FTC Vows to Protect Consumer Gains During Electricity Deregulation

Saying that the Federal Trade Commission "stands ready to meet its enforcement responsibilities to protect the consumer gains" likely to result from the introduction of market forces into the U.S. electric power industry, FTC Commissioner Mozelle W. Thompson testified today before the House Committee on the Judiciary regarding competitive issues related to the deregulation process.

"The potential for consumer savings and increased choice is enormous, but it is certainly not guaranteed," Thompson told the Committee on behalf of the Commission. "As our recent cases illustrate, vigilant antitrust enforcement is an essential component of a market economy, especially in the formative years after the regulatory grasp is loosened." The testimony points out that the result of these enforcement efforts should be that those companies "long-accustomed to the slower pace and shelter of regulatory life" will begin to feel the effects of market forces. "Deregulated industries generally exhibit lower prices, increased quality and quantity of goods and services, and heightened innovation," he said.

The testimony provides an overview of the regulatory background in the electric power industry to help explain the role of antitrust agencies in addressing competitive issues in a deregulating market. As there are existing regulated monopolies within the electric power industry, it states, "the starting point for competition ... is not a level playing field characteristic of a newly developing market ... Ensuring that consumers receive benefits upon deregulation may be greatly affected by the ability of [the energy market] to move to an open and competitive stance, rather than one dominated by newly unregulated monopolies."

Thompson noted that the application of federal antitrust laws "can help in this transition to competition by making sure that mergers do not aggravate market power problems or shield incumbent companies from new competition." He went on to note that market dominance can, in some cases, exist without unfair acts and practices. In such cases, the FTC stands ready to work with the Federal Energy Regulatory Commission (FERC) to address wholesale and retail market power issues. Accordingly, as part of the testimony, he described examples of both horizontal and vertical market power and their relation to the regulatory process.

In addition, according to the testimony, specific market power concerns exist that must be taken into account as the electricity deregulation and restructuring process moves forward. These concerns include recognizing that utilities may attempt to protect or duplicate many aspects of their formerly regulated surroundings, or may find themselves subject to inconsistent regulations as different states move forward at different times. In addition, other public policy goals such as universal service and environmental protection usually fall outside the scope of traditional antitrust analysis, and some special provisions may be needed in these cases. Finally, removing entry and capital expenditure controls from a long-regulated industry will unleash a pent-up demand for corporate restructuring. The resulting consolidations must be considered as well.

Thompson also noted that on September 13-14, the FTC will hold a public workshop in Washington, D.C. on "market power and consumer protection considerations" in the electric industry. The issue should be of significant interest to consumers, he said, as total industry revenues generated by electric utilities nationwide are estimated at $200 billion a year, with a total capital investment of nearly $700 billion-almost 10 percent of all U.S. capital investment.

In conclusion, the testimony states, "If the cost savings and technological improvements in this industry approach those attained in other previously deregulated industries, many consumers will likely be substantially better off in terms of lower prices and increased choices." However, these potential savings "will not appear automatically," and "proper application and enforcement of antitrust principles are necessary to ensure that the benefits of competition reach consumers."

As a law enforcement agency, the FTC has statutory authority covering a broad spectrum of the American economy, including the electric power industry. In the past, in addition to testifying on this issue before Congress, the Commission has commented to the FERC on the importance of wholesale competition within the industry and the "appropriate analytical framework" for evaluating potential mergers. FTC staff also have provided comments to a number of states on the importance of considering the impact of market power as retail competition is introduced into the power industry.

The testimony from this hearing is available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); 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.:881006)