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Power Pools & ISOs: Monitoring Market Power in a Restructured Industry

Fortnightly Magazine - March 1 1998

monitoring function has not been such a major issue. F

Reinier Lock is a founding partner of the law firm of Cameron McKenna, LLP, resident in the firm's office in Washington, D.C. He developed the plans and protocols for the market monitoring programs for the California ISO and the PX and advised plans for ISO New England and PJM. He was the legal advisor to former commissioner Charles Stalon at the Federal Energy Regulatory Commission, and deputy assistant general counsel for regulatory interventions at the U.S. Department of Energy.

Otter Tail's Odyssey

Seeking a Balance With Antitrust

After a quarter century, regulators are still unsure how to coexist.

WELL before competition began in the electricity industry, the

courts questioned (em without really answering (em how antitrust enforcement and traditional regulation should coexist and interact in the oversight of the electric utility industry.

SHATTERED ILLUSIONS. In its renowned Otter Tail decision in 1973, the Supreme Court shattered any illusions that public utility regulation at the federal level (under the Federal Power Act) might provide any sort of immunity from antitrust laws. In that case, a utility's efforts to use its monopoly power to prevent wholesale customers from obtaining power elsewhere were found to violate the Sherman Act; and the district court ordered wheeling to correct the abuse.

The expectation of immunity at the federal level had been based in part on an analogy to the previously recognized "state action" doctrine, which provides a level of immunity from antitrust liability for utility activities regulated by state commissions. However, that doctrine is based upon principles of federalism that hold at bay the federal antitrust laws when states have authority to regulate a field of activity. It is not based upon any systematic effort to define the relationship between antitrust law and public utility regulation.

The Otter Tail decisions, then, also dispelled any hope of finding some clear dichotomy between the scope of these bodies of law. Instead, a hazy line has grown up between them. This ambiguous boundary creates an uncertainty that is compounded by the curious disjuncture between the effect of state and federal regulation on antitrust law, the former conferring some level of antitrust immunity, the latter not.

Moreover, court decisions after Otter Tail made clear that even the state action doctrine does not confer blanket immunity in state-regulated areas of activity. Its application has fallen subject to increasingly rigorous tests: the courts now require that the state's intent to displace competition with regulation is "clearly articulated and affirmatively expressed" and that the regulator concerned "actively supervises" the conduct in question.

GROWING AMBIGUITY. Today, the relevance of the state action doctrine is waning as state regulation retreats from its traditional comprehensive coverage of utility activities to accommodate both broader federal assertions of regulatory authority over a disaggregating industry and increasing competition at the wholesale and retail levels.

At the same time, however, antitrust principles are gaining in importance, as the electric industry creates new, markets and institutions (e.g., competitive power pools and independent system operators) about which regulators have little experience.

In fact,