Billing Code: 6750-01
FEDERAL TRADE COMMISSION
Notice Requesting Comments on Retail Electricity Competition Plans
AGENCY: Federal Trade Commission.
ACTION: Notice Requesting Comments on Retail Electricity
SUMMARY: Many States have enacted and, in some cases, begun to
implement legislation designed to introduce competition into the retail sale of
electricity in order to encourage lower prices, better service, and greater innovation.
Recently, however, substantial price increases and reliability problems in some of the
areas undergoing a transition to competition raise questions about how electricity
restructuring can best be designed to benefit retail customers. The Federal Trade
Commission seeks to gather information about the results, to date, of different regulatory
approaches to the issues that arise in restructuring the retail sale of electricity. The
Commission will produce a report that discusses the advantages and disadvantages
associated with different approaches to particular issues and that identifies, if
warranted, areas in which additional federal legislative or regulatory action may be
DATES: Comments are due on April 3, 2001.
ADDRESSES: Any interested person may submit a written comment that
will be considered part of the public record. Written presentations should be submitted in
both hard copy and electronic form. Six hard copies of each submission should be addressed
to Donald S. Clark, Office of the Secretary, Federal Trade Commission, 600 Pennsylvania
Avenue, N.W., Washington, D.C. 20580. Submissions should be captioned "V010003 --
Comments Regarding Retail Electricity Competition." Electronic submissions may be
sent by electronic mail to firstname.lastname@example.org.
Alternatively, electronic submissions may be filed on a 3-1/2 inch computer disk with a
label on the disk stating the name of the submitter and the name and version of the word
processing program used to create the document.
FOR FURTHER INFORMATION CONTACT: Michael Wroblewski, Policy
Planning, Federal Trade Commission, 600 Pennsylvania Ave., N.W., Washington, D.C. 20580,
202-326-2155, email@example.com or John
Hilke, Bureau of Economics, Federal Trade Commission, 1961 Stout Street, C/O HHS RM. 325,
Denver, CO 80294-0101, 303-844-3565, firstname.lastname@example.org.
In recent years, many states and the Federal government have taken steps
to encourage competition in the generation sector of the electric power industry. To date,
24 states and the District of Columbia have set dates to allow customers to choose their
electric power supplier. In light of recent reliability problems and increases in
electricity prices in California and the western states generally, however, some States
have delayed, or are considering delaying, implementation of retail competition plans. For
example, Nevada, Montana, West Virginia, and Arkansas have decided to delay, or have
considered delaying, the transition to competition that they had previously established,
while others have determined that restructuring is not in the public interest at this time
(e.g., Louisiana, Colorado, Alabama, and Mississippi).
Competition among market participants will ordinarily provide customers
with the benefits of lower prices than would otherwise prevail, higher quality products
and services, increased variety of products and services, and enhanced rates of
innovation. Effective competition may not develop instantaneously, however, after decades
of pervasive regulation and local franchised monopolies. Moreover, the effectiveness of
competition may be affected greatly by the rules that govern the operation of the market
and that provide incentives to guide market participants' behavior.
In light of the recent increases in electric power prices and reliability
difficulties, the Chairman of the Energy and Commerce Committee of the United States House
of Representatives, W. J. ABilly@ Tauzin, and the Chairman of the Subcommittee on Energy
and Air Quality, Joe Barton, have requested that the Commission examine various state
retail competition programs and describe those features that appear to have resulted in
consumer benefits and those that have not yielded consumer benefits. In addition, the
Commission has been asked to examine possible jurisdictional limitations on the states'
authority to design successful retail competition plans. To comply with this request, the
Commission will update its July 2000 Staff Report: Competition and Consumer Protection
Perspectives on Electric Power Regulatory Reform.
For the updated report, the Commission seeks additional information about
the benefits and drawbacks of state retail electricity competition plans. The Commission
proposes to examine state plans that allow customers to choose their generation supplier,
and state plans with unique approaches to retail electricity competition. These states may
include, but are not limited to, Arizona, California, Illinois, Maine, Maryland,
Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Texas. The
Commission will work with the states to understand the various features of plans (e.g.,
standardized labeling rules, supplier licensing requirements, provider of last resort
obligations, pricing of default service) and to gather facts relevant to understanding the
market reaction to a particular state's plan (e.g., number of customers eligible
for retail competition, rate of customer switching to new suppliers, number of new
suppliers offering service).
Listed below is a series of additional questions about which the
Commission seeks public comment. The Commission seeks comments on features of state retail
competition plans that have benefitted consumers and those that have not. The Commission
is particularly interested in receiving information about the market response to various
provisions of state retail competition plans. It is not necessary to respond to each
question for every state. Rather, it would be helpful for respondents to provide, for
example, specific information about market responses to a particular state's retail
competition plan, or a comparison of the market responses to the means individual states
have used to address one or more subject matter areas (e.g., provider of last
resort pricing, consumer education efforts).
