Many utilities have formed separate, unregulated subsidiaries that can participate in markets closed to the utilities’ regulated divisions. As these utilities seek to combat rising competition, they may use certain tactics (e.g., preferential pricing and hidden asset transfers) to extract greater profit from consumers and drive potential competitors out of business.
Subsidiary and Affiliate Activities: Policy
Policymakers should protect consumers from anticompetitive activities between providers of monopoly services and their separate subsidiaries. The following guidelines should apply:
- Separate affiliates (subsidiaries and parent companies) should conduct all competitive business independently and maintain separate financial records, employees, directors, officers, and ownership of assets.
- Regulated assets should not qualify as security for loans to affiliates or be subject to legal action against affiliates.
- The formation of utility holding companies should be discouraged.
- Incumbent utility service providers should conduct transactions at arm’s length and not discriminate in favor of their separate affiliates nor cross-subsidize any business of an affiliate.
The Justice Department and corresponding state agencies should monitor affiliate practices and enforce laws against anticompetitive behavior.