Tremors spread from California regulatory earthquake.

The California Public Utility Commission (CPUC) proposed in April to restructure the way it regulates electric utilities and their services. And state regulators from across the country are watching closely this portent of a "regulatory earthquake."

The proposal overhauls the existing system (in place for years) that regulates the electric utilities as natural monopolies, changing it to one that is performance-based and permits utility competition. It would allow "retail wheeling," which gives customers the option to shop around for electricity from sources other than their local utilities. Under the CPUC proposal, large consumers could "tap competitive power markets" beginning in 1996. In 2002, all consumers would be allowed to choose their electricity provider.

The effect of this option is substantial. Large consumers, such as industries, would be able to choose cheaper electricity produced from sources far away. "Prices for electricity in California are simply too high," the CPUC stated in its proposal. The impetus for the proposed restructuring has been not only high electricity costs, but the need to stimulate the state economy and provide relief from a burdensome regulatory infrastructure. The CPUC anticipates that increased competition will force utilities to provide cheaper power and will decrease the need to tightly regulate utility activities.

The emergence of retail wheeling raises significant questions. Utilities build electricity-generating facilities with money collected through the rates paid by consumers. If a consumer no longer pays that utility, will the other customers have to shoulder the costs of those investments? And if one consumer is allowed to wheel power, should all of the utility's customers be allowed to?

Integrated resource planning is a traditional regulatory tool that has encouraged utilities to examine new electricity supply options such as...