The Federal Trade Commission has approved the filing of a comment with the Federal Energy Regulatory Commission (FERC) concerning standards of conduct for transmission providers. The comment was filed in response to a FERC notice of proposed rulemaking, Docket No. RM07-1-000. The comment is the latest in a series of FTC submissions advising FERC that behavioral rules may be inadequate to prevent transmission discrimination in energy markets. In its comment, the FTC encourages FERC to consider structural alternatives to the behavioral approach, which FERC has relied entirely upon to prevent certain forms of discrimination on transmission systems in some areas of the country.

Integrated firms that generate power, serve customers, and run transmission networks have profit incentives to use their control and knowledge of the transmission network to block competition in ways that secure more favorable prices. Behavioral rules prohibit such firms from following these incentives, but may not be sufficiently effective because of the difficulties of detecting and documenting discriminatory transmission practices. By contrast, structural approaches transfer ownership or control of transmission assets to entities that lack incentives to engage in transmission discrimination.

The FTC’s comment describes the interest of the FTC in energy market competition, describes incentives to discriminate and the difficulties involved in identifying and documenting such discrimination, and suggests a structural unbundling alternative or complement to the “behavioral” approach that FERC has followed in fashioning rules against transmission discrimination. The comment concludes: “Although FERC’s focus in this proceeding appears to make its behavioral rules against transmission discrimination clearer and easier to administer, the FTC recommends that FERC broaden its review of remedies for transmission discrimination to give greater consideration to structural unbundling alternatives. . . . [S]tructural unbundling can be a more attractive alternative – or at least a valuable complement – to behavioral rules.”

The Commission vote approving the filing of the comment was 4-0. It was submitted to FERC on May 7, 2008. (FTC File No. V070009; the staff contact is John H. Seesel, Associate General Counsel for Energy, Office of the General Counsel, 202-326-2702; see related press release dated May 8, 2007.)