Specific Questions to Be Addressed
History and Overview
1. Why did the state implement retail electricity competition? What
problems of the previous regulatory regime was it trying to solve?
2. What were the expected benefits of retail competition? Were price
reductions expected in absolute terms or in relation to what price levels would be absent
retail competition? Were the benefits of retail competition expected to be available to
consumers in urban, suburban, and rural areas? Were the benefits expected to be available
for residential, commercial, and industrial customers? Were the benefits expected to be
comparable for each group of customers?
3. What factors or measures should the Commission examine in viewing the
success of a state's retail electricity competition program? How should these measures be
4. What are the most successful and least successful elements in the
state's retail competition program? Has the state taken steps to modify the least
Consumer Protection Issues
1. What efforts were made to educate consumers about retail competition?
How was the success of these efforts measured? Were the programs successful? Who funded
these efforts? Who implemented the programs?
2. Do consumers have enough information to readily make informed choices
among competing suppliers? Did the state coordinate its labeling requirements about the
attributes of a supplier's product, if any, with neighboring states? Is there a need for
federal assistance to provide standardized supplier labeling? If so, what would be the
most useful federal role?
3. Have consumers complained about unauthorized switching of their
accounts to alternative suppliers (Aslamming@) or the placement of unauthorized charges on
their electric bills (Acramming@)? Were rules adopted to prevent these practices? Has the
state taken enforcement action under its new authority against slamming and cramming? Have
these actions been effective to curb the alleged abuses? Is there a need for federal
assistance with slamming and cramming issues? If so, what would be the most useful federal
4. How did the state facilitate the ability of customers to switch to a
new supplier? Have these efforts been successful? Does the state allow consumers to
aggregate their electricity demand? If so, has aggregation enabled consumers to benefit
from retail electricity competition? If not, why not?
5. Has the state established licensing or certification requirements for
new suppliers to provide electricity to customers? Why? Which licensing provisions are
designed to protect consumers? How do they operate? Has the state taken enforcement action
against unlicensed firms? Have these actions been effective to curb unlicensed activity?
Have these requirements acted as an entry barrier for new suppliers?
6. Did the state place any restrictions on the ability of a utility's
unregulated affiliate(s) to use a similar name and/or logo as its parent utility, in order
to avoid consumer confusion when the affiliate offered unregulated generation services?
Why or why not? What has been the experience to date with the use of these restrictions?
Are consumers knowledgeable about who their suppliers are?
7. Did the state place any restrictions on third-party or affiliate use of
a utility's customer information (e.g., customer usage statistics, financial
information, etc.)? What were the reasons for enacting the restrictions? What has been the
effect of these restrictions on new marketing activity?
8. Has the state adopted any other measures intended to protect consumers
(e.g., length of consumer contracts, automatic renewal provisions, etc.) as it
implemented retail competition? What has been the effect of these measures?
9. To what extent have suppliers engaged in advertising to sell their
product(s)? Do some suppliers claim that their product is differentiated (e.g.,
that it has environmental benefits)? Has there been any enforcement or attempts to verify
these advertising claims? Do any certification organizations, such as Green-e, operate in
the state? Are they used by (or at least available to) a substantial portion of consumers?
Retail Supply Issues
1. What difficulties have suppliers encountered in entering the
market? What conditions/incentives attract suppliers to retail markets? Have suppliers
exited the market after beginning to provide retail service? If so, why?
2. What are the customer acquisition costs and operational costs to
service retail customers? How do acquisition and operational costs compare to profit
margins for electric power generation services? Do retail margins affect entry? If so,
how? Did the state harmonize the procedures suppliers use to attract and switch customers
with other states' procedures, in order to reduce suppliers' costs?
3. Have customers switched to new suppliers? Why or why not? Are there
greater incentives for certain customer classes (i.e., industrial, commercial,
residential) than for others to switch suppliers? Why or why not? Are penalties or
different rates applied to customers that switch back to the supplier of last resort? Are
there other measures to determine whether customers are actively considering switching
suppliers? If so, do these indicators show different patterns than the switching rate
4. Have suppliers offered new types of products and services (e.g.,
time of day pricing, interruptible contracts, green power, etc.) in states where retail
competition has been implemented? If so, describe the products and what customer response
5. What are the benefits or drawbacks of the different approaches to
handling the supplier of last resort obligation for customers who do not choose a new
supplier (e.g., allow incumbent utility to retain the obligation to provide
generation services to non-choosing customers, auction the obligation, or assign the
obligation to non-utility parties). What has been consumer reaction to these approaches?
Is provider of last resort service necessary?
