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To Wheel or Deal? Electric Industrial Pricing in California

Fortnightly Magazine - April 15 1995

utilities. The experiment would last for three years, beginning January 1, 1996.

PG&E's latest proposal to wheel and deal combines customer choice with pricing reform. In that sense, it builds and improves upon the earlier March proposal, which approached competitive pricing from a more orthodox direction. In that proposal PG&E recommended three different types of "customized/negotiated" contract offers, as part of its application to create a new business customer classification, the LEMC.7

The LEMC plan calls for three specific new tariffs: a Cogeneration Deferral Tariff, to induce the postponement of customer-owned cogeneration; a Business Retention Tariff, to avoid the loss of load to lower-priced electricity suppliers; and a Business Attraction Tariff, to promote increased sales to existing customers or encourage new customers to locate within the company's service area.

PG&E proposed that the rest of its electric customers would not be affected by the amount of revenue collected from the LEMC, including discounted-price customers as members of the class. PG&E advised that it would bear the financial risk "should its pricing and services not match LEMC customers' competitive options."

The Last Word

Should the issue of retail wheeling be tabled? No. Retail wheeling should neither be promoted nor prohibited by Commission fiat, provided the utility company is allowed to offer competitive rates to would-be bypassers.

But in a climate of high rates, surplus capacity, and rising competition, a two-pronged wheel and deal strategy grounded on value pricing can leave the customer free to choose and the utility free to compete. t

Roger L. Conkling, now adjunct professor at the University of Portland, is a retired senior vice president of Northwest Natural Gas Company where rate design was one of his responsibilities. He has been a consultant on regulated pricing and other economic issues to many major natural gas producers and several regulatory commissions. In the electric arena, he has been an executive of Bonneville Power Administration with staff responsibility for commercial power transactions (including rates), budgets, and power operations, for which he received the Department of Interior's Distinguished Service Award. Currently, Conkling is writing a book on electric and natural gas pricing.

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