FTC Staff Comment Before The Arizona Corporation Commission Concerning Retail Electric Competition, Docket No. E00000W-13-0135

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ARIZONA CORPORATION COMMISSION
In the Matter of the Commission’s Inquiry 	) 	Generic Docket No. E00000W-13-0135
Into Retail Electric Competition 	)
COMMENT OF THE STAFF OF THE FEDERAL TRADE COMMISSION1
July 11, 2013
I. 	Introduction
The staff of the Federal Trade Commission (FTC) welcomes this opportunity to comment
on the Arizona Corporation Commission’s (ACC’s) “Inquiry into Retail Electric Competition.”2
Several significant technical developments, including advanced (“smart”) meters, have made it
timely to consider retail electric competition as a path to gaining substantial power system
efficiencies and facilitating customized electric services that benefit consumers. We have
reviewed these technical developments, and our comment describes how they make retail
competition feasible and increasingly attractive to consumers. The comment also explains how
retail competition can lead to major system efficiencies by moving away from flat retail
electricity rates and toward individually tailored electricity services, which can yield numerous
consumer benefits that include rate savings, environmental improvements, innovative services
not previously available, and enhanced service reliability. Within this framework for identifying
the advantages of retail competition for consumers, we also provide insights and references that
the ACC may find useful regarding several of the specific matters raised in the ACC’s invitation
to comment.
II. 	Interest and Experience of the FTC
The FTC is an independent agency of the United States Government responsible for
maintaining competition and safeguarding the interests of consumers. The FTC does so through
1 This comment expresses the views of the FTC’s Office of the General Counsel, Office of
Policy Planning, and Bureau of Economics. The comment does not necessarily represent the
views of the FTC or of any individual Commissioner. The Commission, however, has voted to
authorize the filing of this comment.
2 Arizona Corporation Commission Generic Docket E00000W-13-0135, In the Matter of the
Commission’s Inquiry into Retail Electric Competition (May 23, 2013), available at
http://www.azcc.gov/Divisions/Administration/About/Letters/5-23-
13%20Retail%20Competition%2013-0135.pdf.

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law enforcement, policy research, and advocacy. For example, in the field of consumer
protection, the FTC enforces Section 5 of the Federal Trade Commission Act, which prohibits
unfair or deceptive acts or practices. In its competition mission, the FTC enforces antitrust laws
regarding mergers and unfair methods of competition that harm consumers. In addition, the FTC
often analyzes regulatory or legislative proposals that may affect competition, allocative
efficiency, or consumer protection. It also engages in considerable consumer education through
its Division of Consumer and Business Education. 3 In the course of all of this work, the FTC
applies established legal and economic principles as well as recent, innovative developments in
economic theory and empirical analysis.
The energy sector, including electric power, has been an important focus of the FTC’s
merger review and other antitrust enforcement, competition advocacy, and consumer protection
efforts.4 The FTC and its staff have filed numerous comments advocating competition and
consumer protection principles with state utility commissions, state legislatures, and the Federal
Energy Regulatory Commission (FERC). 5 In particular, we have filed a number of advocacy
comments concerning retail competition.6 In our comments directed to state policymakers, one
3 For an overview of the FTC’s education efforts, see the FTC staff’s comment to the Consumer
Financial Protection Bureau concerning “Request for Information on Effective Financial
Education,” Docket No. CFPB-2012-0030 (Nov. 2, 2012), available at
http://www.ftc.gov/os/2012/11/1211cfpb.pdf.
4 See, e.g., Opening Remarks of the FTC Chairman at the FTC Conference on Energy Markets in
the 21st Century: Competition Policy in Perspective (Apr. 10, 2007), available at
http://www.ftc.gov/speeches/majoras/070410energyconferenceremarks.pdf. FTC merger cases
involving electric power markets have included DTE Energy/MCN Energy (2001) (consent
order), available at http://wwwftc.gov/os/2001/05/dtemcndo.pdf; and PacifiCorp/Peabody
Holding (1998) (consent agreement), available at
http://www.ftc.gov/os/1998/02/9710091.agr.htm.
5 A listing, in reverse chronological order, of FTC and FTC staff competition advocacy
comments to federal and state electricity regulatory agencies is available at
http://www.ftc.gov/opp/advocacy subject.shtm#uttg.
6 For example, the FTC staff discussed electricity competition issues in its Comment Before the
New York State Public Service Commission in the Proceeding To Assess Certain Aspects of the
Residential and Small Non-residential Retail Energy Markets in New York State, Cases 12-M-
0476, 98-M-1343, and 06-M-0647 (Jan. 24, 2013), available at
http://www.ftc.gov/os/2013/01/130125nypsccomment.pdf; and Comment Before the Public
Utility Commission of Texas in the Rulemaking Regarding Demand Response in the Electric

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of our principal efforts has been to advocate for policies that allow or nurture competition and
thus benefit consumers.7 One such comment was the FTC’s submission to the ACC in 2009 in
response to the ACC’s Workshop on Retail Electric Competition.8 The FTC’s competition
advocacy program also has produced two staff reports on electric power industry restructuring
issues at the wholesale and retail levels.9 In addition, the FTC staff contributed to the work of
the Electric Energy Market Competition Task Force, which issued a Report to Congress in the
spring of 2007. 10
III. 	Electricity Industry Innovations Warrant Consideration of Retail Competition as a
Means to Benefit Customers through Lower Costs, Increased Innovation, and
Expanded Variety of Services
Competition has been an effective organizing principle for the United States economy
since the founding of the Republic. For more than a century, the promotion of competition has
been embedded in federal and state statutes that apply to most sectors of the economy.
Over time, industries subject to economic regulation have represented a major exception
to the general rule of open competition. Nonetheless, technological and organizational
innovations in certain industries can undercut the rationale for economic regulation. Innovations
of this type present an opportunity to introduce or reintroduce competition in regulated
industries. The competitive process creates strong incentives for firms to minimize the costs
Reliability Council of Texas (ERCOT) Market, Project No. 41061 (Mar. 11, 2013), available at
http://www.ftc.gov/os/2013/03/1303texaspuccomment.pdf.
7 See, e.g., FTC Staff Letter to Hon. Stephen LaRoque, North Carolina House of Representatives,
Concerning North Carolina House Bill 698 and the Regulation of Dental Service Organizations
and the Business Organization of Dental Practices in North Carolina (May 25, 2012), available
at http://www.ftc.gov/os/2012/05/1205ncdental.pdf; FTC Staff Comment to Hon. Patricia Todd,
Alabama House of Representatives, Concerning Alabama House Bill 156 (Allowing
Veterinarians to Work as Employees of 501(c)(3) Nonprofit Spay and Neuter Clinics) (Apr. 26,
2012), available at http://www.ftc.gov/os/2012/04/120426alabamaletter.pdf.
8 See http://www.ftc.gov/os/2009/01/V090001electricityadvocacy.pdf .
9 FTC Staff Report, Competition and Consumer Protection Perspectives on Electric Power
Regulatory Reform: Focus on Retail Competition (Sept. 2001), available at
http://www.ftc.gov/reports/elec/electricityreport.pdf; FTC Staff Report, Competition and
Consumer Protection Perspective on Electric Power Regulatory Reform (July 2000), available at
http://www.ftc.gov/be/v000009.htm (compiling previous comments that the FTC staff provided
to various state and federal agencies).
10 That report is available at http://www.ferc.gov/legal/fed-sta/ene-pol-act/epact-final-rpt.pdf.

