The California Public Utilities Commission`s (CPUC) $1.68 million fine against Pacific Gas & Electric Co. (PG&E) delves into one of the touchiest controversies in the electric industry`s new competitive arena-brand name use by unregulated affiliates.
To one side, subsidiary use of a parent company name provides unfair advantage, perhaps strangling true competition. To the other, affiliate use of a brand name provides valuable information, to which consumers are entitled.
After several years of debate, the CPUC meted heavy-handed competitive rules in December 1997, forbidding an unregulated affiliate to use its parent company`s name and logo. To enforce the ruling, the commission determined any promotion or advertising by an affiliate must include a disclaimer in plain and legible or audible language. The disclaimer must make the following points: the affiliate is not the same company as the utility; it is not regulated by the CPUC; and, customers do not have to buy the affiliate`s products in order to continue to receive quality regulated services from the utility.
In March 1998, just days before California`s electricity market opened to competition, PG&E Energy Services ran “high voltage” advertisements in local newspapers soliciting business. The ads ran disclaimers as the CPUC requires, but the type was small and the ink tended to blend with its background.
Enron called the disclaimers “laughable,” virtually requiring a magnifying glass to read. While the CPUC considered the error unintentional, it found the utility committed 90 violations before discontinuing the promo ads. It stressed that future violations would result in even higher penalties.
The fines include $17,500 for each of 20 violations stemming from four ads that ran March 16 and $19,000 each for 70 violations arising from 16 re-publications of the earlier ads. The latter set of ads drew a higher penalty because, as the order cites, PG&E simply directed its affiliate to correct the problem raised by the March 16 ads. It took no further action to ensure compliance before the next ads were published March 23 to a far larger audience.
PG&E spokesman Cory Warren said the utility retracted the ads when it saw the advertisement`s appearance in newspaper print. But it was too late to pull the ads in some instances.
“We are not disputing the violation or that a monetary penalty was necessary,” Warren said. “But we believe the amount is excessive and unwarranted.”
PG&E, which filed for a rehearing Dec. 7, is concerned the CPUC overstepped its statutory authority. The fine, far in excess of the $336,000 penalty the administrative judge recommended, was devised without showing specific harm. It also was assessed without a hearing, which PG&E requested. “We believe we`ve been denied due process,” Warren said.
PG&E opened a compliance department more than a year ago and fully intends to follow the CPUC`s affiliate rules, Warren said.
The Joint Petitioners Coalition, which filed against PG&E after the advertisements ran, said the ruling was appropriate. Coalition members include companies such as New Energy Ventures, Enron, Amoco Energy Trading Corp., Calpine Corp., NorAm Energy Services Inc., the cities of San Diego and Vernon, other businesses and several consumer organizations and associations.
“This is a critical time in the marketplace,” said Susan Mara, Enron regulatory director in the San Francisco office. “The market was barely opening, and PG&E was calling into question the affiliate rules the commission spent several years putting into place.”
The coalition advocated a larger penalty of $3 million, but was pleased the commission imposed a significant penalty, she said.
The CPUC`s rules are essential for competition to exist in California, Mara said, because of the difficulties energy service companies face trying to gain a foothold in an incumbent utility`s territory. PG&E`s strong name recognition means no one could compete without the CPUC`s regulations, according to the coalition.
Competing with a parent utility`s unregulated affiliate is difficult, agreed Kenneth Gordon, National Economic Research Associates (NERA) senior vice president. “But regulators do not have an obligation to create an equal set of market shares,” he said. “It is their job to ensure open transmission and distribution systems for all competitors.”
Customers should not be impelled to make choices. They will make choices if there`s a reason to, he said.
“True competition isn`t a state of being where the market is divided into exact equal proportions to competitors. It is a process whereby people can come into the market and make a better offer on pricing and options and give people another choice. That`s what puts pressure on the incumbent,” Gordon said.
PG&E`s penalty seemed disproportionate to the damage, Gordon said. “Regulators have bent over quite a bit in making sure competitors have success. Success should be defined by the choices customers have,” he said.
Gordon said he disagrees with rules of any kind that hurt the customer, including suppressing information. “The name and branding of the incumbent utility can carry valuable information to consumers.”
“U.S. Generating Company, PG&E Gas Transmission, PG&E Energy Services, and PG&E Energy Trading are not the same companies as Pacific Gas and Electric Company, the utility, and are not regulated by the California Public Utilities Commission. Customers of Pacific Gas and Electric Company do not have to purchase products or services from these companies to receive quality service from Pacific Gas and Electric Company.”
The California Public Utilities Commission (CPUC) levied a $1.68 million fine against Pacific Gas & Electric Co. (PG&E) for 90 violations associated with PG&E`s failure to make the disclaimer above legible in its print advertisements.