplier licensing requirements, provider of last resort obligations, pricing of default service) and to gather facts relevant to understanding the market reaction to a particular state's plan (                    *e.g.*, number of customers eligible for retail competition, rate of customer switching to new suppliers, number of new suppliers offering service).                 

                    Listed below is a series of additional questions about which the Commission seeks public comment. The Commission seeks comments on features of state retail competition plans that have benefitted consumers and those that have not. The Commission is particularly interested in receiving information about the market response to various provisions of state retail competition plans. It is not necessary to respond to each question for every state. Rather, it would be helpful for respondents to provide, for example, specific information about market responses to a particular state's retail competition plan, or a comparison of the market responses to the means individual states have used to address one or more subject matter areas (                    *e.g.*, provider of last resort pricing, consumer education efforts).                 

## Specific Questions to Be Addressed 

### History and Overview 

1. Why did the state implement retail electricity competition? What problems of the previous regulatory regime was it trying to solve? 

2. What were the expected benefits of retail competition? Were price reductions expected in absolute terms or in relation to what price levels would be absent retail competition? Were the benefits of retail competition expected to be available to consumers in urban, suburban, and rural areas? Were the benefits expected to be available for residential, commercial, and industrial customers? Were the benefits expected to be comparable for each group of customers? 

3. What factors or measures should the Commission examine in viewing the success of a state's retail electricity competition program? How should these measures be evaluated? 

4. What are the most successful and least successful elements in the state's retail competition program? Has the state taken steps to modify the least successful elements? 

### Consumer Protection Issues 

1. What efforts were made to educate consumers about retail competition? How was the success of these efforts measured? Were the programs successful? Who funded these efforts? Who implemented the programs? 

2. Do consumers have enough information to readily make informed choices among competing suppliers? Did the state coordinate its labeling requirements about the attributes of a supplier's product, if any, with neighboring states? Is there a need for federal assistance to provide standardized supplier labeling? If so, what would be the most useful federal role? 

3. Have consumers complained about unauthorized switching of their accounts to alternative suppliers (“slamming”) or the placement of unauthorized charges on their electric bills (“cramming”)? Were rules adopted to prevent these practices? Has the state taken enforcement action under its new authority against slamming and cramming? Have these actions been effective to curb the alleged abuses? Is there a need for federal assistance with slamming and cramming issues? If so, what would be the most useful federal role? 

4. How did the state facilitate the ability of customers to switch to a new supplier? Have these efforts been successful? Does the state allow consumers to aggregate their electricity demand? If so, has aggregation enabled consumers to benefit from retail electricity competition? If not, why not? 

                    5. Has the state established licensing or certification requirements for new suppliers to provide electricity to customers? Why? Which licensing provisions are designed to protect consumers? How do they operate? Has the state taken enforcement action                           ( print page 13538)                        against unlicensed firms? Have these actions been effective to curb unlicensed activity? Have these requirements acted as an entry barrier for new suppliers?                 

6. Did the state place any restrictions on the ability of a utility's unregulated affiliate(s) to use a similar name and/or logo as its parent utility, in order to avoid consumer confusion when the affiliate offered unregulated generation services? Why or why not? What has been the experience to date with the use of these restrictions? Are consumers knowledgeable about who their suppliers are? 

                    7. Did the state place any restrictions on third-party or affiliate use of a utility's customer information (                    *e.g.*, customer usage statistics, financial information, etc.)? What were the reasons for enacting the restrictions? What has been the effect of these restrictions on new marketing activity?                 

                    8. Has the state adopted any other measures intended to protect consumers (                    *e.g.*, length of consumer contracts, automatic renewal provisions, etc.) as it implemented retail competition? What has been the effect of these measures?                 

                    9. To what extent have suppliers engaged in advertising to sell their product(s)? Do some suppliers claim that their product is differentiated (                    *e.g.*, that it has environmental benefits)? Has there been any enforcement or attempts to verify these advertising claims? Do any certification organizations, such as Green-e, operate in the state? Are they used by (or at least available to) a substantial portion of consumers?                 

