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High Voltage: Affiliate Rules Shock Utility Markets

Fortnightly Magazine - January 15 1999

Subsidiaries grapple with codes of conduct. Did regulators overreact?

PG&E Corp. has threatened to appeal - all the way to the U.S. Supreme Court if need be - a $1.68 million California Public Utilities Commission fine, slapped on it for violating affiliate rules.

The fine marked the loudest shot to date in what appears to be part two in the electric and gas restructuring wars:

The Affiliate Rules Wars.

These skirmishes promise to pit independent power marketers and out-of-state utility affiliates against the affiliates of incumbents. For commissions, refereeing the fights won't be easy. Ratepayer advocates and independent marketers, for instance, wouldn't have minded if the PG&E fine - levied for an illegible advertising disclaimer about the affiliate-parent relationship - were 10 times higher.

In Pennsylvania, where 1.8 million consumers began participating in the state's competitive choice program on Jan. 1, PECO Energy Co., PP&L Resources Inc. and other utilities face their own brand of wrangling over rules governing corporate affiliates.

PECO and PP&L were accused of advertising provider of last resort, or PLR, services in a way that encourages customers not to consider alternative energy suppliers. A little over a month after the Mid-Atlantic Power Supply Association filed that complaint, Pennsylvania's utility commission handed incumbents and their affiliates stricter interim guidelines addressing PLR functions (OCT-98-L-104, Docket No. M-00960890F0017, Nov. 19, 1998).

"Messages which discourage consumers from exploring their opportunities [in] the competitive marketplace will be considered deceptive or misleading and will not be tolerated," wrote Nora Mead Brownell, Pennsylvania commissioner, in a statement issued with the guidelines.

The Georgia commission, too, has had its share of affiliate problems. It almost was taken to court by Atlanta Gas Light Services over a dispute about the affiliate's name and logo. Its use of the name and logo, a blue flame also used by sister company Atlanta Gas Light Co., was seen as giving the utility's 1.4 million customers the impression they could continue service with the same gas distribution company - not an outcome intended by state legislators deregulating the natural gas market.

Ultimately, the affiliate settled the lawsuit, agreeing to change its name to Georgia Natural Gas Services. However, it will keep the trademark blue flame. The affiliate will have to use a disclaimer saying that customers will get no special treatment because of ties to Atlanta Gas Light Co. (Order No. 2442, Docket 9156-U).

Regulators have wrestled for decades with transactions between utilities and their corporate affiliates (see "Utility Marketing Affiliates: A Survey of Standards on Brand Leveraging and Codes of Conduct," by Douglas N. Jones, Public Utilities Fortnightly, Nov. 15, 1998, p. 40).

But Jim Durham, PECO's senior vice president and chief general counsel, says politics have entered the affiliate rules game. He says his utility and its two affiliates can "probably live with" the new PLR guidelines in Pennsylvania. But Durham insists that were it not for the regulatory process in the competitive world, such things as PLR guidelines and affiliate codes wouldn't be necessary.

"There are existing laws with respect to the Federal Trade Commission's requirements on advertising,"