FTC Staff Files Comment with Massachusetts Office about Rules Governing Regulated Utilities and Unregulated Affiliates

The staff of the Federal Trade Commission on October 8 filed a comment with the Massachusetts Department of Telecommunications and Energy (MDTE) outlining issues it may wish to consider as it reviews its rules governing transactions between a regulated electric utility and its unregulated affiliates.

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.

In its comment to the Massachusetts officials, the staff of the Bureau of Economics focused on four areas that the state may wish to consider as it devises its plan to govern relationships and transactions between these entities. For example:

1. The comment noted that there may well be fundamental trade-offs between preventing discriminatory behavior by the parent utility and preserving economies of vertical integration with its affiliate. The staff's comment evaluated the potential costs and benefits of behavioral unbundling versus structural separation of distribution companies and their affiliates and suggested that Massachusetts authorities evaluate the trade-offs based on its experience during an interim period.

2. The comment noted that the state has created behavioral rules prohibiting favoritism or discrimination in transactions between regulated parent utilities and their unregulated affiliates. The staff suggested that Massachusetts may wish to add a "market-like" institution to govern transactions between parent utilities and their affiliates that would include an objective bidding process in which a third party evaluates the bids.  

3. The comment noted that the state permits an affiliate to use the corporate name or logo of the regulated parent firm with the proviso that such use be accompanied by a disclaimer. The staff suggested that the MDTE may wish to conduct consumer testing to assure itself that such a disclaimer is sufficient to avoid consumer deception.  

4. The FTC staff also suggested that the state officials may wish to reexamine the role of antitrust enforcement in addressing existing market power that is implied in the state's order on affiliate rules. Antitrust enforcement focuses on preventing increases in market power through anticompetitive mergers or practices and does not focus on addressing existing market power that might emerge, for example, as a vestige of past regulation.

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. V980029)