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associated with existing production techniques, to innovate, to erode market power, and to
provide the variety of products that customers are interested in buying.
Five of the most significant technical developments in the electricity industry over the
past 25 years are:
(1) a trend toward smaller, highly efficient generation units;
(2) the use of wind, solar, biofuel, and geothermal renewable energy sources for
generation;
(3) automated dispatch of generators and of transmission and distribution operations;
(4) wide deployment of smart meters that measure and report power use in small time
intervals and that can also communicate price and power system status information to
customers; and
(5) energy storage technology advances.
The federal government, the states, and many foreign governments have worked over the
past 20 years to advance competition in the electric power industry. Several states have adopted
retail electric competition as part of this effort, and they continue to seek improvements in their
retail competition regulations and programs to further benefit consumers.11
In light of technological innovations and the experience of other states, we concur with
the ACC that it is again timely for Arizona to consider additional ways to allow retail
competition to benefit electricity consumers. For example, innovations in metering, such as
those now widely available in Arizona, offer particularly attractive opportunities for electricity
customers to select from among specialized retail power suppliers.
Retail choice can present many benefits to power customers, including enabling them to
better match their preferences for bill savings, increased reliability, renewable power, and energy
management services. For example, customers can choose to lower their electricity bills by
shifting power use away from periods when the power system depends on more costly generation
resources or faces challenges to its reliability, and they can choose how much power to consume
from renewable generation sources.
11 States that have adopted broadly available retail customer choice for electricity services in the
service territories of investor-owned utilities include Connecticut, Delaware, Illinois, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode
Island, and most of Texas. The District of Columbia has also adopted electricity customer
choice. Some customers have some degree of electricity retail choice in California, Michigan,
Montana, and Oregon. Recently, Illinois, Ohio, and Pennsylvania have undertaken substantial
revisions of their retail choice rules to support increased competition. Expansions of retail
customer choice (to include customers that currently do not have this choice) are under
consideration in California and Michigan.

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To initiate retail electric customer choice, a state must first remove the legal barriers to
entry that alternative retailers face. That is only the first step, however, in developing effective
competition. States have fostered retail electric competition by taking a variety of additional
steps to educate customers about their new choices and to extend consumer protections to the
retail power sphere.
States in which customers are most active in selecting alternative suppliers have sought to
address a number of key issues involved in developing retail electric competition, including:
 	how to inform customers of new retail electricity suppliers and their offers;
 	how customers learn the mechanics of switching to a new electric service provider;
 	how to serve electricity customers who do not select an alternative supplier;
 	how to serve electricity customers whose supplier exits the market;
 	how customers can compare offers made by different suppliers;
 	how to price default (provider-of-last-resort, or “POLR”) service (if any);
 	how to organize billing in order to avoid consumer confusion or higher costs; and
 	if a consumer picks a marketer to supply power and continues to receive a single power
bill, how and when to transfer funds to the marketer once the distribution utility collects
them from the consumer.
Some third parties have prepared evaluations of the effectiveness of efforts by some
states (and Canadian provinces) to foster retail competition.12 These evaluations list the factors
that appear to be important to the people who are preparing the evaluation and explain the
reasons for including – and the weight given to – each factor.13
12 See DEFG, LLC, “2012 Annual Baseline Assessment of Choices in Canada and the United
States: Electricity Restructuring Scorecard,” accessible at
http://defgllc.com/publications/consumer-choice/. In 2012, the states with the top five scores for
commercial and industrial customers (in descending order) were Texas, Illinois, New York,
Pennsylvania, and Maryland. For residential customers, the states with the top five scores (in
descending order) were Texas, Pennsylvania, New York, Connecticut, and Maryland.
13 DEFG groups the elements used in scoring retail choice in various states under four topic
areas: status of retail choice; wholesale competition; default service; and facilitating customers’
identification of, and switching to, an alternative retailer. Details on weights and the specific
elements included in each topic area are contained in an appendix to DEFG’s annual retail choice
scorecard publication (e.g., Appendix H to DEFG’s 2012 Annual Baseline Assessment, supra
note 12).

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These evaluations reveal that when effective retail competition is combined with the five
technical developments mentioned above, customers are in a position to help address the
challenges of balancing supply and demand in the power industry, either at a local level or on a
wider geographic scale. When customers are compensated for providing this help, the response
is often substantial.14 Such customer responses to accurate price signals reduce system costs,
support reliability, and provide environmental benefits.15 Customer responses to higher power
prices can be automated through equipment that cuts back or delays power use at pre-set price
points. Alternatively, customers can manually adjust their air conditioners or other heavy power
uses when meters or other communications alert them to higher prices. Reducing power use
during periods of high wholesale prices can reduce overall system costs by utilizing lower-cost
generation units and reducing the need for high-cost peaking generators to meet demand spikes.
It can support reliability by cutting power consumption when the system is at greatest risk of
blackouts or is in the midst of recovering from a service interruption. It can provide
environmental benefits by facilitating integration of renewable energy sources and avoiding the
use of older, higher-cost generators with higher pollutant emissions during peak demand periods.
This DR process is a critical justification for grid modernization. Collectively, the term “smart
grid” encompasses systems that support DR and the sophisticated monitoring of conditions on
many components of the power grid.
We recommend that the ACC evaluate the promising prospect that retail customer choice
will help customers expand and fine-tune their choices of electricity service and contribute to
balancing power supply and demand.
IV. 	Retail Competition Can Help the Power System Transition Away from Flat Rate
Pricing That Is Associated with Increasing Costs and Threats to Reliability for All
Electricity Consumers
Some recent developments appear to underscore the importance of gaining customer
assistance in balancing the power system. Electric vehicles (“EVs”) are a development that
14 For a bibliography of papers on the process known as “demand response” (or “DR”) prepared
by Brattle Group, see Toni Enright and Ahmad Faruqui, “A Bibliography on Dynamic Pricing
and Time-of-Use Rates, Version 2.0” (Jan. 1, 2013), accessible at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2178674. Dr. Faruqui (along with
colleagues Sanem Sergici and Eric Shultz) summarized several reviews of DR projects in
“Consistency of Results in Dynamic Pricing Experiments – Toward a Meta Analysis” (Jan. 29,
2013), available at http://www.brattle.com/_documents/UploadLibrary/Upload1109.pdf.
15 See, e.g., Charles J. Black, “Dynamic Pricing Evaluation for Washington” (Jan. 2011),
available at http://www.naruc.org/Publications/SERCAT_Washington_2010.pdf; Ahmad
Faruqui, “The Case for Dynamic Pricing” (Aug. 23, 2010), available at
http://www.brattle.com/ documents/uploadlibrary/upload870.pdf.

