Feds prefer legislative solution for now, but warn of bid-rigging, cartel behavior later on, after deregulation.

One of the nation's top antitrust officials told the House Judiciary Committee in June that moves toward utility deregulation should focus first on open access to the transmission grid (em and then resolve that problem through rulemaking or legislation, not antitrust enforcement.

"Antitrust is probably not the best way to address access," said Robert Pitofsky, Federal Trade Commission chair. "I think legislation and FERC regulation is a better way of doing it."

Pitofsky could offer no legislative solutions.

"I think you've put your finger on the most difficult question in the entire area of deregulation," the FTC official told Rep. Howard Coble (R-N.C.) "You can have competition in generation. You may have competition at retailing. But if monopoly power persists at distribution, as in the transmission phase, there will be difficulties. I don't really have an answer at this point as to what kinds of legislation would be adequate."

Pitofsky testified at what Judiciary Committee Chair Henry J. Hyde (R-Ill.) called the panel's first foray into the antitrust aspects of electricity restructuring. It was uncertain whether future hearings would affect restructuring legislation, or the focus of hearings held by Rep. Dan Schaefer (D-Colo.). Hyde said he wouldn't impinge on the Commerce Committee's jurisdiction.

At press time, no further Judiciary Committee hearings on antitrust and deregulation had been scheduled.

Pitofsky and A. Douglas Melamed, principal deputy assistant attorney general in the U.S.

Department of Justice antitrust division, testified that lawmakers should hold the deregulating electric industry to the same antitrust standards as other industries.

"I see no need to amend the antitrust laws in any way," the FTC chair said. "The problems that will arise after deregulation will be old-fashioned. There will be cartel behavior, bid-rigging, market division, monopoly abuse, mergers and problems of access. And I think the presence of antitrust laws is adequate to deal with that."

He predicted that consumers will soon be presented with a world of choices. Advertising will make claims about which form or source of electricity is better or worse. "We must be careful to ensure that there's no deception or unfairness in those claims," he said. Through legislation, essential consumer information could be required. "Case-by-case enforcement is sometimes not the most efficient way to go," he added.

John B. Howe, chair of the Massachusetts Department of Public Utilities, seemed to back up Pitofsky's statements.

"Antitrust law is far better viewed as a preventive, rather than a corrective system of law," he said. "But it is invoked as a means of regress. It is slow. It is expensive. It is contentious. Our nation's consumers will be far better served if we simply don't allow situations to occur that could give rise to antitrust violations."

Melamed, of the DOJ, noted that technology has evolved to where competition is possible in generation, but not in transmission and distribution.

Through FERC Order 888, utilities were ordered to separate generation and transmission businesses functionally, without a formal divestiture or spinoff.

In his written testimony, Pitofsky seemed somewhat noncommittal on either functional or "operational" unbundling, although he appeared to favor the second choice. Under that option, an independent system operator, or ISO, ensures open access and transparent pricing.

The FTC chair pointed out that if "you make access absolutely open, then the people who control the central facility will not invest in it in the first place. Or they will not maintain it as time goes on. On the other hand, if you don't make access available, then smaller companies who are not party to the transmission monopoly will have no opportunity to get to the market. It is a very, very difficult question."

Melamed also leaned toward ISOs (em "potentially a more promising solution for preventing anti-competitive, discriminatory behavior."

But "FERC's order, which relies on the integrated utilities to engage in conduct that may be inconsistent with their economic interests, may prove insufficient to ensure open access," according to Melamed's written testimony.

Melamed agreed that two benefits of restructuring are open-access transmission and time-of-use pricing. Stranded costs, he said, should be recovered on "a competitively neutral basis to minimize distortions of competitive choices by wholesale and retail customers."

The House panel also questioned the two officials on the merger wave that has overcome the country and whether they were, indeed, doing something about it.

Pitofsky said record highs were set in the past two years, with 65 multi-industry cases reviewed; another record was likely this year.

"I would like to suggest that we're not doing nothing about it," he said.

"Oh, no. You're approving. You're doing a lot about it," said Rep. John Conyers Jr. (D-Mich.).

"We're not approving all of them," the FTC chair countered. "The people who are suing wouldn't say we're doing nothing."

He admitted to his agency being overwhelmed, "but we are actively enforcing the law. ... It is certainly true that many industries are restructuring themselves through mergers in a way that legitimately raises serious questions."

On electric and gas mergers, the FERC is the first line of defense, but not the exclusive line of defense, Pitofsky said.

Howe, of the Massachusetts Department of Public Utilities, testified as part of a panel of industry reps who offered their take on the antitrust aspects of restructuring.

Anthony F. Earley Jr., president and CEO of Detroit Edison Co., told the House panel that because the FERC requires transmission access through Order 888, no industry-specific legislation related to market power was necessary. Competition already was under way and current safeguards are adequate to protect free trade.

But Roy Thilly, g.m. and counsel to The Wisconsin Public Power Inc. System, told the committee that current infrastructure is inadequate for transmission and more high-voltage lines were needed to improve bottlenecks. Thilly's system owns no transmission facilities and is dependent on four private utilities. He called for preserving antitrust laws and augmenting the FERC's power so that it may better nip anti-competitive practices in the bud.

Steven D. Burton, senior v.p. of Sithe Energies Inc., said he didn't advocate legislatively mandated divestiture as a protection against market power, but that "the cleanest way to accomplish real competition is by separating the businesses." Burton said the danger lies in the remaining integrated monopoly, although ISOs will reduce the problem.

John N. O'Brien, CEO and chair of Wheeled Electric Power Co., insisted action was direly needed to protect the free market.

"State regulators are not in a position to effectively address these issues and federal intervention is necessary to protect American consumers from anti-competitive practices by incumbent utilities," he said. Based on experiences in the Northeast market, benefits of competition won't be realized without federal intervention, he noted. He insisted that former monopolies use practices and arrangements to maintain their market grip as long as possible.

"We have seen that unregulated utility affiliates will sometimes tie their product, the electric commodity itself, to the parent utility's product of reliable delivery," he said. "The fact is that competitors deliver with exactly the same level of reliability." Utility affiliates also can use the credit worthiness, personnel, customer education programs and other information of their parent company, he said.

Others who testified included Ricky Bittle, planning, rates and dispatch director of the Arkansas Electric Cooperative Corp.; attorney James I. Serota of Huber Lawrence & Abell; and Michael J. Travieso, Maryland People's Counsel. t

Joseph F. Schuler Jr. is associate editor of PUBLIC UTILITIES FORTNIGHTLY.

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