[Federal Register Volume 66, Number 44 (Tuesday, March 6, 2001)]
[Notices]
[Pages 13536-13539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5429]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION


Notice Requesting Comments on Retail Electricity Competition 
Plans

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 
[email protected]. 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, [email protected] or John Hilke, Bureau of 
Economics, Federal Trade Commission, 1961 Stout Street, C/O HHS RM. 
325, Denver, CO 80294-0101, 303-844-3565, [email protected].

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

[[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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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

[[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?
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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

[[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.
[FR Doc. 01-5429 Filed 3-5-01; 8:45 am]
BILLING CODE 6750-01-P