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illustrates this point well. 16 When EVs are recharged off peak (overnight), they help flatten load
profiles (reduce peaks and fill troughs in consumption) so that generation and distribution assets
will be more fully utilized and their fixed costs will be spread over more power volume, at a
lower per-kilowatt unit rate. Conversely, if EVs are recharged during peak demand periods, they
could cause significant demand increases during the most costly time of day for power
generation and could stress the grid, to the detriment of reliability. Consequently, all consumers
benefit if EV owners have incentives to recharge their EVs overnight, even if that is not always
the most convenient time for EV owners. Pricing electricity more cheaply overnight than during
daytime hours provides EV owners with a powerful incentive to recharge overnight.
There is wide recognition that applying flat electricity rates for recharging EVs is
inefficient and wasteful. In light of this, state regulators could lean toward singling out EVs for
retail electricity prices that more closely follow marginal cost, while leaving other power uses
under flat rate pricing. EV recharging, however, does not differ meaningfully from other end
uses of electric power. Flat rate pricing of electricity creates consequential distortions
throughout the electric power industry on both the demand and the supply sides.
Flat rate electricity pricing at the retail level – in the face of volatile generation and
transmission prices at the wholesale level – results in large subsidies for customers consuming
power in peak demand periods and large penalties for customers consuming power in demand
troughs. When any retail electric power customers receive such distorted price signals, they
frequently make distorted consumption decisions, and the resulting inefficiencies in the power
system work to the detriment of all electricity consumers.
Further, flat rates cause all customers to face higher average system costs and lower
system reliability, and create disincentives to invest either in methods to improve energy
efficiency or in devices to shift consumption to off-peak periods (when system costs and
wholesale electricity prices are lower). As with any market, pricing electricity closer to marginal
cost improves the overall efficiency of the consumption of the good and reduces deadweight
losses.17 When a customer with distributed generation (“DG”) facilities (e.g., solar panels on the
roof) faces flat rates, the rates discourage investment in energy storage devices that could help
balance supply and demand – most importantly, when the power system is under stress and close
to being overwhelmed.
16 See also, e.g., Ahmad Faruqui , Ryan Hledik, Armando Levy, and Alan Madian, Brattle Group
discussion Paper, “Will Smart Prices Induce Smart Charging of Electric Vehicles?” (July 2011),
available at http://www.brattle.com/ documents/UploadLibrary/Upload966.pdf.
17 Paul L. Joskow and Catherine D. Wolfram, “Dynamic Pricing of Electricity” (Jan. 2012),
available at
http://faculty.haas.berkeley.edu/wolfram/Papers/AEA%20DYNAMIC%20PRICING.pdf.

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Retail competition can help in a transition away from flat rate pricing, particularly for
residential customers. Several pilot programs have shown that residential customers typically
have lower power bills under dynamic pricing and generally prefer dynamic pricing after
experiencing it in a pilot program. 18 Ideally, under retail competition, some retail electricity
marketers will publicize these findings and use them to grow consumer interest in retail electric
service offers featuring dynamic pricing. Bills can be reduced by compensating the customer for
his or her role in balancing power system demand and supply (once advanced meters are in
place, as they largely are in Arizona). Arizona is in the enviable position of already having
active dynamic pricing programs that have attracted customers in areas served by Arizona Public
Service and the Salt River Project.19 Gulf Power in Florida and OG&E in Oklahoma also have
well-established dynamic pricing options for customers.20 Under retail competition, marketers
also will seek new customers by offering added services, such as energy management, mixes of
various types of renewable energy, and assistance in recognizing and implementing opportunities
for energy efficiency, onsite power generation, and onsite energy storage. Some of these
enhance a customer’s ability to respond to changes in electricity prices.
This pattern – featuring lower price offers as well as service innovations offered by
marketers – is developing in the Electric Reliability Council of Texas (ERCOT) area of Texas21
18 Ahmad Faruqui & Jennifer Palmer, “Dynamic Pricing and Its Discontents,” Regulation 16
(Fall 2011), available at
http://www.cato.org/sites/cato.org/files/serials/files/regulation/2011/9/regv34n3-5.pdf.
19 In the aggregate, only about one percent of customers with low levels of power consumption
are on dynamic pricing. Ahmad Faruqui, “Dynamic Pricing for Residential and Small C&I
Customers” 16 (presentation to the Ohio Public Utilities Commission) (Mar. 28, 2012), available
at http://www.brattle.com/_documents/UploadLibrary/Upload1026.pdf.
20 Ahmad Faruqui, “Implementation of Dynamic Pricing: Trends and Debates,” 5th Latin-
American Smart Grid Forum (Nov. 28, 2012), available at
http://www.brattle.com/ documents/UploadLibrary/Upload1097.pdf.
21 The Public Utility Commission of Texas asked all load-serving entities in ERCOT to collect
statistics on load that is being served under several different forms of dynamic pricing, based on
ERCOT’s finding that DR was larger than its models predicted in recent years, which in turn
could lead to underestimates of the actual reserve margins in ERCOT. Karen Abbott, “ERCOT
Asks Retail Electric Providers for Data on Dynamic Pricing/Demand Response Capabilities of
Their Customers” (Feb. 7, 2013), available at
http://www.energychoicematters.com/stories/20130207b.html.
An example of an innovative dynamic pricing offer in ERCOT is Bounce Energy’s
seasonal discount program for customers who cut power use from 3:00 p.m. to 7:00 p.m. on the
day after the marketer sends them an email Emergency Event alert. The opt-in program
(described at http://www.bounceenergy.com/blog/2013/04/save-energy-money-summer-bounce)

