BEECHER - NAWC

Water ComparedStructural ChangerA similar restructuring of the electricindustry is now underway.Interconnected grids make it possible tounbundle power generation fromtransmission and transmission fromdistribution. The capacity to wheelpower long distances at a relatively lowcost is an essential part of the emergingcompetitive paradigm for the electricityindustry. The rationale for openingtransmission markets is to expandconsumer choice at the retail level.Because implementation isunprecedented, notes an NRRI study,the potential benefits and costs ofwheeling are largely theoretical.Barriers to water wheelingo High transmission costs in absolute terms.o High transmission costs relative toproduction costs.o Physical barriers, including terrain,obstacles, and gravity.o Inability to compress or transform.o Depletion of local resources and potentialdegradation of quality.o Problems with mixing water from differentsources.o Catastrophic risk of contamination in a largenetwork.o Preference for local control of waterresources.Table 3-1Potential Benefits and Costs of Retail Electricity WheelingPotential Benefitso More efficient utility pricingo More efficient utility operations andinvestmentso More efficient industry structureo Reduced price differentials amongelectric utilitieso Stronger U.S. economyo More appropriate "regulatorycompact"Potential Costso Lower electric power system reliabilityo Uneconomic bypass under existing retail pricingprocedureso Stranded-investment costso Large distributional effecto Lost economies of scopeo Incremental costs for upgrading or expandingtransmission network to accommodate retailwheelingo Jurisdictional disputeso Higher prices to core customerso Discriminatory pricingo Abolition of the integrated resource planning(IRP) processo Breakdown of "regulatory com act"Source: Kenneth W. Costello, Robert E. Bums, and YousefHegazy, Overview of Issues Relating to the RetailWheeling of Electricity (Columbus, OH: The National Regulatory Research Institute, 1994), 95.NAWC 58 September 1998