Electric companies may face competition.

Several states are considering proposals that would allow at least some customers to have the choice of purchasing power from sources other than their local electric company, indicates Robert Burns, a senior research associate at the National Regulatory Research Institute, Ohio State University. In a practice known as "retail wheeling," a customer in Ohio could shop for the best deal on electricity and decide to buy from a generating company in Indiana. The Ohio customer's local utility would be required to transmit the purchased power.

In Nevada, retail wheeling already is available for some large industrial customers. State regulators in California have proposed rules that would give the state's largest industrial customers the right to shop for electricity starting in 1996; commercial customers 1998; and all residential customers starting in 2002.

The reasoning behind retail wheeling is relatively simple, Burns explains. Under competitive pressures from other companies, electric utilities will be forced to become more efficient and cost-conscious. As a result, costs to consumers should go down. "In the long run, I think retail wheeling could benefit all consumers. But there are some serious problems that need to be considered in the short run."

For example, industries will be the first allowed to try retail wheeling because of the large amount of power they purchase, If utilities lower prices to keep their large industrial customers--or to lure customers from other utilities--they may be tempted to pass on higher rates to residential customers.

Burns warns that "price discrimination is a very real possibility" and he argues that state utility commissions need to ensure that homeowners aren't forced to make up for cost slashing done in the industrial sector. One solution is to legislate price caps that would keep utilities from putting an unfair burden on their residential customers.

Eventually, homeowners may be able to share in the electric company competition. Instead of negotiating individually with companies, though, residential customers probably will join large co-ops that will search for the best rates for their members. That may take several years "simply because the cooperatives necessary for homeowners to take advantage of wheeling don't exist yet." Some analysts believe residential customers never will be allowed to participate in retail wheeling, partly because utilities need a protected, core base of customers to guarantee income that will pay off capital debts such as power plants.