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and is emerging in other states with retail electric competition. In addition, now that retail
competition is in place, Maryland and the District of Columbia have approved in principle the
full-scale rollout of peak-time rebates for POLR residential customers – a form of dynamic
pricing. This parallels earlier decisions in Maryland and other states to use hourly rates for the
POLR service available to commercial and industrial (“C&I”) customers, as we describe next.
Nothing similar has emerged yet in states with traditional, vertically integrated utilities.
Few utilities asked or were allowed to offer time-varying prices until the introduction of
retail competition. (The prominent exceptions are those listed in the previous paragraph and the
investor-owned utilities in California and Florida.) In several states in the Northeast – including
Maryland, New Jersey, and New York – POLR service for C&I customers was converted to
hourly retail pricing once retail competition was established (and the necessary meters were
installed). As early as 2006, about 25 percent of the large C&I load in Maryland faced hourly
prices.22 The comparable figures were 50 percent in New Jersey and 60 percent in New York.
Most of these customers have accepted some variation on hourly prices offered by a marketer. A
review of these statistics by utility regulatory staff in Massachusetts concluded that the
proliferation of variations on real-time pricing basic service that are designed to accommodate
customers’ individual needs constitute a sign that the retail electric choice markets in these states
are maturing.
Many other C&I customers participate in some type of DR program, but these are often
associated with wholesale market DR aggregations that have been legitimized by FERC as a
means to improve system efficiency despite the widespread persistence of flat rate pricing in
many states. 23 Some observers express concern that FERC has thereby eroded participation in
has attracted 25 percent of Bounce Energy’s customers and offers responsive customers a 5
percent discount on their power bills. Another example is TXU Energy’s real-time pricing
product for residential customers, which offers free electricity on evenings and weekends to
encourage customers to shift consumption to off-peak periods. More recently, TXU initiated an
offer to small business customers that allows each business to designate a portion of the business
day when the price it pays for power will be 50 percent lower. This serves as an incentive to
shift consumption to the selected discount period. “TXU Energy Launches First Time-Based
Plans for Texas’ Small and Medium-Sized Businesses,” BusinessWire (June 25, 2013), available
at http://www.businesswire.com/news/home/20130625005128/en/TXU-Energy-Launches-Time-
Based-Plans-Texas%E2%80%99-Small.
22 Petition of the Massachusetts Division of Energy Resources for an Investigation into Dynamic
Pricing for Basic Service 21-26 (Oct. 31, 2006), available at
http://www.mass.gov/eea/docs/doer/publications/dyn-price-petition.pdf (examining the
experience in other states, including Maryland).
23 For a discussion of the similarities between DR programs operated by regional transmission
organizations and price-responsive retail demand, see Paul Centolella and Andrew Ott, “The

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dynamic pricing options available at the retail level. Some believe that DR programs operating
at the wholesale level may be less efficient than dynamic retail prices.24
On the residential side, other than pilot projects and targeted customer programs, no state
has switched residential POLR service to real-time retail prices or other forms of dynamic
pricing (although Ontario has done so).25 The general picture is that utilities have not expressed
interest in or been permitted to charge dynamic prices to customers in traditionally regulated
states. Part of the problem is also that traditional rate-making approaches may be ill-suited to
deal with constantly varying prices or with a proliferation of innovative services, some of which
entail bundling energy management services with electric service. Indeed, doing so is restricted
in some states because of concerns about unfair competition by utilities that might cross-
subsidize their affiliates, to the disadvantage of independent suppliers.26
V. Responses to Questions in the ACC’s May 23, 2013, Letter to Stakeholders27
1. 	Will retail electric competition reduce rates for all classes of customers – residential,
small business, large business and industrial classes?
Yes. If retail electricity sales are opened to competition in an effective way that
facilitates realization of new system efficiencies, average costs will fall for all classes of
Integration of Price Responsive Demand in PJM Wholesale Power Markets and System
Operations” (Mar. 9, 2009), available at
http://www.hks.harvard.edu/hepg/Papers/2009/Centolella%20%20Ott%20PJM%20PRD%20030
92009.pdf.
24 James Bushnell, Benjamin F. Hobbs, and Frank A. Wolak, “When It Comes to Demand
Response, Is FERC Its Own Worst Enemy?,” 22:8 Electricity J. 9 (Oct. 2009).
25 Faruqui, “Dynamic Pricing for Residential and Small C&I Customers,” supra note 19, at 41.
26 For example, Maine prohibits the sharing of market information between utilities and their
affiliates, because such information-sharing can disadvantage independent competitors of the
utility’s affiliates. Lewis Tagliaferre and Susan Greenwood, “Electric Utility Restructuring:
What Does It Mean for Residential and Small Retail Consumers in Maine?,” Maine Policy
Review 64, 66 (Fall 1999) , available at http://mcspolicycenter.umaine.edu/wp-
content/uploads/files/pdf mpr/TagliaferreGreenwood V8N2.pdf. More generally, see
Comments Regarding Retail Electricity Competition, filed with the FTC by the National
Alliance for Fair Competition (Apr. 2, 2001), available at
http://www.ftc.gov/os/comments/eleccompetition/natallfaircomp.pdf.
27 The questions and responses below follow the numbering in the ACC’s letter of May 23, 2013.
We address all questions except Question 8 and Question 13.

