Search

The advent of retail wheeling changes the application of the State Action Doctrine and, in turn, may dramatically alter the role of the state PUC—meaning antitrust law and regulatory oversight must step in to protect competitors and consumers from monopolistic abuse.

In any restructuring, close attention should be paid to how transactions are characterized. The approach adopted in California tends to minimize jurisdictional complications and preserve state jurisdiction over local distribution, while a retail wheeling approach may raise preemption and Commerce Clause concerns.

The competitive market for the hydro-based Norwegian electricity system is working well, with end-user prices only slightly above the wholesale market. Pool prices are reflecting only weather-related variations, and no market power abuses are evident. The challenge now is to restructure ownership of the wires and retail suppliers to lower wheeling costs and avoid cross-subsidization.

Competition in wholesale markets is exerting real pressures at the retail level to allow customers some form of access to alternative power suppliers. The scenario considered here, in which FERC may order an intervening utility to wheel power associated with a downstream retail sale, is not remote. FERC should prepare to deal with it.

AEP has voluntarily opened its transmission system to use by third parties, in keeping with the letter and spirit of the law, and hopes other transmission system owners will do the same. It will aggressively seek to be fully compensated for the use of its transmission system from its various users, believing that rates which are too generous to wheeling customers would be unfair to native load customers.

Detroit Edison's suit to halt the Michigan Commission's limited retail wheeling experiment could result in two ironies: (1) Edison may still be required to wheel to retail customers, but at rates less likely to be fully compensatory, and (2) its generation will be more devalued than it would have been without the suit.

Wheeling is an evolutionary dead-end. The basket of ad hoc arrangements called “wheeling” developed to handle a few incremental trades among integrated, regulated monopolies, not to encourage or even allow competition. The effort to extend these arrangements to allow even limited competition is producing a logical and regulatory quagmire of debates about opportunity costs, loop flow, contract paths, network transmission service, back-up energy and losses, etc. If effective and efficient competition in electricity is ever to evolve, the industry and its regulators must make an evolutionary leap from a model developed by and for monopolists to a model in which competition is the central theme, not an awkward and basically unwelcome add-on.

Retail wheeling seems unlikely to improve economic efficiency, though it would benefit some large customers with market power. But it is not at all clear whether those benefits would outweigh the costs they engender and— even if they did—whether such a redistribution of wealth would be acceptable.

Antagonists in the retail wheeling debate share a disgruntlement with the present industry structure and a desire to rely more on competition to achieve savings and efficiencies. But the critical question—is retail electric service a natural monopoly?—must be answered in the negative if retail competition is to be efficient. Only then should we go on to examine how such a regime might be structured.

Argument favoring retail wheeling are largely ideological and theoretical. Retail wheeling should be adopted only if a comprehensive practical plan can be clearly shown to offer significant efficiency gains while not causing intolerable cost redistributions or undercutting important social objectives. None has yet come forth or seems likely to. We would do better to focus our efforts on designing vigorously competitive wholesale markets.

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.

Disparities in utility rates—observably the result of poor supply-side resource planning—have been small before and will be small once again. Retail wheeling's promise of short-run gains for a few would, ironically, destroy integrated resource processes in place today that guard against a repeat of yesterday's planning mistakes.

An analog to a telephone busy signal for transmission networks would make them more efficient and reliable, from the perspective of nonutility generators, while promoting freer access to wheeling.

Contrary to prevailing belief, U.S. industrial electricity rates are not rising. Indeed, they are well below the average for industrialized countries, and U.S. rates are actually falling. Retail wheeling is thus a solution to a problem that doesn't exist. It might, however, produce “stranded benefits” that, ironically, will lead to higher overall electric service costs.

A leading state regulator peers into a near-term crystal ball to examine competition, the role of the utility, transmission, and retail wheeling. There is increased interest among state regulators in pursuing regional solutions to difficult planning or regulatory problems not amenable to solution within a single state's borders. This article briefly examines issues for regulators and how they will be dealt with over the next five to ten years.