APEC Principles, 2/12/98

Mergers and Market Dominance

Ongoing consolidation of existing electric utilities and other energy industry companies is likely to lead to abuse of economic power and manipulation of energy markets to maximize profits at the expense of consumers.

Electric utility deregulation and competition are being presented as "customer choice." Some deregulation proponents, however, want to dominate the market and its consumers, and to prevent competition. Giant utility holding companies, their affiliates, and global energy companies want to dismantle current laws that attempt to suppress anti-competitive forces and protect consumers from monopolies' abuses.

In the late 1920s, 16 corporations controlled 85 percent of the nation's power supply. Congress enacted the Public Utility Holding Company Act (PUHCA) to simplify the web of corporate relationships and establish minimum consumer protections. Today, while some investor-owned utilities are publicly endorsing competition, a growing wave of investor-owned utility mergers and acquisitions threatens to kill any chance of competition actually developing.

If the market protections provided by the PUHCA are repealed and not replaced with more effective statutory provisions, and if the number of competitors is reduced to a handful through mergers and acquisitions, there will be no real hope of bringing competitive choices to consumers. A few generation sellers will have substantial market power and the ability, through that market dominance, to erect high barriers to the entry of other competitors.


To sustain a healthy competitive electricity market for consumers, certain changes are needed and specific safeguards must be in place:

APEC Principles, 2/12/98

Reliability

Many electric power companies, preparing for competitive challenges, are cutting costs and deferring maintenance. Such cost-cutting could result in systems so overstretched they may not be able to operate efficiently in times of peak demand or during storms.

Industry restructuring must ensure an adequate generation supply and reliable transmission service. Our electricity systems are highly interdependent and complex operations. Reliability depends on the cooperation of all entities using the systems and a well-trained workforce.

Electrical industry groups now maintain interstate reliability through voluntary adherence to agreed upon guidelines. Early indications show that competition among utilities is already overshadowing the prior tradition of cooperation, and some utilities have cut their maintenance staffs and schedules to cut costs.


To protect consumers from unreliable service:

APEC Principles, 2/12/98

Safety

Worker safety and public safety could be threatened by continued cost cutting.

One likely outcome of electric industry deregulation will be a de-emphasis of public and worker safety as the emphasis shifts to maintaining and increasing profits. Staffing levels and training programs have been the first areas cut when deregulation has occurred in other industries. Work force reductions and scaling back of training programs are already occurring as companies jockey for competitive position.

Electricity service is provided in close proximity to people. It can be extremely dangerous unless conducted properly. In general, industry workers, management and regulators have achieved an exemplary safety record. A long history of proper training and appropriate investments in public safety and worker safety is responsible for that record.

The foundation for the industry-wide safety record is a system of voluntary consensus standards developed through the joint efforts of all segments of the electric utility industry. Some of these consensus standards, such as the National Electrical Safety Code and the National Electrical Code, have become mandatory through enactment by state legislatures. Others form the foundation for the setting of mandatory standards by federal regulatory agencies.

Under the present regulatory framework, funding for this safety culture is borne by electric utility companies, which pass on much of the cost through the rate structure to the consumer. With industry deregulation, funding for public and worker safety programs could be cut substantially.


To assure continued public and worker safety:

APEC Principles, 2/12/98

Societal Impacts

Valuable community-based programs funded by local power companies are being placed at risk. They include lifeline rates, low income assistance, wildlife preservation, service cut off protections, and community services such as lighting for playgrounds, athletic fields, and holiday lighting.

Under the traditional regulatory structure, power companies have provided programs such as community lighting and wildlife preservation. Even under the current regulatory structure, however, government and utility-sponsored programs designed to keep the lights on for people with low incomes have been inadequate. For deregulation to benefit residential customers, a comprehensive program, like that existing in the telecommunications industry, must be implemented.

Similarly, while most existing power companies have service cut-off protection programs, the adequacy of such programs should be ensured. Such programs must be applicable to all retail suppliers.


Deregulation should enhance and protect public benefit programs by:

Back to Contents

Go to Part 3