To Wheel or Deal? Electric Industrial Pricing in California

Fortnightly Magazine - April 15 1995
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Electric restructuring weighs heavy on the mind these days. Drastic remedies are born more of hope than vision. Look at the April 20, 1994, proposal from the California Public Utilities Commission (CPUC) for mandated retail wheeling (the Electric Restructuring Order, often referred to as the "Blue Book").1

The Blue Book became a catalyst for national debate. But the Blue Book did not create the problem; it only reacted. The problem stems from a confluence of forces: the rise of nonutility generators (NUGs); the emergence of new smaller-scale generating plants; the rate impact of social engineering; and, for industrial rates in particular, the design of rates oblivious to markets or prices.

Destructive Wheeling

Retail wheeling by commission fiat is nothing more than a regulatory sanction of bypass: a means to make nonutility power available to large industrial ("direct access") customers. The initial California timetable, which was delayed again and again, would have made retail wheeling available to these customers by January 1, 1996. The presumption was that large customers could buy nonutility power at cheaper rates than the utility company could offer. But bypass under this mindset will only exaggerate (em not mitigate (em the enormously expensive issue of stranded costs. By any standard, a rush to mandatory retail wheeling signifies an extreme measure, an overreaction to a condition for which there is an easier and better remedy.

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