Should Energy Users Pay for Their Utilities' Stranded Costs?

Abstract

High-cost electric utilities face the same problem as did other high-cost equated industries at the onset of competition. Once, energy users, who are their customers, can choose their suppliers, utilities won`t be able to charge more for electricity than the competitive market price. The high-cost utilities will argue that they incurred their costs at the behest of regulators who ordered them to buy overpriced power from favored generators, who prevented them from marketing their product, and who demanded support of costly social and environmental programs. Changing the rules of the game now and leaving the utilities hanging seems unfair because, after all, they argue, they were only acting as good citizens. Can utilities somehow recover the difference between their total costs and market prices, now called ``stranded costs`` or, even better, ``stranded revenues?`` The author concludes that business acumen and technology--not regulation--will ultimately determine recovery of stranded costs.