No clear consensus has emerged. Should regulators hold to a hard line?
Regulators have wrestled for decades with transactions between vertically integrated monopoly utilities and their corporate affiliates.
Most problems have usually involved a shifting of costs, risk, or profit, as when an electric utility buys coal from a subsidiary. On the telephone side, AT&T's equipment dealings with Western Electric and Bell Labs were always a worry for regulators. The concern, of course, was whether ratepayers (all were essentially captive then) were paying too much and bearing improper risks, while providing profits actually higher than the allowed rate of return, masked by accounting mischief.
Now comes an old issue in a new guise (em whether and how to regulate a new breed of transaction that in the course of industry restructuring may allow incumbent utilities to raise barriers against competition, favoring their affiliates and actively disadvantaging others. Two such concerns are (1) the leveraging of established utility brand names and logos, by extending their use to affiliates, and (2) wider dealings that may deter competitors, such as when the distribution company loans its technical staff and senior management to the affiliate, providing inside information on customers.
To counter these problems, state public utility commissions are embracing "Codes of Conduct," but the questions they face are anything but straightforward. Some "tough calls" are required. This paper considers the efficacy of these efforts, urging strict commission oversight of transactions with affiliates in three sectors (em telecommunications, natural gas, and electricity (em each now involved in restructuring.
Learning from Telcos