The staff of FTC's Bureau of Economics filed comments with the New Mexico Public Regulation Commission (NMPRC) regarding affiliate codes of conduct in the electric power industry and other industries where public utility firms are participants.
As an independent administrative agency responsible for maintaining competition and safeguarding the interests of consumers, FTC often analyzes regulatory or legislative proposals that may affect competition or the efficiency of the economy. In doing so, the staff applies established principles and recent developments in economic theory and empirical analysis to competition issues. The staff has a longstanding interest in regulation and competition in energy markets, including proposals to reform regulation of the electric power and natural gas industries.
In the comment, FTC staff suggested - based on its analysis of other states' proposed codes of conduct - that the NMPRC adopt a cost/benefit approach to analyzing affiliate rules of conduct and other issues, as "it has long been recognized that affiliate relationships between regulated and unregulated companies may impose a variety of costs...including funding unregulated companies with revenue from regulated companies and having the utility provide preferential treatment to its unregulated affiliates." In addition to these potential threats to competition, there are significant costs associated with regulating this behavior effectively, "especially in time-sensitive electric power markets." Conversely, however, a public utility may benefit from efficiencies of vertical integration that can be passed along to consumers in the forms of lower prices and broader service offerings. Such an approach takes into account both the cost and benefits of proposed actions.
The staff also stressed that "it is critical to have a framework to assess the economics of vertical integration," based on its analysis of the relevant market, and elaborated on an analytical framework that both the FTC and Department of Justice use in evaluating potential mergers to assess efficiency benefits from proposed vertical integration. In assessing such benefits, "New Mexico may wish to consider only those efficiencies that reverse the threat to competition arising from the close operating relationship between a public utility and its unregulated affiliates," according to the comment.
That is, only those efficiencies that are "verifiable and specific to the particular utility/affiliate relationship" are relevant, and the NMPRC may wish to incorporate this principle into its code of conduct to help it evaluate proposed transactions between regulated utilities and their unregulated affiliates. Such a framework could be used in preliminarily assessing whether to separate vertically the regulated and unregulated activities of a public utility, as well as "specifically gauging the efficiency benefits of a particular joint activity between a public utility and its unregulated affiliate(s)."
The Commission vote to file the staff comments was 5-0. (FTC File No. V990017; staff contact is John Hilke, 303-844-3565.)
Following a public comment period, the Commission has made final a consent agreement with the following entity: VNU N.V. The Commission action makes the consent order binding on the respondent. The Commission vote to finalize the consent agreement was 4-0, with Commissioner Thomas B. Leary not participating. (FTC File No. 991-0319; staff contact is Ann Malester, 202-326-2682; see press release dated October 22, 1999.)
The Commission has received a petition from J. Sainsbury plc and Shaw's Supermarkets to divest one supermarket in Massachusetts (located at 10 Technology Drive, Route 85, Hudson, Massachusetts) to The Stop & Shop Supermarket Company. The proposed divestiture comes following a June 28, 1999, order signed with the FTC regarding Shaw's acquisition of Star Market Holdings, Inc. (FTC File No. 991-0075; staff contact is Daniel P. Ducore, 202-326-2526; see press release dated June 28, 1999.)
Copies of the documents mentioned in this FYI are 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 Ave., 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.