Subsidiaries and Affiliates

Background

Some telecommunications and utility companies are part of complex corporate structures that can pose risks to consumers. For example, they may have regulated and unregulated affiliates and subsidiaries. A utility might buy goods or services from an affiliate at inflated prices and pass those costs on to utility customers.

Many utilities have formed separate, unregulated subsidiaries. These subsidiaries have the same corporate parent but operate independently. As a result, they can participate in markets closed to the utilities’ traditional, regulated divisions. This can lead to consumer harm. For example, a utility might buy goods or services from an affiliate at inflated prices. They then pass those costs on to utility customers.

Regulators therefore have an important role to play to ensure that subsidiaries and affiliates do not decrease competition or lead to consumer harm.

SUBSIDIARIES AND AFFILIATES: Policy

SUBSIDIARIES AND AFFILIATES: Policy

Fair competition

Policymakers should protect consumers from anticompetitive activities that could increase utility rates. This includes ensuring that providers of monopoly services and their separate subsidiaries work independently and do not coordinate their activities. Monopoly providers and their subsidiaries should engage in arm’s length transactions, with the following guidelines applying:

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.

The Department of Justice and corresponding state agencies should monitor affiliate practices and enforce laws against anticompetitive behavior.

Incumbent utility service providers should conduct transactions at arm’s length and not discriminate in favor of their separate affiliates nor cross-subsidize The use of revenues from one service to lower the price of another service below its costs. any business of an affiliate.