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How State Regulators Should Handle Retail Wheeling

Fortnightly Magazine - February 15 1995

core customers in the short term. Different approaches can be applied to achieve this. For example, the burden of "stranded costs" can be shared between wheeling customers, core customers, and utility shareholders. Similar approaches have successfully been used in other transformed regulated industries, notably the telecommunications and natural gas industries.

State PUCs should realize that the pressure for retail wheeling will not likely fade away. In addition to industrial customers, nonutility as well as utility-affiliated generators will in the future push hard for the right to sell their power directly to retail customers. These generators will not be satisfied with selling their power only to utilities who act as the middleman or broker to retail customers.

In fact, the posture of some interest groups, especially electric utilities, that retail wheeling cannot and will not work will increasingly lose credibility as time passes. Utility opposition to retail wheeling would also seem to diminish if, as a quid pro quo, price caps or other forms of light-handed regulation replace rate-of-return regulation.

Thus, state PUCs should begin a dialogue now. Some electric utilities have increasingly pronounced that retail wheeling will come. They have already begun to prepare for future retail competition by transforming their corporate culture, better understanding their customers' needs, cutting their costs, and restructuring their internal organization. t

Kenneth W. Costello is associate director of the Electric and Gas Research Division and Robert E. Burns is a senior research specialist, both with The National Regulatory Research Institute, Columbus, Ohio. Dr. Youssef Hegazy is a senior consultant with Energy Management Associates, the utility division of EDS, Atlanta, GA. The views and opinions of the authors do not necessarily reflect the views, opinions, or policies of The National Regulatory Research Institute, the National Association of Regulatory Utility Commissioners, or their contributors.

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