[BETA] Fortnightly

Despite all the talk, despite keen interest in certain industry sectors, and despite federal legislation, increased competition in the electric power industry is far from certain. Unlike other deregulated industries, electric power is primarily regulated by state public utility commissions (PUCs) (em not by a federal regulatory agency. The debate over the values and benefits of competition as opposed to regulation will have to take place over and over again. Indeed, to achieve real competition in the electric power industry (em and the natural gas industry (em state regulators and legislators will have to deal with the historic regulatory compact, which has existed since early in the century and sets the relationships between consumers, public utilities, and the government.

It was, perhaps, the proliferation of nonutility generators (NUGs) pursuant to the Public Utility Regulatory Policies Act of 1978 that provided one of the stronger motivations for increased competition in the electric power industry. These qualified facilities (QFs) and independent power producers (IPPs), as they are known in industry jargon, were built based on the energy economics of the early to mid-1980s and forecasts of ever-increasing energy prices. Those forecasts have changed. As a result, many QF and IPP contracts are being reexamined and renegotiated.

In 1992, Congress reacted to the growing economic tension in the electric power industry by passing the Energy Policy Act (EPAct). EPAct opened the door to the wholesale wheeling of electricity. This action, combined with the creation of a new category of NUG (em the exempt wholesale generator (em makes the implementation of EPAct the greatest force for change in the electric power industry.

Thus, the stage seems set. The de-gree of economic tension in some places has given rise to bypass cases. Large industrial users continue to examine the economics of self-generation or cogeneration. Municipalities are considering taking ownership of power lines within their borders and buying power from the grid. The old concept of franchise areas is being reinvestigated. Several states are considering legislation that would allow or mandate electricity wheeling: Michigan has announced a retail wheeling experiment; the California Public Utilities Commission (CPUC) has proposed an aggressive timetable to achieve retail wheeling options for residential customers by 2002. Competition has arrived in the electricity business. It's no longer a case of "if," but of "when," and maybe "how."

But, not so fast. There is yet considerable resistance to change. This resistance shows up when some utility executives worry aloud about system reliability in the new world of electric competition. Utility commissioners worry about the cost impact on core customers who do not (em or, according to some, cannot (em take advantage of retail wheeling options. Everyone worries about the magnitude of stranded costs and who will absorb them. Conservationists and environmentalists are concerned that competition will eliminate demand-side planning and management. And how will social welfare concerns be treated in the world of competition?

All of the above augur slow change, given the "inevitability" of increased competition in the industry. Some, therefore, advocate wholesale wheeling only (em at least until the industry is ready for