Ginger Dernehl
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 -----Original Message-----
From: 	"Samantha Slater" <SSLATER@epsa.org>@ENRON  
Sent:	Monday, October 08, 2001 1:59 PM
To:	bhueter@enron.com; Linnell, Elizabeth; Kingerski, Harry; jmigden@enron.com; jsteffe@enron.com; Robinson, Marchris; Petrochko, Mona L.; Kaufman, Paul; rboston@enron.com; rshapiro@enron.com; snord@enron.com; Montovano, Steve; Landwehr, Susan M.
Subject:	FTC Staff Issues Report on Electric Power Regulatory Reform

For Release: October 3, 2001

FTC Staff Issues Report on Electric Power Regulatory Reform

A new staff report issued today by the Federal Trade Commission examines which features of various state retail electricity programs appear to have resulted in consumer benefits and which have not. The staff report also highlights certain jurisdictional limitations on the states' authority to design successful retail competition plans and discusses whether there is a need for federal legislative or regulatory action in this regard. The report, "Competition and Consumer Protection Perspectives on Electric Power Regulatory Reform: Focus on Retail Competition," updates a July 2000 FTC Staff Report and responds to a request to update that report made by the Chairman of the Energy and Commerce Committee of the United States House of Representatives, W. J. "Billy" Tauzin, and the Chairman of the Subcommittee on Energy and Air Quality, Joe Barton.

In its report, FTC staff identify several overall points about how restructuring has proceeded at the state level so far:

The states that have moved toward competition in electricity
generation and retail marketing are in a transition period, during
which retail price regulation will continue as some elements of
competition are introduced. No state has completed the transition
period.  Most policy choices that confront states during this transition period involve tradeoffs, with each option presenting potential costs and
benefits.

Given that states are in a transition phase that represents a hybrid of
regulation and competition, many of the expected benefits of competition have not yet emerged.  Nothing that has happened so far, however, indicates that competition -- once the transition period is completed -- will not produce additional benefits to electricity customers. Competition
provides stronger incentives for the efficient deployment of capital for
generation investments and for suppliers to offer innovative services
and products to consumers.

Among the main conclusions of the report and the reasoning underlying
these conclusions are the following:

Competitive Wholesale Markets Are Important To Achieving Effective Competition In Retail Markets.

For all of the expected benefits of retail competition to be realized, it
is imperative that wholesale markets be competitive. Effective
wholesale and retail competition will mutually reinforce each other,
thus combining to bring benefits to retail customers. And as
wholesale and retail markets become regional, governing policies and
jurisdictional approaches also must move in that direction for wholesale and retail competition to be successful.

Policies Are Needed In Retail and Wholesale Markets That Will Increase Demand-Side Responsiveness.

So far, neither retail nor wholesale markets for electricity generation
encourage effective demand-side responses. Generally, retail
customers do not have price information and time-sensitive rates that
reflect the changing price of obtaining electricity at various times of
the day and over the course of the year. Increasing the price
sensitivity of demand also will help to constrain existing or potential
market power in generation. This is true because a price increase will
be less profitable for generators if it is passed through and retail
buyers respond by reducing their consumption by a significant
amount. In conjunction with variable pricing for generation services,
retail suppliers should be permitted to offer competitive metering and
billing services to their customers. Such competition would
encourage the development of innovative new services (e.g., real-time
pricing).

Policies that Set the Price of Standard Offer Service for Non-Choosing Customers Have A Substantial Effect on the Entry of New Retail Suppliers.

Effective retail competition, and the subsequent consumer benefits of
retail competition, are much more likely with actual entry. State policies that eliminate barriers to entry to allow for the long-run, efficient entry of entities to compete with the incumbent will assist the development of retail electricity markets.

Most states have required the existing distribution utility to continue
to offer service ("standard offer service") at fixed, regulated rates to
customers that do not choose a new supplier or whose supplier exits
the market. Often the duration of this service is coterminous with the
time period during which the state allows the utility to recover its
stranded costs (those generation-related costs that are uneconomic
in a competitive environment).

States should design standard offer service policies that provide
entrants with sufficient incentives to offer service and do not,
unintentionally, create a barrier to entry. Ensuring that standard offer
service providers can pass on changes in fuel costs and wholesale
electricity prices will aid this goal. Initial rate reductions for standard
offer service, which are not based on cost reductions, tend to distort
entry decisions and reduce incentives for retail customers to search
for alternative suppliers.

State Consumer Protection Policies Can Affect Both Consumers
and the Likelihood of New Entry to Increase Competition.

Consumers' choices will be made most efficiently if consumers are
exposed to accurate, timely and comparable information about retail
suppliers of electricity. Enforcement of truth-in-advertising laws will
help ensure that suppliers make truthful, nondeceptive, and
substantiated advertising claims in the new retail marketplace. Standardized labeling of retail electricity products and services may
be beneficial to consumers and competing electricity suppliers, as long as it allows suppliers to provide additional information as they begin to offer innovative services and products to consumers.

Consumer education programs that provide general information to
increase consumer awareness about retail competition, as well as
"nuts and bolts" information to allow consumers to shop effectively
and select their supplier, will help to ensure that consumers have the
information they need to participate effectively in competitive retail
electricity markets.

The Commission vote authorizing release of the staff report was 5-0. This
report represents the views of the staff of the Federal Trade Commission. It does not necessarily represent the views of the Federal Trade Commission or any individual Commissioner.




           
 - FTC Appendix B 10-3-01.pdf << File: FTC Appendix B 10-3-01.pdf >> 
 - FTC Appendix A 10-3-01.pdf << File: FTC Appendix A 10-3-01.pdf >> 
 - FTC electricityreport 10-3-01.pdf << File: FTC electricityreport 10-3-01.pdf >>