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customers relative to what they would have been without increased competition.28 Even if costs
fall under increased retail competition, however, this does not necessarily mean that retail rates
should, or actually will, fall. The reason is that once competition supplants the system that
prevailed under the regulated, vertically integrated monopoly, many customers may choose a
different mix of services – a mix that may be “customized” or “individualized” to the specific
purchaser and thus could possibly be more expensive than the historic “one-size-fits-all” service.
The new product the consumer receives (electricity plus new services) may be priced higher, but
it is more valuable than the old one to certain consumers. For example, a retailer with large
inventories of frozen food likely would value reliability in the power supply more highly than
other retailers because so much inventory is at risk of spoilage in a blackout. When electricity
services are customized, simple price comparisons become more difficult and less meaningful.
They may be misleading because of differences among the values of the different bundles of
services and equipment that customers may select.
Jurisdictions that have adopted retail competition often have considered total customer
bills in addition to rate changes. These two measures of power expenditures can be different.
For example, electricity rates could increase, but power bills would fall if the rate increase led to
a sufficient decrease in power consumption. Similarly, if rates shifted from being flat in all
periods of the day and year to varying in a way that tracks changes in wholesale power prices
(dynamic prices), then rates would be higher in some periods and lower in other periods.
Customers who cut back their power use when power is most expensive and shift power use to
periods when electricity prices are lower will experience the largest decrease in their power bills.
Even customers who do not reduce consumption in the most expensive periods will often have
lower power bills when other customers reduce their power consumption in the face of the
highest prices: a reduction in power use by any subset of customers will reduce the use of the
most costly power plants and will thereby produce lower wholesale prices for all customers.
To check how these potential pricing and billing effects work out in the real world,
Brattle Group and others have reviewed billing experiences where various kinds of dynamic
prices have been introduced. 29 The general finding is that most customers, including low-income
28 Assuming that the generation supply stack has the usual hockey-stick shape, the market-
clearing price should fall considerably as a result, even if the reduction in peak-period
consumption is modest. We also assume that allocations of costs among customer classes
remain the same. A customer class could face higher rates if a favorable cross-subsidization
were eliminated at the same time. Even in that case, however, the price effect of ending the
favorable cross-subsidization would be less than it would have been absent the decline in peak
consumption.
29 Faruqui, “Dynamic Pricing for Residential and Small C&I Customers,” supra note 19. See
also Faruqui & Palmer, “Dynamic Pricing and Its Discontents,” supra note 18. The Regulatory
Assistance Project and Brattle Group jointly published a more general overview of dynamic

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customers, have lower bills when they choose dynamic prices. These savings are most
pronounced when responses to dynamic prices are automated. Some reviews of dynamic pricing
recommend an extra step: to design the system to minimize the risk that any customer seeking to
obtain bill savings by reducing power use in peak demand periods will face higher power bills
under dynamic pricing than under flat rate prices.30
2. 	In addition to the possibility of reduced rates, identify any and all specific benefits of
retail electric competition for each customer class.
As discussed above, retail electric competition increases power customers’ ability to
customize the electricity services they buy.31 At the same time, retail electric competition will
help customers address the increasing challenges of balancing supply and demand on the electric
system, which in turn will help bolster system reliability. In short, retail electric competition
creates incentives for service innovations and for greater variety in the electric services available
pricing issues. See Ahmad Faruqui, Ryan Hledik, and Jennifer Palmer, “Time-Varying and
Dynamic Rate Design” (2012), available at
http://www.hks.harvard.edu/hepg/Papers/2012/RAP_FaruquiHledikPalmer_TimeVaryingDynam
icRateDesign_2012_JUL_23.pdf. For survey information about views and interests of low-
income consumers regarding dynamic pricing, see, e.g., Smart Grid Consumer Collaborative,
“Spotlight on Low Income Consumers: Final Report” (Sept. 18, 2012), available at
http://smartgridcc.org/wp-content/uploads/2013/02/SGCC-LI-Spotlight_2.13.pdf. For discussion
of participation by low-income consumers in related electric power demand management
programs, see, e.g., Cindy Boland O’Dwyer, “Engaging and Enrolling Low Income Consumers
in Demand Side Management Programs,” research project for the Distributed Energy Financial
Group’s Low Income Energy Issues Forum (June 25, 2013), accessible at
http://defgllc.com/publication/engaging-and-enrolling-low-income-consumers-in-demand-side-
management-programs/.
30 Grayson Heffner, Int’l Energy Agency, “Smart Grid – Smart Customer Policy Needs” 12-13
(Apr. 2011), available at
http://www.iea.org/publications/freepublications/publication/sg_cust_pol.pdf.
31 Traditional retail regulation has generally followed a one-size-fits-all approach, with prices set
to cover average costs. The traditional regulatory process – with its elaborate rate cases – is ill-
suited to allow fully regulated utilities to offer electricity bundled with a proliferation of
unregulated, innovative equipment and professional services.
Traditional utility regulation covered prices, quality, and the variety of services that a
utility could offer. Regulated utilities were not in the position of an unconstrained monopolist
that might find it profitable to offer individually tailored services that could allow it to more
perfectly price discriminate (and thereby more nearly appropriate all of the consumer surplus of
its customers).

13
to meet consumers’ preferences, and provides rates to consumers that are lower than they
otherwise would be. These changes can also improve power system performance and reliability.
3. 	How can the benefits of competition apply to all customer classes equally or equitably?
Competition empowers all electricity customers to customize the electric services they
buy. Some customers will choose to lower their electricity bills, while others will prefer to
bundle more services or equipment with their electricity purchases (thereby increasing the
product’s value). All customers benefit from system efficiencies and enhanced service reliability
that result from retail competition, which gives customers incentives to help meet system
challenges, such as integrating renewable generation sources and flattening the power system’s
load profile to better balance supply and demand. When customers help meet system challenges,
per-unit system costs are expected to be reduced for all customers relative to what they would
have been without the system efficiency improvements. 32
4. 	Please identify the risks of retail electric competition to residential ratepayers and to the
other customer classes. What entity, if any, would be the provider of last resort?
If a state does not extend appropriate protections to consumers when retail competition is
introduced to the power industry, consumers could be exposed to questionable sales practices, as
has occurred in other industries that lacked consumer protections. 33
The introduction (or reintroduction) of competition into regulated industries has often
resulted in customers who are unaware of their new choices or, even if they know choices are
available, may not know how to select an alternative supplier. The more customers know about
how to compare their electricity service choices, the likelier they are to have the confidence to
switch to better offers. In turn, this provides incentives for suppliers to innovate and keep costs
down.
States that have adopted retail choice in the power industry have taken a variety of
approaches to the possibility of having a POLR service. All retail choice states have an
arrangement for continuous supply of electricity if a customer’s supplier abruptly leaves the
32 See also our response to Question 1.
33 The Federal Trade Commission Act and subsequent legislation regarding consumer protection
policies were enacted to address business practices that undermine efficient markets and harm
consumers by taking advantage of information asymmetries, making false or misleading claims,
or employing high-pressure sales tactics in approaching vulnerable populations (such as children
or the elderly). See “An Overview of Consumer Protection Initiatives,” available at
http://www.ftc.gov/oia/assistance/consumerprotection/overview.pdf.

