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Retail wheeling explained

Retail wheeling, or third party access as it is referred to in Europe, is when a generator of power, whether an independent power producer, utility, or broker, sells directly to an end user in another utility's territory. The power generator thereby by-passes the end-user's wholesale distributor of power -- its local utility -- but uses its transmission lines and sells to its customer. Utility transmission lines are thus used as "toll roads" that anyone can use for a price -- instead of a non-wheeling system whereby "private roads" are only open to a utility's "vehicles."

In contrast, wholesale wheeling is when a generator of power, an independent power producer, utility, or broker, sells on the open market in bulk to a utility or end-user elsewhere, wherever in the state or country that might be.

Retail wheeling is mainly attractive when the buyer of power is a large industrial user. By shaving a few mills or tenths of a cent off the buying price the purchaser can make considerable savings over a year. The main backers of retail wheeling are indeed major corporations, or single major end-users. Cement and steel factories are typical examples.

About half of America's states are now looking at the concept of retail wheeling, but it is not clear how it would work in practice -- whether there would be a dynamic trading mechanism similar to the UK's spot-price "pool," a second price auction mechanism, or whatever. Observers believe, however, that a wholesale market -- with futures bought and sold as on a commodity market -- will emerge in the US within two to three years. They note the Federal Energy Regulatory Commission (FERC) is already in the process of setting up regional transmission grids with certain pricing rules, as in the United Kingdom. Here the "pool" acts as a trading mechanism, but only for about 15% of the power sold, nearly all of which is nuclear. Nonetheless, retail wheeling has already started in the UK. PowerGen, for example, was quick off the mark after privatisation of the electricity market, snapping up contracts to supply both Toyota UK and the EuroTunnel consortium building the tunnel under the English channel to France.

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