FORCING A DIVESTITURE SHOULD REMAIN AN OPTION for regulators in a clear case of market power abuse, NARUC members have agreed.

NARUC's executive committee also has opened discussion on a five-year business plan that would increase the association's visibility, improve its technology and make better use of the $10 million it has in reserves.

Members at the National Association of Regulatory Utility Commissioners summer meetings in Seattle, Wash., asked states to give them "clear and adequate authority" to protect consumers from market power. That local authority should require behavioral and structural remedies, such as divestiture, they say.

The resolution, approved at the July 26-29 gathering, refined an earlier resolution tabled at NARUC's winter meetings earlier this year in Washington, D.C.

The earlier proposal called more directly for structural solutions rather than giving regulators an array of options. The latest version also doesn't provide the Federal Energy Regulatory Commission with additional tools to deal with market power. "That was seen as going beyond where the [commissioners] wanted to go," says Charles D. Gray, NARUC general counsel. "It was seen at this point as easier to do it in two bites rather than one and focus this meeting on primarily the state role on market power and the resolution would be silent as to the FERC."

The resolution does call for cooperation with federal agencies such as the Federal Trade Commission, the Department of Justice and the FERC to help monitor and correct market concentration, entry barriers, collusion and other anti-competitive practices.

A "Dialogue" With DOJ, FTC

Left unaddressed in the market power resolution was a section in the earlier proposal that called for legislation to undo the 1988 case of Mississippi Power & Light Co. v. Mississippi ex rel. Moore (487 U.S. 354). Gray says an older NARUC resolution takes a position on whether state agencies must bow to federal will under the filed rate doctrine and pass through in retail rates any purchased power costs approved by regulators at the wholesale level. He says it was not seen as a market power issue as much as a jurisdictional rate-making issue.

NARUC's "Executive Dialogue" session in Minneapolis on July 8-9 helped frame the market power discussion, Gray says. DOJ and FTC officials met with state regulators, allowing them to reach consensus before the Seattle meeting. A committee led by Commissioner R. Brent Alderfer of Colorado helped prepare the draft resolution. Consequently, there was little debate in Seattle on the market power measure.

Specifically, the resolution recognized that:

• After-the-fact antitrust enforcement may not prove sufficient to protect against market power abuses in a transition to competitive markets;

• Abuses may be prevented or mitigated by government actions ranging from functional unbundling to structural separation and divestiture;

• Mitigation measures depend on unique circumstances in a specific market area;

• Congress shouldn't preempt state jurisdiction at the state level to address market power concerns; and

• Several options should be open to states for the mitigation of market power and that states and Congress should preserve these options when considering restructuring legislation.

Flush With Cash, Looking for Visibility

NARUC began work on its business plan in July 1996. The plan was approved in November that year and changes have been made in the association's Washington, D.C., office since then, including the hiring of Margaret A. Welsh as executive director.

The plan includes a look at association staffing and an analysis of the budget and reserves. Its goals are to act as a member information exchange and to increase advocacy and visibility with federal regulators and legislators.

"We have been incredibly prudent in the management of our resources and have amassed a $10-million reserve," Welsh told the executive committee. "Usually, trade associations' reserve goals are equivalent to one year's operating budget. For us, that's about three million [dollars]. We have three times what is the normal goal."

Welsh says now is the time to have the money work for the association.

NARUC's budget for 1998 is $3.4 million, with revenues coming from publication sales, grants, investment income and other sources.

The plan would bolster staff by 11 positions over two years. New positions include a chief financial officer, an administrative director and a public information officer. About 17 people work at NARUC now, although some positions are vacant. Several employees will be promoted and others will be let go after they're provided with outplacement assistance.

The plan calls for enhancing the association's hardware and software, evaluating and improving meetings, exploring new funding and expanding grant options, which make up about a third of the annual budget. Granting agencies including the Department of Energy and the Environmental Protection Agency.

Technology enhancements could mean an improved web site, searchable databases and improving accounting and meeting registration software.

Welsh says that if the investment strategy were not changed, at the end of the plan, reserves would be $15.6 million. If gains are used for improvements, the portfolio would be worth $14 million. Under the plan, $1.1 million would go toward salaries or new programs. About $500,000 would be for operating reserves, she says.

NARUC has yet to announce a deadline for its executive committee to approve the plan. Welsh recommended that it be addressed year-to-year because of all the changes proposed.

"In terms of the approval process, we're going through it as we need to," she says. "There's no set time frame."

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

They Said It in Seattle

Reliability vs. Economics

"I don't think we can live with the fiction of bright lines, with economics on one side and reliability on the other. We can only live with that when you had ratepayers who were docile and regulators who were willing to make the ratepayers pay for it. Now it's a different world."

- Charles Stalon, board member, ISO New England

Transcos vs. ISOs

"It's not necessarily ISO versus transmission company or transco. It is what structure in each region can best achieve the efficiencies and the reliability. Market forces without mandates should be allowed to shape and reshape market institutions."

- Kent Foster, vice president of regulatory affairs, Entergy Corp.

"I see a huge crash coming on this issue. I see ... some utilities going to transcos, some being in an ISO, some not wanting to do anything."

- Craig A. Glazer, chairman, Ohio Public Utilities Commission

Adequacy vs. Reality

"We see a need to create locational incentives, so you're not building massive transmission when in fact generation [in the right spot] could provide a much lower-cost solution."

- Jeffrey Tranen, president and CEO, California ISO

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