### Retail Supply Issues 

1. What difficulties have suppliers encountered in entering the market? What conditions/incentives attract suppliers to retail markets? Have suppliers exited the market after beginning to provide retail service? If so, why? 

2. What are the customer acquisition costs and operational costs to service retail customers? How do acquisition and operational costs compare to profit margins for electric power generation services? Do retail margins affect entry? If so, how? Did the state harmonize the procedures suppliers use to attract and switch customers with other states' procedures, in order to reduce suppliers' costs? 

                    3. Have customers switched to new suppliers? Why or why not? Are there greater incentives for certain customer classes (                    *i.e.*, industrial, commercial, residential) than for others to switch suppliers? Why or why not? Are penalties or different rates applied to customers that switch back to the supplier of last resort? Are there other measures to determine whether customers are actively considering switching suppliers? If so, do these indicators show different patterns than the switching rate data?                 

                    4. Have suppliers offered new types of products and services (                    *e.g.*, time of day pricing, interruptible contracts, green power, etc.) in states where retail competition has been implemented? If so, describe the products and what customer response has been.                 

                    5. What are the benefits or drawbacks of the different approaches to handling the supplier of last resort obligation [2]                                          for customers who do not choose a new supplier (                    *e.g.*, allow incumbent utility to retain the obligation to provide generation services to non-choosing customers, auction the obligation, or assign the obligation to non-utility parties). What has been consumer reaction to these approaches? Is provider of last resort service necessary?                 

### Retail Pricing Issues 

1. How is entry affected by the price for the provider of last resort service (for customers who do not choose) or for default service (for customer whose supplier exits the market)? How does the price for the provider of last resort or default service compare to prices offered by alternative suppliers? Is the price for provider of last resort service or default service capped? If so, for how long? 

2. Has the state required retail rate reductions prior to the start of retail competition? What is the rationale for these reductions? How have state-mandated rate reductions prior to the start of retail competition affected retail competition? 

3. Do any seasonal fluctuations in the price of wholesale generation cause some suppliers to enter the market only at certain times of the year? How have these suppliers fared? 

                    4. How has the state addressed public benefit programs (                    *e.g.*, universal service requirements, low income assistance, conservation education, etc.) as it has implemented retail competition? Which of these programs are necessary as competition is introduced and why? Are public benefits available to all customers or are they restricted to customers of the supplier of last resort? How does this affect retail competition?                 

### Market Structure Issues 

1. How has the development of Regional Transmission Organizations (RTOs) affected retail competition in the state? 

2. Did the state require the divestiture of generation assets (or impose other regulatory conditions on the use of these assets) when retail competition was introduced? To what extent was divestiture of generation assets a component of the state's handling of a utility's stranded costs? Was divestiture used to remedy a high concentration of generation assets serving the state? Was there appreciable voluntary divestiture of generation assets? Has the state examined whether there has been appreciable consolidation of ownership of generation serving the state since the start of retail competition? 

                    3. If a utility no longer owns generation assets to meet its obligations as the supplier of last resort or default service provider, what market mechanism (                    *e.g.*, spot market purchases, buy back or output contracts, etc.) does it use to obtain generation services to fulfill these obligations? What share of a utility's load is obtained via the different mechanisms? How are these shares trending? Is the market mechanism transparent? Is it necessary to monitor these market mechanisms? Why or why not? If so, what should the monitor examine?                 

4. Explain the state's role in overseeing operation of the transmission grid in the state and the extent to which public power or municipal power transmission systems are integrated into this effort. What is the relationship between the state's role and the Federal Energy Regulatory Commission's role in transmission system operation in the state? 

                    5. Do firms that have provider of last resort or default service obligations (formerly “native load” obligations in the regulated environment) receive preferential transmission treatment? If so, how does this affect wholesale electric power competition? How and by whom should retail sales of bundled transmission services (                    *i.e.*, retail sales of both energy and transmission services) and retail sales of unbundled transmission be regulated? If by more than one entity, how should regulation be coordinated? What should the state's role be in overseeing wholesale transmission reliability?                 

