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Title: Retail wheeling: Is this revolution necessary?

Abstract

As of a former state regulator and a once enthusiastic practitioner of public utility law, I find it fascinating to see the latest nostrum to burst on the electric utility scene: retail wheeling. Wheeling became a personal interest in the Texas interconnection fight of the late seventies and may have led to the interconnection and wheeling provision of the Public Utilities Regulatory Policies Act (PURPA). Retail wheeling contemplates that every electric power customer should be given an opportunity to seek out the lowest cost source of power wherever it can be found. As a practical matter, the drums for retail wheeling are presently being beaten by large industrial users, who believe that they have the capability to find low cost sources and to make advantageous commercial arrangements to acquire electricity. Large industrials have long been fighting the utilities for cheaper electricity, frequently using the threat of self-generation and cogeneration.

Authors:
Publication Date:
OSTI Identifier:
54342
Resource Type:
Journal Article
Resource Relation:
Journal Name: Energy Law Journal; Journal Volume: 15; Journal Issue: 2; Other Information: PBD: 1994
Country of Publication:
United States
Language:
English
Subject:
29 ENERGY PLANNING AND POLICY; 24 POWER TRANSMISSION AND DISTRIBUTION; ELECTRIC POWER INDUSTRY; DEREGULATION; ECONOMIC ANALYSIS; ELECTRIC UTILITIES; COMPETITION

Citation Formats

Cudahy, R.D. Retail wheeling: Is this revolution necessary?. United States: N. p., 1994. Web.
Cudahy, R.D. Retail wheeling: Is this revolution necessary?. United States.
Cudahy, R.D. Sat . "Retail wheeling: Is this revolution necessary?". United States. doi:.
@article{osti_54342,
title = {Retail wheeling: Is this revolution necessary?},
author = {Cudahy, R.D.},
abstractNote = {As of a former state regulator and a once enthusiastic practitioner of public utility law, I find it fascinating to see the latest nostrum to burst on the electric utility scene: retail wheeling. Wheeling became a personal interest in the Texas interconnection fight of the late seventies and may have led to the interconnection and wheeling provision of the Public Utilities Regulatory Policies Act (PURPA). Retail wheeling contemplates that every electric power customer should be given an opportunity to seek out the lowest cost source of power wherever it can be found. As a practical matter, the drums for retail wheeling are presently being beaten by large industrial users, who believe that they have the capability to find low cost sources and to make advantageous commercial arrangements to acquire electricity. Large industrials have long been fighting the utilities for cheaper electricity, frequently using the threat of self-generation and cogeneration.},
doi = {},
journal = {Energy Law Journal},
number = 2,
volume = 15,
place = {United States},
year = {Sat Dec 31 00:00:00 EST 1994},
month = {Sat Dec 31 00:00:00 EST 1994}
}
  • The search for greater efficiency in the vital electricity industry, represented by the Energy Policy Act, state regulation and industry restructuring of the past two decades, is but an intermediate step. The system will not be adequately competitive or low cost until a competitive choice of suppliers is available to all customers that pay electricity bills. It is no secret that industrial electricity end-users are seeking the option of retail wheeling as a replacement or supplement to service from their traditional host utility. However, retail wheeling is not a very good term for what in fact industrial end-users want. Theirmore » real motive is to be able to competitively source their power requirements in workably competitive electricity markets. They competitively source other input commodities and services for their production processes - why not electricity?« less
  • Retailing wheeling's harmful side-effects may surface in a Michigan experiment. In the final analysis, the debate over retail wheeling is about whether there will be direct price competition in the electric power industry. Retail wheeling would extend to the electric power market the same freedom of choice among customers that is present elsewhere in the economy. It would provide a mechanism through which competition could enforce an efficient allocation of resources. It also undoubtedly would eliminate most of the huge discrepancies that exist between so many neighboring service areas. It is unlikely that permitting retail wheeling would actually result inmore » much wheeling or loss of load. Utilities will no doubt meet the threat of the loss of load by cutting rates to hold their customers. Hence, the primary effect would be on the pricing of electricity, not the wheeling of power. The retail wheeling experiment under consideration in Michigan can become an important step toward making the utility industry more efficient for the nation and more equitable for ratepayers. Unfortunately, it also is potentially unfair to the utilities involved. A retail wheeling experiment in one state is likely to put those utilities at risk for competitive attack, but is unlikely to give those utilities the countervailing power to use retail wheeling elsewhere to market their power. Fairness and economic efficiency require that retail wheeling exist everywhere, and that is is accessible to utilities as well as non-utilities.« less
  • The right to refuse retail wheeling requests is one of the cornerstones of a utility's monopoly power. Utilities have fought staunchly to preserve it, most recently in preventing retail wheeling from becoming an important issue in the congressional debate over deregulation; the Energy Policy Act of 1992 steered clear of it. For the present, the prohibition of retail wheeling gives utilities enormous power over the retail electric power market. The ability to refuse retail wheeling requests, of course, prevents retail customers from buying power from third parties. This enables a utility to sell retail customers all the power it canmore » generate, at a price that covers its cost plus an allowed return-even if its price exceeds that of power available in the wholesale market. The denial of retail wheeling thus protects a utility's inefficiencies, whose price is ultimately shouldered onto customers through cost-plus electric rates. Allowing retail wheeling would remove the foundation for much of the current monopoly power that utilities enjoy. Third parties could sell power to a utility's retail customers, since the utility would be required to wheel it. Retail customers would be able to bypass the local distribution utility to buy power from the cheapest source available. Market forces would drive pricing rather than the cost-plus ratemaking process. A utility whose electric rates were above market would have to meet the competitive price or lose sales.« less
  • Last winter, across the country bitter cold strained utility energy supplies. In New Jersey, Pennsylvania and Maryland, rolling blackouts signaled inability to meet the winter peak demand. Public service radio announcements urged consumers to use less power in their homes. New trends in the utility industry are producing worries that the country also entering the winter of a once stable power-generating industry. The most troublesome trend is toward deregulation that may result in a market-driven price competition and a phenomenon called retail wheeling. What's wrong with free market competition among utilities Retail wheeling could signal the winter of demand sidemore » management (DSM) programs as currently known. The paper discusses the possible impacts from retail wheeling.« less
  • For decades, the electrical utility industry was one of the world's most staid, immutable businesses, generating little excitement and even less controversy. Today, that industry is being turned upside down as one government after another considers and implements reforms. Not since the time of Thomas Edison has the electric power business been so dynamic. Although utility reforms vary widely, the broader trends are clear: away from public and private monopolies, and toward increased diversity and more competition. The reform efforts reflect a broad consensus that the current system is inefficient and has failed to take advantage of many economic andmore » technological opportunities. Despite a promising array of innovations, a limited and distorted approach to utility reform has captured the attention of some utility analysts and regulators in the mid-nineties. It goes by the arcane term, retail wheeling. If enacted in the form proposed in several countries, retail wheeling would only partially realize the benefits of increased competition, and would severely undermine the long-term planning that has been so vital to the evolution of an efficient, environmentally sound electricity market. The paper describes early impacts of retail wheeling in countries who have passed such legislation and forecasts longer term impacts from retail wheeling.« less