14
industry. Some states (such as New York) require the distribution utility to provide this service
until the customer picks a new supplier, while other states (such as Texas) have a competitive
procurement procedure to provide this form of POLR service. For customers who do not pick a
new supplier, most states assign such customers to whatever system exists to handle service for
customers whose supplier has left the market. An alternative approach that has been used in the
natural gas industry in most of Georgia is to assign customers to a retail supplier. For example,
the number of customers assigned to a supplier could be based on the number of customers the
supplier previously attracted. After the initial assignment, customers can pick a different
supplier whenever they so decide. All of these alternatives have been in use for several years
and seem to be administratively practicable.34
5. 	How can the Commission guarantee that there would be no market structure
abuses and/or market manipulation in the transition to and implementation of
retail electric competition? 35
In moving toward retail electricity competition, one issue that states have encountered is
whether to restructure vertically integrated utilities with preexisting monopoly power. States
have been concerned that the distribution utility generates or handles a large proportion of the
wholesale capacity available to electricity marketers in the state. A near-monopoly of generation
sources in the hands of an incumbent distribution utility that also sells electricity at the retail
level could make it difficult for potential competing retail electricity marketers to serve business
and residential customers at competitive prices. To address this concern, some states (for
instance, New York) have required distribution utilities to divest some or all of their generation
capacity in order to create independent sources of supply for potential retailers. Other states
have required distribution utilities to establish separate generation subsidiaries, with the idea that
these new, independent entities would not have an incentive to discriminate against retailers
seeking power supplies at the wholesale level.36 The staff of the New Hampshire Public Utilities
34 See also our response to Question 1.
35 Concerns about the growth of generation market power through mergers or unfair competition
are addressed by means of public and private enforcement of federal and state competition and
consumer protection laws. The FTC, the U.S. Department of Justice, FERC, the states, and
private litigants address various concerns about increased market power and market
manipulation.
36 The establishment of independent grid operators helps to alleviate this concern by broadening
the relevant geographic market. FERC’s initial efforts to employ behavioral rules to prevent
discrimination against independent generators seeking to supply retail marketers and distant
utilities proved insufficient. Eventually, in Order No. 2000, FERC accepted arguments made by
the FTC and others in support of structural (vertical) unbundling of transmission from generation
through the device of independent system operators and regional transmission organizations.
The modern spread of organized wholesale electricity markets is consistent with the concerns

15
Commission suggested another reason to consider separating generation from distribution. The
staff recommended separating distribution from generation used to serve POLR service
customers because prices for POLR service from the incumbent utility are spiraling upward. The
staff noted that other generators could supply POLR service at lower and perhaps declining
prices in the competitive wholesale power market, where more efficient generation designs and
the use of alternative fuels have been holding costs and wholesale power prices in check in
recent years.37
There also can be threats to competition associated with how to recover stranded costs,
which can arise when distribution utilities sell or reassess the value of generation assets. We
have discussed some of these issues in previous FTC staff comments. 38
If the distribution utility also continues to sell power at the retail level, other competition
and consumer protection concerns may arise. One such concern is use of the distribution utility’s
logo by its retail marketing affiliates. The FTC addressed these concerns (and described related
original research) in a comment to the Public Utilities Commission of Nevada. 39
that the FTC expressed about transmission discrimination. The structural reforms – which
resulted in fewer incentives and ways to use the transmission system to impede wholesale
competition – alleviated some of the concerns over whether new retail marketers would be able
to find attractive sources of supply and over concentration of local generation supplies.
Conversely, concerns of this type would increase if there were transmission bottlenecks
surrounding an area newly turning to retail electric competition. For an early discussion of the
importance of competitive access to power supplies, see Otter Tail Power Co. v. U.S., 410 U.S.
366 (1973).
37 Staff of the New Hampshire Public Utilities Commission and The Liberty Consulting Group,
“Public Service Company of New Hampshire: Report on Investigation into Market Conditions,
Default Service Rate, Generation Ownership and Impacts on the Competitive Electricity Market”
26 (June 7, 2013), available at http://www.puc.nh.gov/Electric/IR%2013-
020%20PSNH%20Report%20-%20Final.pdf (“All scenarios result in a default service rate
above the rates currently offered by competitive suppliers. . . . The results of the scenarios bear
on the question of whether there is a point at which the default service rates would be considered
no longer just and reasonable even though they are cost-based rates.”).
38 FTC Staff Comment Before the Louisiana Public Service Commission Concerning Stranded
Costs and Benefits (Aug. 7, 1998), available at http://www.ftc.gov/be/V980018.shtm; FTC Staff
Comment Before the Michigan Public Service Commission Concerning Electric Restructuring
(Aug. 7, 1998), available at http://www.ftc.gov/be/v980019.shtm.
39 FTC Staff Comment Before the Public Utilities Commission of Nevada Concerning Regulated
Electric Utilities and Affiliates (Sept. 22, 1998), available at
http://www.ftc.gov/be/v980027.shtm. Related concerns about the use of a utility logo on a price
comparison website are described in “Market Advocates Testify to Texas PUC on CenterPoint’s

16
6. 	What, if any, features, entities or mechanisms must be in place in order for there
to be an effective and efficient market structure for retail electric competition?
How long would it take to implement these features, entities, or mechanisms?
We noted above that most retail choice states have found it useful to have clear
mechanisms for (1) switching customers to new suppliers; (2) handling exits by suppliers; (3)
licensing for new electricity marketers; and (4) handling joint billing by marketers and the
distribution utilities. Retail competition regimes that have developed more active consumer
involvement in switching suppliers also include a system for handling retail marketers’
receivables when the state elects to have consumers continue to receive a single power bill. The
typical approach is that the distribution utility must offer to buy marketers’ receivables, albeit at
a discount. Under this system, the distribution utility continues to be responsible for collecting
all power system payments from consumers. The utility then disburses (to the marketers) the
funds that reflect each marketer’s retail electricity sales. The establishment of a purchase-of-
receivables system appears to foster effective entry by marketers.40
More generally, we recommend that the ACC consult with electricity market regulators
(and their staffs) in states with customer choice regimes in order to gain an understanding of
alternative features, entities, or mechanisms that those states have implemented or considered.
At the present time, states of particular interest include New Hampshire, Ohio, Pennsylvania, and
Texas. Increased consideration of retail competition issues is also underway in states such as
California, Michigan, and New York. Of course, circumstances can differ among states, so the
precise details of the competition scheme need to be scrutinized.
The ACC also should be aware that retail choice states monitor how existing rules and
programs are working so that they can make adjustments to suit changing technology and other
circumstances. It could be useful to catalog why and how such adjustments have been made in
Website,” Restructuring Today (June 7, 2013), available at
http://www.restructuringtoday.com/public/12667.cfm.
40 For example, the Retail Energy Supply Association (RESA) asked the New York State Public
Service Commission (NY PSC) to implement a purchase-of-receivables program in the service
territory of the Long Island Power Authority. The proposal was an element in RESA’s proposals
to invigorate retail electric competition in that area of New York State. RESA recommended
that the NY PSC take steps to allow Long Island’s electricity switching levels to more closely
approximate those in other parts of the state. RESA’s Comment to the NY PSC in Matter No.
12-00314 – LIPA Management & Operations Audit (Mar. 8, 2012), available at
http://www.resausa.org/sites/default/files/RESA%20LIPA%20Comments%20Filed.pdf.

