Take no prisoners? A price-war strategy for electric utilities

This article is a review of pricing trends within the electric utility industry. It is felt that direct access will have major repercussions and that revenues will drop as supply options grow. Several factors will affect how much equity the utility owners will lose: (1) magnitude of the decline in prices, (2) how quickly customers gain access to new suppliers, and (3) the portion of retail customers that will participate in direct access. With the advent of retail wheeling, utilities may choose to sell power below cost, and as a result, the logic of a potential price war is discussed. In this environment, the independent power producers become the spoiler. Not only do the IPPs have more efficient operations, but they are often exempt from taxes charged the investor-owned utilities. Suggestions are offered that should allow utility managers to successfully compete in the retail wheeling market.