FTC Staff Files Comment With West Virginia Public Service Commission

The staff of the Federal Trade Commission has filed a comment with the Public Service Commission of West Virginia about issues related to electric utility restructuring in the state. In addition, the staff provided comments about the restructuring plans submitted by American Electric Power and Allegheny Power, two utilities operating in West Virginia.

The FTC has a longstanding interest in regulation and competition in energy markets, including proposals to reform regulation of the natural gas and electric power industries. FTC staff has submitted numerous comments concerning these issues at both the federal and state levels.

In its comment, the FTC staff noted five areas the Commission may wish to consider in the transition to retail competition in the electric utility industry. The staff also used the same themes in commenting on plans submitted by the two utility companies. These areas were:

1. both horizontal market power and discrimination against competing suppliers of generation by vertically integrated transmission monopolies may be of concern in the electric industry;

2. there are several appropriate factors to consider in a market power analysis, and the PSC may wish to avail itself of computer simulation models to help examine these factors as well as to evaluate current and prospective horizontal market power;

3. if West Virginia determines that it faces likely market power problems in electric generation markets, addressing them through structural remedies may be preferable to relying exclusively on market power monitoring and mitigation;

4. independent system operators (ISOs) of the transmission network within a defined geographic region are potentially attractive institutions for addressing some of the market power issues in the electric industry, particularly if the ISO is formed to avoid the dangers signaled by four key ISO warning signs -- insufficient size, lack of a contingency plan for generation restructuring, lack of independence, and failure to adequately deal with transmission congestion; and

5. properly developed and operated ISOs also may help address reliability concerns.

The Commission vote to approve the staff comment was 4-0.

NOTE: The comment represents the views of staff members of the FTC's Bureau of Economics and not necessarily the views of the Commission or any individual Commissioner.

Copies of the full text of the comment are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD 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. V980015)