Antitrust Law Daily Wrap Up, ANTITRUST NEWS: FTC staff comments on Massachusetts’ dynamic pricing proposal for residential electricity customers, (Mar 18, 2014)

By Linda O’Brien, J.D., LL.M.

In response to a request from the Commonwealth of Massachusetts Department of Public Utilities (Mass. DPU), the staff of the FTC’s Office of the General Counsel, Office of Policy Planning, and Bureau of Economics provided comments on March 10 on its investigation of dynamic pricing for residential electricity customers. Dynamic prices are rates that vary over time, based on wholesale electricity prices and transmission congestion conditions.

The Mass. DPU sought comments on (1) whether to transition some or all basic flat-rate service to dynamic pricing; (2) how to educate residential and small business customers about dynamic electricity pricing; and (3) how dynamic pricing of basic service is likely to affect efforts to maximize the overall benefits of dynamic pricing.

According to the FTC staff comment, with dynamic pricing, customers who respond to incentives to reduce demand for power during peak demand periods can save money, lessen environmental impacts, and reduce the costs and improve the reliability of the electric system. Such actions benefit all customers, even those who do not respond to the incentives.

The differentiation in electric service can result in increased benefits by allowing customers to better match their preferences for many different electricity service characteristics with the offers available to them. However, maintaining flat-rate regulation would stifle innovation and the benefits that flow from it by diluting incentives to reduce electricity consumption in peak demand periods, the staff comment noted.

The staff comment identifies fundamental difficulties in reconciling the “basic” rate-regulated service in Massachusetts with rapid innovations in services and equipment – such as “smart” appliances and electric cars – which enable customers to respond to incentives to reduce electricity consumption during peak demand. To reach this goal, the comment recommends that the Mass. DPU adopt a peak-time rebate plan similar to that adopted by Baltimore Gas & Electric once appropriate electric meters – and consumer education and consumer protection programs – are in place.

The staff comment urges the Mass. DPU “to guard against authorizing public consumer education programs that focus exclusively on the virtues of any distribution utility’s time-varying rates and may provide consumers with incomplete or misleading information about offers from competing marketers.” The Mass. DPU is also urged to “ensure that proper safeguards are in place with respect to the personal information that smart meters generate about customers and make available to marketers,” and that “distribution utilities inform their basic service customers that they are using their data for purposes of implementing time-varying rates.”

The Commission vote approving the comment was 4-0.

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