Retail Pricing Issues
1. How is entry affected by the price for the provider of last resort
service (for customers who do not choose) or for default service (for customer whose
supplier exits the market)? How does the price for the provider of last resort or default
service compare to prices offered by alternative suppliers? Is the price for provider of
last resort service or default service capped? If so, for how long?
2. Has the state required retail rate reductions prior to the start of
retail competition? What is the rationale for these reductions? How have state-mandated
rate reductions prior to the start of retail competition affected retail competition?
3. Do any seasonal fluctuations in the price of wholesale generation cause
some suppliers to enter the market only at certain times of the year? How have these
4. How has the state addressed public benefit programs (e.g.,
universal service requirements, low income assistance, conservation education, etc.) as it
has implemented retail competition? Which of these programs are necessary as competition
is introduced and why? Are public benefits available to all customers or are they
restricted to customers of the supplier of last resort? How does this affect retail
Market Structure Issues
1. How has the development of Regional Transmission Organizations
(RTOs) affected retail competition in the state?
2. Did the state require the divestiture of generation assets (or impose
other regulatory conditions on the use of these assets) when retail competition was
introduced? To what extent was divestiture of generation assets a component of the state's
handling of a utility's stranded costs? Was divestiture used to remedy a high
concentration of generation assets serving the state? Was there appreciable voluntary
divestiture of generation assets? Has the state examined whether there has been
appreciable consolidation of ownership of generation serving the state since the start of
3. If a utility no longer owns generation assets to meet its obligations
as the supplier of last resort or default service provider, what market mechanism (e.g.,
spot market purchases, buy back or output contracts, etc.) does it use to obtain
generation services to fulfill these obligations? What share of a utility's load is
obtained via the different mechanisms? How are these shares trending? Is the market
mechanism transparent? Is it necessary to monitor these market mechanisms? Why or why not?
If so, what should the monitor examine?
4. Explain the state's role in overseeing operation of the transmission
grid in the state and the extent to which public power or municipal power transmission
systems are integrated into this effort. What is the relationship between the state's role
and the Federal Energy Regulatory Commission's role in transmission system operation in
5. Do firms that have provider of last resort or default service
obligations (formerly Anative load@ obligations in the regulated environment) receive
preferential transmission treatment? If so, how does this affect wholesale electric power
competition? How and by whom should retail sales of bundled transmission services (i.e.,
retail sales of both energy and transmission services) and retail sales of unbundled
transmission be regulated? If by more than one entity, how should regulation be
coordinated? What should the state's role be in overseeing wholesale transmission
6. To what extent did the state identify transmission constraints
affecting access to out-of-state or in-state generation prior to the start of retail
competition? Is the state capable of remedying these transmission constraints, or is
federal jurisdiction necessary? How do the rationales for federal jurisdiction over
electric power transmission siting compare to the reasons underlying federal jurisdiction
over the siting of natural gas pipelines?
7. How have state siting regulations for new generation and transmission
facilities been affected by the onset of retail competition? Has new generation siting
kept pace with demand growth in the state? If not, why not? Is federal jurisdiction
necessary for siting of electric power generation facilities? Has the state
actively monitored and reported the relationship between in-state capacity and peak demand
in the state? What incentives do suppliers have to maintain adequate reserve capacity?
What are the ways to value capacity in competitive markets? Is reserve sharing still
important in competitive markets? Do other institutions/market processes provide a
reasonable substitute for reserve sharing?
8. Since the start of retail competition, what has been the rate of
generation plant outages (scheduled and unscheduled)? To what extent has the state
monitored these outages and examined their causes?
1. What measures has the state taken to make customer demand responsive to
changes in available supply? Has the state provided utilities incentives to make customers
more price responsive? Has the state moved away from average cost pricing? What effect
have these measures had on demand and on demand elasticity?
2. Has the state provided mechanisms and incentives for owners of
co-generation capacity to offer power during peak demand periods? Has the state
identified, reported, and facilitated development of pumped storage facilities or other
approaches to arbitraging between peak and off-peak wholesale electricity prices?
3. What issues have arisen under retail competition that have required
cooperation or coordination with other states? What approach was taken to securing this
cooperation or coordination? Are there other issues requiring cooperation that have not
yet been addressed? Which of these issues are the most significant?
4. How prevalent is the use of distributed resources (e.g.,
distributed generation) within the state? What barriers do customers face to implementing
5. Which specific jurisdictional issues prevent state retail competition
programs from being as successful as they might be?
6. Which specific technological developments are likely to substantially
affect retail or wholesale competition in the electric power industry that may alter the
manner in which states structure retail competition plans? Why? What time frame is
associated with these developments?
7. What are the lessons to be learned from the retail electricity
competition efforts of other countries? Are there other formerly-regulated industries in
the U.S. (e.g., natural gas) that allow customer choice and provide useful
comparisons to retail electricity competition? If so, what are the relevant insights or
lessons to be learned?
By direction of the Commission.
Donald S. Clark