17
states with retail electricity competition. We also recommend periodic reviews of retail
competition rules to keep them up to date.
7. 	Will retail electric competition require the divestiture of generation assets by
regulated electric utilities? How would FERC regulation of these facilities be
affected?
As discussed above, if generation is not separated from distribution, an incumbent utility
with market power in the wholesale electricity market could discriminate in selling the
transmission services needed to transport power to a new marketer’s retail customers, thereby
depriving the new marketer of wholesale electricity supplies needed to serve its customers at
reasonable prices. The ACC could conduct an assessment of generation competition to
determine whether some vertical unbundling appears necessary. Easy entry or strong
transmission ties could provide sufficient competition to alleviate a need for any unbundling.
If some unbundling is needed to avoid anticompetitive discrimination against marketers,
it can take several forms. A structural reform such as divestiture would likely be the strongest
form of prevention because it would fully remove the incentives to discriminate against
marketers, so long as many of the buyers of the generation are independent entities. By contrast,
unbundling through accounting (rather than structural) separations would offer less strong
protection against anticompetitive conduct but would be more likely to preserve whatever
efficiencies flow from the particular vertical integration in question. Policymakers should
consider both the incremental costs of structural (as opposed to accounting) safeguards and the
incremental benefits of that approach. Some policymakers have concluded that a non-structural
remedy may be inadequate to prevent discrimination or to avoid other exercises of market power
in the electric power sector.41 In general, if an incumbent utility has market power in the
wholesale electricity market, we recommend that the ACC consider unbundling through a
cost/benefit approach in which the costs of various forms of vertical unbundling are compared to
their respective benefits.
9. 	Will retail electric competition impact reliability? Why or why not?
41 Organization for Economic Cooperation and Development, “Restructuring Public Utilities for
Competition” (2001), available at http://www.oecd.org/regreform/sectors/19635977.pdf. See
also Comment of the Federal Trade Commission Before the Federal Energy Regulatory
Commission Concerning Standards of Conduct for Transmission Providers (May 7, 2008),
available at http://www.ftc.gov/os/2008/05/V070009comment.pdf; Electric Energy Market
Competition Task Force, Report to Congress on Competition in Wholesale and Retail Markets
for Electric Energy, supra note 10 (esp. Ch. 4).

18
If retail competition is effective in reducing reliance on flat rate pricing, it is likely to
enhance reliability by enrolling customers to help balance supply and demand on the power
system. DR trims demand peaks and fills in demand troughs, which in turn eases the challenges
that grid operators face. Further, retail competition allows marketers to offer improved
reliability as a specific service. For example, marketers could offer installation and maintenance
of energy storage devices or onsite generators that allow customers to have electric power when
the grid is experiencing a blackout or local distribution lines are down. Fully regulated utilities
have not generally sought or been allowed to offer individually tailored options outside of onsite
renewable generation installations. Approaches to improve reliability proposed by consumer
groups may be subject to challenge as violations of the distribution utility’s monopoly
franchise.42
10. 	What are the issues relating to balancing area authorities, transmission planning,
and control areas which must be addressed as part of a transition to retail
electric competition?
As part of its consideration of retail competition, the ACC may wish to encourage
Arizona’s distribution utilities to broaden the geographic scope of their wholesale dispatch areas.
Such a step could result in efficiencies in balancing renewable generation resources and in
obtaining economies of massed reserves, as has occurred in other areas of the country. We note
in particular the decisions by utilities in Oregon and Nevada to work with the California
Independent System Operator. The broadening of geographic dispatch areas could boost retail
competition in Arizona by giving retail marketers a broader area (with more opportunities) in
which to secure generation and transmission services for their retail customers at attractive
prices.
Another issue is how the ACC will address resource adequacy questions under retail
competition. Most states with retail competition operate within organized wholesale markets,
most of which have adopted some type of capacity market mechanism to make up the revenues
that generators lose under the price caps that the organized markets have adopted. The relative
merits of capacity markets are beyond the scope of this comment, but reviews of this topic are
available.43
42 Michael Burr, “Economy of the Small,” 151:5 Pub. Util. Fortnightly 20, 24 (May 2013).
43 For example, Brattle Group prepared a review of resource adequacy policy alternatives for
ERCOT that included a discussion of capacity markets. See “ERCOT Investment Incentives and
Resource Adequacy” (June 1, 2012), available at
http://www.brattle.com/ documents/UploadLibrary/Upload1047.pdf.

19
11. 	Among the states that have transitioned to retail electric competition, which
model best promotes the public interest for Arizonans? Which model should be
avoided?
The retail competition regimes of the various states evolve as conditions change, as
regulatory innovations are tested, and as customers become more accustomed to selecting a
power supplier that best serves their preferences. At this time, the development of retail
electricity competition is probably most advanced in the portion of Texas in which ERCOT
operates. The most important reason for this development is that distribution utilities are not
assigned to provide POLR service in ERCOT. In part because of this feature, a higher
proportion of retail customers in Texas than in other states have switched to buy power from
non-utility power marketers. We encourage the ACC to explore the features of the retail
competition regime in the ERCOT area.
At the same time, the most pressing issues that Arizona is likely to face initially will
differ from those currently faced in Texas. In particular, we encourage the ACC to focus on the
issues associated with introducing retail competition that we listed early in Section III of this
comment. It will be particularly important to educate customers about retail choice and develop
clear, easy, and timely switching procedures, as well as to develop policies that prevent
distribution utilities from double charging or otherwise penalizing retail customers who elect to
buy from a marketer. The ACC can also help avoid impeding entry by pricing POLR service to
follow wholesale power prices closely. If POLR prices are hedged through extensive laddering
of procurement contracts (procuring POLR supplies through a portfolio of contracts of varying
durations), competition may be ineffective.44
Several legacy retail competition rules appear to undermine effective retail competition.
For example, we previously discussed systems for recovery of stranded costs that can undermine
44 Traditional laddering of POLR service procurement contracts actually represents a regulated
bundle of wholesale power plus hedging. Due to both laddering and lags in POLR rate
determinations, POLR prices generally will be lower than spot market prices when prices for key
fuels are rising, and will be higher than spot prices when prices for key fuels are generally
falling. In recent years, prices for natural gas have declined compared to the pre-recession
period and relative to other prominent fuels, including coal and oil. This traditional bundling of
hedging with wholesale spot market electricity prices for POLR services creates a boom-and-
bust cycle for retail marketers if they do not replicate the hedging mandates for POLR service
procurement contracts. In response to increasing understanding about the regulatory risk that
this imposes on marketers, states such as Pennsylvania are considering reducing the laddering of
POLR service procurement contracts. The move to quickly pass through wholesale prices to
POLR service customers recognizes that laddering POLR prices adds enough risk to entry that
effective retail competition may not develop in a timely fashion and that some retail customers
do not prefer this form of bundling.