                    6. To what extent did the state identify transmission constraints affecting access to out-of-state or in-state generation prior to the start of retail competition? Is the state capable of remedying these transmission                           ( print page 13539)                        constraints, or is federal jurisdiction necessary? How do the rationales for federal jurisdiction over electric power transmission siting compare to the reasons underlying federal jurisdiction over the siting of natural gas pipelines?                 

7. How have state siting regulations for new generation and transmission facilities been affected by the onset of retail competition? Has new generation siting kept pace with demand growth in the state? If not, why not? Is federal jurisdiction necessary for siting of electric power generation facilities? Has the state actively monitored and reported the relationship between in-state capacity and peak demand in the state? What incentives do suppliers have to maintain adequate reserve capacity? What are the ways to value capacity in competitive markets? Is reserve sharing still important in competitive markets? Do other institutions/market processes provide a reasonable substitute for reserve sharing? 

8. Since the start of retail competition, what has been the rate of generation plant outages (scheduled and unscheduled)? To what extent has the state monitored these outages and examined their causes? 

### Other Issues 

1. What measures has the state taken to make customer demand responsive to changes in available supply? Has the state provided utilities incentives to make customers more price responsive? Has the state moved away from average cost pricing? What effect have these measures had on demand and on demand elasticity? 

2. Has the state provided mechanisms and incentives for owners of co-generation capacity to offer power during peak demand periods? Has the state identified, reported, and facilitated development of pumped storage facilities or other approaches to arbitraging between peak and off-peak wholesale electricity prices? 

3. What issues have arisen under retail competition that have required cooperation or coordination with other states? What approach was taken to securing this cooperation or coordination? Are there other issues requiring cooperation that have not yet been addressed? Which of these issues are the most significant? 

                    4. How prevalent is the use of distributed resources (                    *e.g.*, distributed generation) within the state? What barriers do customers face to implementing distributed resources?                 

5. Which specific jurisdictional issues prevent state retail competition programs from being as successful as they might be? 

6. Which specific technological developments are likely to substantially affect retail or wholesale competition in the electric power industry that may alter the manner in which states structure retail competition plans? Why? What time frame is associated with these developments? 

                    7. What are the lessons to be learned from the retail electricity competition efforts of other countries? Are there other formerly-regulated industries in the U.S. (                    *e.g.*, natural gas) that allow customer choice and provide useful comparisons to retail electricity competition? If so, what are the relevant insights or lessons to be learned?                 

By direction of the Commission. 

Donald S. Clark, 

Secretary. 

# Footnotes

1.                                                     *See generally*                        Letter of the Federal Trade Commission to House Commerce Committee Chairman Thomas Bliley, Analysis of H.R. 2944 at 1 (Jan. 14, 2000). The Commission has a long history of involvement in energy markets. The Commission has reviewed a series of oil and gas mergers, as well as several vertical mergers affecting the electric industry that have raised antitrust concerns. The Commission also has provided testimony on market power and consumer protection issues in the electric power industry to various Congressional Committees and has analyzed proposed comprehensive electricity legislation. The staff of the Commission has responded to requests for comments from the Federal Energy Regulatory Commission on aspects of wholesale competition and on the appropriate analytical framework for analyzing mergers. The staff also has responded to requests from a number of states for comments on how to evaluate the impact of existing market power and how to protect consumers as the states introduce retail competition in the electric power industry. Moreover, the Commission further assisted states by conducting a public workshop in September 1999 that focused on market power and consumer protection issues of interest to state regulators who are introducing competition into retail electric power markets. Workshop findings were published in a Staff Report: Competition and Consumer Protection Perspectives on Electric Power Regulatory Reform (July 2000)                         *http://www.ftc.gov/​be/​v000009.htm.*
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2.                             “Supplier of last resort” obligation refers to a company's duty to provide generation services to customers who have not chosen a new supplier. This obligation may be retained by the incumbent utility, it may be auctioned to alternative suppliers, or customers may be assigned to new suppliers. Many states have combined this obligation with the default service obligation to serve customers whose chosen supplier has exited the market.                    
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[FR Doc. 01-5429 Filed 3-5-01; 8:45 am] 

BILLING CODE 6750-01-P