to vertical integration and a bad aspect and the task force will have to sort out which dominates
under restructuring. The good aspect is that vertical integration can often lower costs, but there's
also a possibility of some bad outcomes with regard to market power from vertical integration.
Mr. Glick indicated that the final issue is price discrimination, which means that a firm sets
one price for one set of consumers and another price for another set of consumers for the same
product. He stated that price discrimination is not a bad thing in itself, but can be bad if it allows
a firm to exercise market power against a vulnerable set of consumers. He indicated that price
discrimination will be one of the most difficult issues to sort out and make good public policy.
B. Panel Discussions on Selected Market Power Issues - The panel consisted of six members
including one representative from each of the following groups: 1) PacifiCorp (PC); 2) Public
Service Commission and the Division of Public Utilities (PSC/DPU); 3) Committee of Consumer
Services, United We Stand, and Salt Lake Community Action Program (CCS); 4) Utah Electric
Deregulation Group and Utah Industrial Energy Consumers IND); 5) Utah Associated Municipal
Power Systems and Utah Municipal Power Agency (MUN); and 6) Utah Rural Electric Association
REA).
I.
Determination and Measurement of the "Relevant Market"
Mr. Rick Anderson, IND, said the question of relevant market has to do with the transmission
sector of the industry and the reform that is ongoing in that transmission sector. He raised the
questions of "who can come in" and "who can bring power here to compete?" The question of a
relevant market is ultimately going to be determined by the reformers who are in the area of
transmission lines.
Mr. Richard Judd, MUN, suggested that the relevant market is a narrow scope because it is
a smaller market than what is being portrayed. He indicated that he believes that the relevant market
should be narrowly structured and that it is not a panacea that an ISO will solve all issues raised in
determining the relevant markets.
Mr. Steve Walton, PC, said with regard to the relevant market, the important thing to keep
in mind is how much import capability there is, which is how much capacity can come from the
outside and how much capacity for competition exists on the inside. PacifiCorp has been working
to produce the independent system operator because they believe it is necessary to break up the
vertical integration of the market. PacifiCorp also assumes that the distribution system will be
regulated by the Public Service Commission to guarantee that there is equal access to that market
and there is a code of conduct established.
Mr. Kurt Winterfeld, REA, said he disagrees with what he has heard about the definition and
determination measurement of a relevant market. The Department of Justice guidelines indicate that
the way to look at the market power issue is to begin by measuring the relevant market. After
establishing what the relevant market is, you look at whether a firm is able to exert market power
and the ways in which there may be a mitigation of that market power or other factors that bear on
that issue.
Mr. George Sterzinger, CCS, urged the task force to exercise prudence and caution in terms
of how it looks at market power and the kinds of problems it will overcome. He said it is important
to recognize three things: 1) electricity is a commodity unlike any others and is also a commodity
that isn't used by people directly, but for services; 2) the numbers the task force will be looking at
will be very complicated; and 3) customer choice and competition do not necessarily mean
deregulation, but can be used to reform regulation.
Ms. Becky Wilson, Division of Public Utilities said the purpose of defining and measuring
a relevant market is to examine the potential for market power in retail electricity markets in Utah.
She distributed a handout summarizing the determination and measurement of the relevant market.
Discussion and comment followed.
II. Competitiveness of the Market in Utah Under Restructuring
Mr. Bob Reeder, IND, said the question is "Will we have choice in Utah and, if so, at what
point, and when will that point come if we do have choice?" He pointed out three areas for
apprehension about whether or not we have choice or will have choice: 1) vertical market power;
2) horizontal concentration; and 3) load pockets.
Mr. Richard Judd, MUN, said he feels market power is an issue that needs to be addressed,
but without solving the market power problem, he doesn't believe there will be competitiveness.
Before Utah can have a competitive market, we need to be able to make sure the customers are aware
of what is being talked about and are not being bought off by someone.
Mr. Steve Walton, PC, stated that having only one producer in a location does not necessarily
mean that there is a market power problem. With regard to load pockets, there are no load pockets
in the state that are equivalent to load pockets that have been discussed extensively in California.
It is PacifiCorp's contention that there is adequate capacity under the FERC tariff that is currently
available and the market can be very competitive in the state.
Mr. Mike Peterson, REA, said that in looking at the competitiveness of the market in Utah
under restructuring, there has not been direct competition among Utah Power & Light, the
municipalities, and the coops. He indicated that the cooperatives feel they are at a disadvantage
when they are competing against other people who have more resources than the cooperatives do.
From that standpoint, as the cooperatives look at their service territories, they do not feel that there
will be a lot of competition for the rural farmer, but they hope to continue to have competitive
electric rates with the rest of the people in the state.
Mr. George Sterzinger, CCS, indicated that if the questions of market competitiveness are
looked at without looking at what conditions could result in a residual monopolist operating in the
Utah power market, it would be a great disservice to the consumers of electricity in the state.
Competition is not the same as deregulation. Competition can be introduced into the regulatory
structure and the regulatory structure can be used to encourage competition.
Mr. Artie Powell, DPU, said that although the Division has previously indicated its support
of effective competition, it believes there is inadequate information at this time upon which to draw
sound conclusions about electrical restructuring. He stated that the Division has two
recommendations: 1) work should proceed on developing potential scenarios describing the structure
of electric firms and markets for Utah; and 2) an independent consultant should be hired to simulate
Utah's position to ascertain relevant markets and the potential for market power. In addition,
positive steps will need to be taken to ensure that competition is allowed to develop and flourish in
Utah, and to establish a means to monitor the process.
Discussion and comment followed.
III. Methods for Mitigating Market Power
Because of time constraints, a panel discussion on the issue of methods for mitigating market
power was postponed. Mr. George Sterzinger, CCS, was requested to speak on this issue because
he may not be able to attend future meetings. He suggested using competition as the fringe element
within the regulatory structure in order to improve the ability of the regulatory agencies and
customers in Utah to find the lowest cost power. When looking at a completely deregulated market,
there are three frames of reference: 1) look at it from the customer's point of view; 2) note that the
rural, agricultural, and small business customers will often have the greatest need for the service at
any price; and 3) look at how the market will change over time. He urged the task force, as it looks
at the issue of market power and ways to mitigate it, to not loose sight of the fact that competition
can be introduced and customer choice can be introduced into a market in a way that does not require
full deregulation of the services. In some respects, the most effective way of mitigating the potential
market power from a completely deregulated market is to use competition and competitive choice
within the regulatory structure in ways that both protect competition, guarantee choice that
customers have the fringe of the market and to not allow the residual market to be abused as a result
of the deregulation.
6. Adjourn
MOTION: Sen. Waddoups moved to adjourn the meeting at 1:10 p.m. The motion passed unanimously. Reps. Garn and Ure were absent for the vote.