Noting that FERC’s proposed rule to bar manipulation of wholesale electric markets “may chill pro-competitive behavior,” the Federal Trade Commission (FTC) has called on the federal energy agency to focus its sights on creating “structurally competitive markets” instead.

“We believe that structurally competitive markets offer a more certain and effective remedy for existing market power than additional behavioral rules. Efforts by FERC and the states to expand geographic markets by implementing efficient [regional transmission organizations], to remove entry impediments, and to increase the price responsiveness of demand are all important elements in creating structurally competitive markets,” the FTC told the Commission.

The FTC’s comments were directed specifically at FERC’s proposed rule that calls for electric companies with market-based rate authority to include provisions in their tariffs prohibiting price and market manipulation, requiring completeness and accuracy of price reports, and requiring firms to retain transaction records and records of their submissions to published index developers for at least three years. Violators could face disgorgement of unjust profits and possible suspension or revocation of marketing certificates [EL01-118].

The FTC noted that these concerns also were mirrored in the Commission’s proposed anti-manipulation rule on the natural gas side [RM03-10]. That proposed rulemaking calls for holders of natural gas blanket certificates to include similar provisions in their tariffs. “We believe that the same types of concerns about structurally competitive markets…arise in that matter” as well.

“We recognize that the misconduct of some suppliers in the western energy markets in 2000 and 2001 may motivate FERC to impose additional behavioral rules on these and other electric power marketers. Nonetheless, we urge FERC not to lose sight of the goal of developing structurally competitive markets,” said the FTC, which has antitrust authority over energy companies.

It encouraged the Commission to give “high priority” to this objective, “while it pursues interim measures, if any, to address findings from its investigations of market conduct” in the West.

“Long experience has taught antitrust enforcers that competitive markets that exhibit ease of entry are more likely than behavioral rules imposed on market participants to protect consumers and result in efficient pricing, output and investment.”

The FTC warned that “detailed rules that conflict with established norms for competitive behavior, as defined by the antitrust laws, may distort investment, output and pricing decisions and result in serious adverse consequences for [energy] consumers.”

The FTC also recommended that FERC review its methodology for awarding market-based rate authority to power companies, saying more “accurate and realistic assessments of seller market power prior to FERC’s awarding or renewing a seller’s market-based rate authority [would] likely…diminish the need for behavioral rules proposed in this proceeding.”

The agency believes FERC should “base its market power analysis on the techniques and approaches outlined and discussed in the Department of Justice and Federal Trade Commission Horizontal Merger Guidelines.” The techniques would provide for a “more informed and realistic analysis of existing or potential market power problems,” it said.

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