The electric utility industry is one of America's last bastions of monopoly privilege. Heeding Samuel Insull's call for politicized electricity near the turn of the century, industry leaders successfully lobbied state legislatures to establish commissions to implement cost-plus rate regulation and franchise protection.²⁴¹ The predictable result of decades of the "regulatory covenant" is a high-cost, stodgy, standardized industry ripe for restructuring. The investor-owned utilities estimate their collective uneconomic generation costs at between $50 billion and $300 billion versus a net worth of $175 billion -- a colossal economic malinvestment.²⁴²

Following the "open access" model used in deregulating the natural gas industry -- which contributed to a 40 percent real decline in end-user rates in the 1985-95 period -- states (and even some foreign countries) are now debating whether to allow end users to shop around for the cheapest power and to use the utility for transmission and related services only. This economic model is called direct access, or mandatory retail wheeling. Driving the campaign for mandatory retail wheeling is the sizable gap between the (lower) marginal cost of generation and the (higher) average cost that consumers wish to force out of the system.

The consumers' gain would be eco-energy planning's loss in a retail wheeling world. Lower prices (and estimates are that deregulation could deliver electricity prices between 30 and 40 percent lower than those of today)²⁴³ would:

• increase electricity consumption and accordingly increase the utilization of idle fossil-fuel capacity;

• arrest DSM conservation programs by lengthening the payout period for energy-saving investments;

• lower generation costs to make renewable generation technologies less competitive and even cause near-term retirements of uneconomic renewable capacity with high operating costs; and

• give utilities incentives to resist incurring new uneconomic costs with renewables and conservation that could be "stranded" rather than passed through to the consumer as before.²⁴⁴

The restructuring would also most likely:

• unbundle rates to itemize surcharges, such as those for DSM, in order to facilitate consumer scrutiny and challenge;

• stimulate greater integration between geographically dispersed generation and transmission systems to increase generation from existing older-technology fossil plants in place of building new-generation plants (gas and renewable) with lower emissions;

• replace average-cost pricing by utilities (where higher-cost renewable generation is averaged down by lower-cost generation) with stand-alone economic evaluation for each generation source; and

• introduce time-of-day pricing to value wind and solar power as intermittent resources at (lower) off-peak rates to the extent their power generation does not coincide with demand peaks.²⁴⁵

Not surprisingly, sophisticated eco-energy planners did all they could to block interest in mandatory retail wheeling and the lower rates and economic efficiencies that would come with it. Ralph Cavanagh of the NRDC led a national crusade with a Joint Declaration on the Electric Utility Industry, signed by some 50 groups, to dissuade state officials from even investigating mandatory retail wheeling.²⁴⁶ Customer choice was described as "a great illusion," a shell game reallocating costs from more favored, larger end-users to smaller, less favored end-users with no overall economic gain. Cavanagh urged states to "go on saying no to retail wheeling in order to be able to create something better: regulatory reforms that align utility and societal interests in pursuing a least-cost energy future."²⁴⁷ The quasi-reforms urged by Cavanagh were competition in the bulk power market (wholesale wheeling) and performance-based rate-making for utilities. Monopoly utility service to end-users would remain in order to continue the status quo of renewable/efficiency subsidies via integrated resource planning. The alliance between high-cost utilities and pro-high-rate environmentalists was in clear evidence.

Electric restructuring is no longer "if" but "when" and "in what form."²⁴⁸ At the close of 1996, 10 states had either enacted legislation or issued commission orders setting timetables for universal retail wheeling: California, Rhode Island, Pennsylvania, New Hampshire, New York, Arizona, New Jersey, Massachusetts, Vermont and Maine. Debate is also under way in virtually all of the other lower 48 states.²⁴⁹ The electric system reliability argument has been put to rest, and the "great illusion" has turned out to be anything but that to all parties in the contentious debate. The industry will be transformed by retail wheeling and other restructuring proposals, with many tens of billions of dollars in embedded and future costs are at stake.