Implications of Increased Competition in the Electric Industry for Industrial Customers (1993)

Although NRECA opposes mandatory retail wheeling, it is important to understand all points of view on this issue. Dr. John Anderson is executive director of the Electricity Consumers Resource Council (ELCON), an association of industrial consumers of electricity. In this paper presented to the INFOCAST Competitive Power Sourcing for Industrial Companies Conference, Dr. Anderson asserts that retail wheeling is inevitable and is a critical component of the increased competition that is coming to the electric utility industry. He states several arguments against retail wheeling and why he believes they are without merit. INTRODUCTION Thank you for the invitation to appear before you today to discuss Implications of Increased Competition in the Electric Industry for Industrial Companies. ELCON is a consumer group--an association of industrial consumers of electricity. Our members have facilities in most of the 50 states and in many foreign countries. They produce a wide range of products including aluminum, steel, chemicals, petroleum, industrial gases, glass, motor vehicles, electronics, textiles and food. Although we have only 23 members, they represent nearly five percent of all electricity consumption in the United States. Our members need an adequate and reliable electricity supply. However, it must be competitively priced. We believe that the increased competition that is now coming to the electric utility industry will benefit all consumers. A critical component of this increased competition is retail wheeling. In my view, retail wheeling soon will be with us. It will assure the implementation of cost-effective conservation and energy efficiency measures, improve the planning function, and reward efficiency in supply. This will be good for all consumers, the economy, and the environment. What I will do today is describe the factors that motivate large industrial electricity consumers to competitively source their electric supplies. This requires retail wheeling. I will briefly describe individual actions presently being taken by several states in this area. Finally, I will address arguments made against retail wheeling and state why I believe these arguments are without merit. BACKGROUND Industrial electricity consumers would rather purchase electricity from their local supplier than take alternative actions. They would rather concentrate their attention on producing their products than either generating or competitively sourcing electricity. However, industrials can't be low-cost producers when they have high-cost suppliers. All too often, the local electric utility is a high-cost supplier. Such a situation requires industrials to seek options to try to lower costs. Although industrials would rather concentrate their attention on producing their primary line of business, I emphasize that industrials have great experience in both the production of electricity and the competitive sourcing of other factors of production. At the turn of the century, industrials produced more than half of all of the nation's electricity. Steam is required in many industrial operations. Industrials are quite skilled in both raising steam and in the construction and operation of electrical generating equipment. It is simpler and more direct to purchase electricity than produce it, However, industrials have great experience in passing steam through electricity generating turbines before using it in the manufacturing process. Since recent technological developments have made it possible for industrials to produce electricity for less than four cents per kilowatt-hour, accompanied by changes in law that make it possible to sell excess energy and power, reverting back to the old method of producing electricity at the plant site increasingly is becoming more attractive. Industrials also have extensive experience in the competitive sourcing of their raw material and semi-finished goods. Industrials competitively source the purchase of all of their inputs--except electricity. …