Antitrust Division Won't Challenge
Electricity Distribution Cooperative

WASHINGTON (BNA) -- A proposal by 17 rural Arkansas electric power 
distribution cooperatives that would allow them to market electric power to 
retail customers passes antitrust muster, according to a Jan. 10 business 
review letter by the Justice Department's Antitrust Division, which could 
find no lessening of competition in any electric power market. 
The distribution cooperatives are 17 nonprofit cooperative corporations 
formed under the Electric Cooperative Corporation Act of Arkansas to provide 
electric service predominantly to rural consumers. 
Each distribution cooperative is owned by the individual member/consumers 
that it serves and is legally obligated to distribute annually all its income 
to its member/customers. 
Due to the 1999 enactment of the Electric Consumer Choice Act, which mandates 
competition in the retail sale of electricity beginning as early as Jan. 1, 
2002, the manner of selling and buying retail electricity within Arkansas 
will change greatly. Consumers now purchase electricity only from the 
regulated electric utility serving the territory in which the consumer is 
located. Under the Act, a consumer will be allowed to purchase electric 
energy from any entity in the competitive marketplace, and the consumer's 
incumbent utility will have to deliver that electricity to the consumer's 
door under regulated distribution charges. 
The new legislation's primary focus is the separation of the retail marketing 
activities--which will be completely competitive--from the electric utility's 
regulated transmission and distribution activities. To ensure that the 
utility's marketing operations do not benefit improperly from its 
relationship with the utility, the Act provides that employees engaged in the 
transmission and distribution system operations are required to function 
independently of employees engaged in the marketing or sale of electricity at 
retail. 
The act creates an obligation for each incumbent utility to offer a standard 
service package to any consumer who has not been willing or able to secure an 
alternative energy service provider. Distribution cooperatives, under the 
act, may serve these consumers, referred to as default consumers, directly or 
they may assign them to an affiliate. The rates for the standard service 
package will be a market rate, unless the incumbent utility chooses to offer 
a regulated rate approved by the Arkansas Public Service Commission. 
The proposal advanced by the distribution cooperatives would enable them to 
create a joint venture to market electric power to retail customers 
throughout Arkansas. All retail marketing activities outside the traditional 
local territories of the distribution cooperatives would be conducted through 
the joint marketing venture. If a distribution cooperative decides to 
withdraw from the joint venture, it may compete with the joint venture for 
any and all consumers. 
The proposal provides that each distribution cooperative would decide 
individually whether to serve its default customers directly or to assign its 
default customers to the joint venture. 
Each distribution cooperative has a relatively small amount of the electric 
power generating capacity in Arkansas, and the combined generating power 
capacity of the 17 distribution cooperatives is approximately 6 percent of 
the total generating capacity in the two areas of Arkansas in which the joint 
venture is likely to market. 
The joint venture is expected to achieve economies of scale that would give 
it significantly lower distribution costs in statewide or regional markets 
than would be attainable by individual members. 

Procompetitive Effects

In the business review letter, Acting Assistant Attorney General A. Douglas 
Melamed indicated that the proposed joint retail marketing venture does not 
appear to have any anticompetitive effect. 
He commented that "while the distribution cooperatives could be viewed as 
potential entrants into each other's local retail markets, regional markets 
and a state-wide market, their small size and relatively high operating costs 
make it unlikely that they could enter new markets on their own or that, if 
they tried to enter, they would offer effective competition." 
Melamed added that "the existence of other, larger potential entrants into 
[the local retail markets] would significantly diminish, if not eliminate, 
any anticompetitive effect that might otherwise result from the joint venture 
proposal. It seems at least as likely, if not more so, that the joint retail 
marketing proposal would have the procompetitive effect of creating an 
additional entrant into retail markets not currently served by the 
distribution cooperatives." 
The business review letter is available at http://www.usdoj.gov/atr/--the 
Antitrust Division's Web site-- and a file containing the business review 
request and the division's response may be examined in the Antitrust 
Documents Group of the Antitrust Division, Suite 215, Liberty Place, 325 7th 
St., N.W., Department of Justice, Washington, DC 20004.