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High Voltage: Affiliate Rules Shock Utility Markets

Fortnightly Magazine - January 15 1999

wear a badge that says Total Gas and Electricity.

"We knocked on 15,000 doors. The fact that four people were confused and, I'll take it a step further, were misunderstood and maybe even, let me grant this even - maybe a salesman out of having 30 guys knocking on doors and speaking to 15,000 people, maybe indeed a salesman did mislead them."

But there's no reason to deceive customers because the company's cost of electricity is cheaper than PECO's, Baratz says.

Q: Has he ever taken action against his salespeople?

"Ever? Sure."

Q: And as the result of this incident?

"As it so happens, the salesman that was specified ¼ worked for us about a week and left."

Q: Is it possible that just one salesman misled people?

"I don't think so. But anything's possible."

And anything's possible in the utility affiliate-independent power supplier wars.

Malcolm M. McCay, director of market evaluation for Sempra Energy Solutions and chair of NEMA, says the final solution to the utility affiliate issue is to simply take utilities out of competitive functions. "So if one agrees that the purchase and resale of gas at retail is a competitive business, utilities shouldn't be in that business," he says. "We have no problem with forming a separate affiliate that competes with other market players on the same terms and conditions. But as long as the utility monopoly and competitive functions are bundling together, there's going to be serious competitive issues."

"That's nonsense," counters Durham. "I mean it's basically saying they want a protected market, they don't want to compete against us.

"They want to take competition that they're really scared of off the field. And if I was in their position, perhaps I could make that argument with a straight face also. I don't think I could."

Joseph F. Schuler is senior associate editor at Public Utilities Fortnightly.

Affiliate Rules: Excerpts

National Energy Marketers Association (Suggested Rules)

Uniform Code of Conduct for Regulated and Unregulated Suppliers of Energy and Related Services and Technologies

Cross subsidies ¼ are prohibited. A utility's operating employees and those of its unregulated affiliate shall function independently ¼

Under no circumstances may a regulated entity sell ¼ commodities ¼ included in regulated rates at less than market value.

Offers of rebates, discounts, waivers of contracts or fees in connection with tariff provisions of regulated utilities

should be made by utilities in an equal, non-discriminatory manner ¼

A utility shall not speak on behalf of its unregulated

affiliate ¼

Each utility will establish enforceable complaint procedures to detect alleged abuse of the relationship with its unregulated affiliates ¼

Procedures for implementing compliance with these rules must be neutral and swift, and the penalties for non-compliance should adequately discourage repeated violations.

Source: NEMA, 3254 O Street, N.W., Washington, D.C. 20007,

California Public Utilities Commission

Affiliate Transaction Rules

III. E. Business Development and Customer Relations

Except as otherwise provided ¼ a utility shall not ¼

provide leads to its affiliates

solicit business on behalf of its affiliates

acquire information on behalf of or to provide