The calm before the storm. [Retail wheeling]

The right to refuse retail wheeling requests is one of the cornerstones of a utility's monopoly power. Utilities have fought staunchly to preserve it, most recently in preventing retail wheeling from becoming an important issue in the congressional debate over deregulation; the Energy Policy Act of 1992 steered clear of it. For the present, the prohibition of retail wheeling gives utilities enormous power over the retail electric power market. The ability to refuse retail wheeling requests, of course, prevents retail customers from buying power from third parties. This enables a utility to sell retail customers all the power it can generate, at a price that covers its cost plus an allowed return-even if its price exceeds that of power available in the wholesale market. The denial of retail wheeling thus protects a utility's inefficiencies, whose price is ultimately shouldered onto customers through cost-plus electric rates. Allowing retail wheeling would remove the foundation for much of the current monopoly power that utilities enjoy. Third parties could sell power to a utility's retail customers, since the utility would be required to wheel it. Retail customers would be able to bypass the local distribution utility to buy power from the cheapest source available.more » Market forces would drive pricing rather than the cost-plus ratemaking process. A utility whose electric rates were above market would have to meet the competitive price or lose sales.« less