20
competition. Some other poor approaches include the inefficient allocation of costs to all power
customers, when the benefits flow primarily to POLR customers; inattention to market power or
price manipulation in wholesale power markets; and inattention to a few retailers’ unfair
practices that raise all retailers’ marketing costs.
12. 	How have retail rates been affected in states that have implemented retail electric
competition?
In general, as noted above, reference to prices alone is not a reliable way to gauge
performance under retail competition, because retail competition opens up opportunities to tailor
the customer’s choice of power service (including some costlier options that provide additional
value) that were not present before. Customers who prefer more or different services will often
choose to pay higher per-unit prices for power because they are buying a differentiated (and
preferred and more valuable) bundle of services instead of a commodity. Nevertheless, the most
recent cross-state study of which we are aware reported that retail competition lowered retail
power rates.45 We have questions, however, about the sensitivity of the reported results to
different interpretations of the data used in this study.46
14. 	Is retail electric competition compatible with the Commission’s Renewable
Energy Standard that requires Arizona’s utilities [to] serve at least 15% of their
retail loads with renewable energy by 2025?
Several states that have renewable portfolio standard (RPS) requirements also have
adopted retail electric choice. One approach to creating compatibility between the two policies
is to require each load serving entity (LSE) in the state to satisfy the RPS standard with respect to
the load it serves in the state. Administratively, some states have found that a workable system
is to accept renewable energy certificates (RECs)47 held by an LSE to satisfy the RPS
45 Mathew J. Morey and Laurence D. Kirsch, “Retail Rate Impacts of State and Federal Electric
Utility Policies,” 26:3 Electricity J. 35 (Apr. 2013).
46 A particular concern is how states were classified in the study. For example, California was
classified as a retail competition state despite the fact that California retail customers generally
have not been allowed to choose among alternative retail suppliers for more than a decade.
Given a variety of different factors – including the changing costs of inputs used in generation,
shifts in the mix of generation types serving different areas, and lags in changing regulated rates
– we believe it is difficult to reliably compare rates under different approaches to retail
competition.
47 RECs sometimes are referred to as “Green Tags,” “Renewable Energy Credits,” “Renewable
Electricity Certificates,” or “Tradable Renewable Certificates.”

21
requirements. This approach is appealing because it assures that renewable generation injected
into the power system is sufficient to cover the LSE’s RPS obligations, while it gives the LSE
flexibility in complying with the RPS requirements. For example, an LSE could invest directly
in renewable generation (with the right to issue RECs) or could buy RECs from other owners of
renewable generation. This trading system appears to have been workable in California, which
has the highest RPS requirement, and several states in the PJM regional transmission
organization area use RECs in their RPSs.48
15. 	Is retail electric competition compatible with the Commission’s Energy Efficiency
Standard that requires Arizona’s electric utilities to achieve a 22% reduction in
retail energy sales by consumption by 2020?
Several states with retail competition regimes also have energy efficiency standards.49
There is nothing inherently inconsistent between retail competition and such standards.
16. 	How should the Commission address net metering rates in a competitive market?
The application of flat rate pricing in the context of net metering compounds the already
distortionary effects of such a pricing scheme. Without accurate price signals, customers have
no incentive to make long-term investment decisions that reflect the value of these investments
in meeting the challenges of balancing demand and supply on the grid. Consequently, we
encourage the ACC to let marketers offer prices to customers with DG that reflect the variable
value of power from these generators to the power system. A smart meter would provide the
most accurate price signals if it showed price adjustments to consumers based both on time and
on consumer use of distribution services.
17. 	What impact will retail electric competition have on resource planning?
As indicated in our response to Question 10, many states with retail choice are located in
organized markets that seek to address resource adequacy through a combination of energy sales
revenues and capacity payments. Capacity payments were adopted because the caps placed on
wholesale electricity bids decreased the revenues that generators receive when generation
48 PJM presents a matrix showing differences among the rules under which PJM states allow the
use of RECs to satisfy RPS requirements. See http://www.pjm-eis.com/~/media/pjm-
eis/documents/rps-comparison.ashx.
49 The U.S. Energy Information Administration (EIA) reports that all but 13 states have either an
RPS goal or an RPS requirement. The exceptions include Alaska, Idaho, Nebraska, Wyoming,
and most states in the Southeast. EIA, Today in Energy, “Most States Have Renewable Portfolio
Standards” (Feb. 3, 2012), available at http://www.eia.gov/todayinenergy/detail.cfm?id=4850.

22
reserves are low. Capacity markets provide revenue to make up for the “missing money”
associated with bid caps.
The ERCOT area of Texas represents an exception to the system of capacity markets and
payments. Rather than employ a capacity market mechanism, ERCOT has relied on energy
market revenues alone to stimulate timely generation investments. The Public Utility
Commission of Texas is investigating whether additional steps are necessary to support
reliability in ERCOT, with considerable attention focused on the degree to which DR should be
increased in ERCOT.
18. 	How will retail electric competition affect public power utilities, cooperatives and
federal controlled transmission systems?
Several states with retail competition also have public power utilities, cooperatives, and
federally controlled transmission systems. There is nothing inherently incompatible between
retail competition and the presence of other types of power entities.
VI. 	Conclusion
The FTC staff appreciates the opportunity to submit this comment. If you have any
questions or comments, please feel free to contact John H. Seesel, Office of the General Counsel,
at (202) 326-2702.