AARP Hearing Center
Background
Some utility companies have complex corporate structures that can pose risks to consumers. For example, they may have regulated and unregulated affiliates and subsidiaries. These subsidiaries have the same corporate parent. However, they can participate in markets that are closed to the utilities’ traditional, regulated divisions. This can lead to consumer harm. A utility might buy goods or services from an affiliate at inflated prices and pass those costs on to utility customers. Regulators thus have an essential role to play in ensuring that subsidiaries and affiliates do not decrease competition, cause higher rates, 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 operate transparently, with regulatory oversight to ensure benefits to ratepayers.
Monopoly providers and their subsidiaries should be required to adhere to the following guidelines to ensure fair and independent operations:
- Separate affiliates should conduct all competitive business independently. They should maintain separate financial records, employees, directors, officers, and ownership of assets.
- Regulated assets, such as power plants, should not be used 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 and their subsidiaries should conduct arm’s-length transactions. Providers should not favor or cross-subsidize their affiliates.
- Regulators should monitor and audit affiliate practices and enforce laws against anticompetitive behavior.