FTC Chairman Testifies on Electric Power Deregulation

Robert Pitofsky, Chairman of the Federal Trade Commission, told the House Judiciary Committee today that deregulation in the electric power industry could benefit consumers by reducing prices and increasing choices. He noted that deregulation in natural gas, long distance telephoning, airlines, trucking and railroad industries had reduced prices significantly. But he cautioned that the potential savings and innovations from deregulation in electric power, as in the other industries, would not be automatic and would only be realized if deregulation was accompanied by vigorous enforcement of antitrust and consumer protection laws.

In a hearing on electric power deregulation, Pitofsky said time and technology have made regulation "outmoded" in the electric power industry. Addressing changes in technology and public policy that have reduced regulation and increased competition in the last 10 years, Pitofsky said, "It is apparent that these changes are only the beginning."

Pitofsky noted that experience has shown that when heavily regulated industries are deregulated, they may attempt to protect or duplicate the regulatory environment. "Where they are accustomed to coordinated interaction and the use of the regulatory process to bar or disadvantage new entry, industry members may attempt to use monopolistic or cartel behavior to protect their entrenched positions after deregulation," Pitofsky said. "The consumer and efficiency gains from deregulation may be jeopardized without vigorous antitrust enforcement during and after deregulation. The antitrust agencies must ensure that public regulation is replaced by private competition, not private collusion or dominant firm behavior," he warned.

Pitofsky said that effective consumer protection initiatives, especially disclosures, also will be important as the electric power industry is deregulated. Noting the FTC's experience in requiring disclosures in such diverse areas as loan interest rate information, energy efficiency

information for major home appliances, octane ratings for gasoline, gas mileage information for automobiles and price and other information with respect to 900-number telephone lines, Pitofsky said: "The Commission has already begun efforts to protect electric power customers. The Commission is participating in an interagency task force established by the Department of Energy to explore consumer information issues arising from the restructuring of the electric power industry."

"Deregulation in a number of industries has proven to be beneficial to consumers and the competitive process," Pitofsky said. "The deregulated industries exhibit lower prices, increased quality and quantity of goods and services, and heightened innovation. The electric power industry is on the verge of substantial deregulation. While it is unclear whether that process will be driven by the states or by the federal government, the outcome in either case should be that market forces will have an effect on firms long accustomed to the slower pace of regulated life."

"The potential for consumer savings and increased choice is enormous, but it is certainly not guaranteed," Pitofsky said. "Vigilant antitrust enforcement is an essential component of a market economy. . . . The Commission stands ready to provide this enforcement to protect the consumer gains that should follow the introduction of market forces to the electric power industry," he said.

The Commission vote to authorize the testimony was 5-0.

Copies of the testimony are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov and also from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. P950101)