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Utility Marketing Affiliates: A Survey of Standards on Brand Leveraging and Codes of Conduct

Fortnightly Magazine - November 15 1998

resolve complaints on its own, and failing that, to promptly refer the matter to the PSC. The PSC has remedial authority for serious or sustained violations of the standards of competitive conduct, including ordering divestiture. At its call, the PSC can choose an independent auditor to review utility compliance with the terms of the agreement.

In June 1998, the Illinois Commerce Commission %n14%n approved rules on nondiscrimination in affiliate transactions pursuant to a new (1997) state law. %n15%n Preferential treatment of their own affiliates over others by tariffs or terms and conditions of sale, saying or implying to customers that dealing with the incumbent distribution company affiliate gives a special benefit over dealing with unaffiliated suppliers, and differentially processing requests for similar services (em all are prohibited.

The nine-month California rulemaking to develop standards of conduct for relationships between energy utilities and their affiliates is perhaps a classic case containing sharply delineated positions of the various parties, contrary arguments as to the need and effectiveness of possible safeguard provisions, and divergent philosophies of social intervention and the sanctity of property rights. %n16%n The 1997 order can be described as fairly strict in the detailed provision of the standards of conduct and as taking a middle position on the branding question between banning their use outright and allowing their use unfettered. The tone of the order conveyed the seriousness with which the commission saw the matter, underscored by the writings of three of the commissioners in the course of deliberations and adoption.

As of July 1998, the Texas PUC was considering the approach of structural separation in which intracorporate transactions would be limited and as transparent and objective as possible, e.g., using bidding procedures for contracting purchases in which a third party evaluates the bids. A disclaimer would be required when an affiliate uses the parent utility's name or logo.

Reflections on the Survey

From this sketch of state actions around the country several conclusions can be drawn. Policymakers (whether commissioners or legislators) do not yet appear fully persuaded in either direction about the seriousness or nonseriousness of the dangers to competition presented by utility incumbent/affiliate transactions. Accordingly, the policy response so far has been uneven, with varying degrees of constraints imposed on the jurisdictional company.

Moving from fact to judgement, mine is that commissions at this time should err on the strict side, with very immature markets for competitive utility service now being the rule. By that I mean they should employ the full range of prohibitions and constraints available and devote sufficient resources to enforce compliance.

Brand Names. Brand-name and logo sharing with affiliates should be prohibited for, say, five years, as should any strategic transfers of utility personnel. %n17%n

Cost Shifting. Regulators should remain alert to cost and risk shifting, the prudence and purpose of utility advertising, and the price paid to or collected from affiliates for corporate services. After all, abuses can still occur because the business units still would not be fully independent of each other. Commission audits and cost allocation reviews should be regularly conducted. The bilateral