Market Power in Electric Utility Industry is Topic of FTC Staff Comment Filed with Louisiana Public Service Commission

The staff of the Federal Trade Commission today filed a comment with the Louisiana Public Service Commission (PSC) in response to its request for comments about the "Market Structure, Market Power, Reliability, and ISOs" portion of its investigation into whether the electric industry restructuring and competition in the provision of retail electric service is in the public interest. The staff noted in its comment that problems related to market power in electricity generation and transmission discrimination problems are reasonable sources of concern for the Louisiana PSC as it considers retail competition. In addition, it suggested that the Merger Guidelines used by the FTC and Department of Justice and recently developed computer simulation models may help the PSC draw appropriate conclusions about the extent of generation market power facing Louisiana consumers.

The FTC has a longstanding interest in regulation and competition in energy markets. Because Louisiana and other states likely will consider the use of independent system operators (ISOs) to facilitate wholesale and retail competition in the electric industry, the comment highlights four warning signs of possible competition problems in forming ISOs: 1. the ISO is too small;   2. there is no plan for generation restructuring even when there is a potential market dominance problem by vertically integrated utilities;   3. the "independence" aspect of the ISO is weak; and   4. the ISO plan does not effectively deal with transmission congestion.

In addition, the staff's comment discussed other areas, including: 1. the potential for horizonal market power and discrimination against competing suppliers of electricity generation by vertically integrated transmission monopolists in the electric industry;   2. possible structural remedies if market power is found; and   3. the possible benefits of ISOs in addressing market power issues and in responding to reliability concerns.

The Commission vote to approve the staff comment was 5-0.

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 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.