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Senate Panel Continues Inquiry into Electricity'sw Future

Fortnightly Magazine - May 15 1996

energy costs.' And a lot of nuclear plants today were constructed to benefit those that were big energy users.... At the time, the nuclear option was the best option for our customers."

Johnston: "The way to get Mr. Mehra to come to your state is to reduce rates. And the way to reduce rates is to disallow those stranded costs, bankrupt the utility... and then you can get to that competitive market a lot faster. Rather than have the ebbs and pulls of different elections... you're going to find that with PUCs from now on. California will have the pro-stranded costs for four years, then four years later they'll come in with the other. There'll be no predictability."

Joseph F. Schuler, Jr. is associate editor of Public Utilities Fortnightly. E-mail:

The Senator Wants to Know

Sen. Frank H. Murkowski (R-AK), chairman of the House Committee on Energy and Natural Resources, asks the electric utility industry:

. Is there a need for restructuring legislation?

. What are the benefits and consequences of retail wheeling?

. Who should have the authority to order retail wheeling?

. Should the FERC's jurisdiction be expanded to include nonregulated utilities?

. Where should the bright line be drawn to protect federal and state jurisdiction?

. Should utilities be allowed to recover stranded investment?

. Should federal utilities be privatized?

. Should Congress address the differential tax and other treatment of private and public power?

. Should PUCHA be repealed?

. Should PURPA be repealed?


Economist Urges Stranded-cost Formula

A California economics professor believes most claims for stranded-cost recovery are flawed.

"Discussion of how to fairly allocate strandings between investors and electricity users are taking place in a vacuum," according to Robert J. Michaels of California State University and the Cato Institute. "While numerous estimates of future stranding payoutsexist, we have no estimates of what users have already paid in excess of prices that would have prevailed in a competitive market."

Michaels was one of a panel of 13 witnesses testifying before the House Commerce Committee on March 28. Other witnesses included J. Gregory Sidak of the American Enterprise Institute, and Michael T. Maloney and Robert E. McCormick of Clenson University.

Sidak argued in favor of stranded-cost recovery. Denying recovery, he warned, could create inefficiencies, diverting business to more efficient suppliers and causing capital costs to balloon. These capital costs, inturn, would discourage future investment. "Regulators should permitrival firms to succeed only on the basis of relative efficiency, undistorted by asymmetrical obligations inherited from the past, "Sidak urged.

Maloney and McCormick, economics professors, viewed stranded-cost recovery an "income redistribution issue" that would not affect efficient utility use or production. They noted that efficient recovery will depend on lump-sum payments, derived through access charges or tax subsidies.

Michaels, by contrast, contended that "no one ... can recommend any stranding policy at all with confidence on the basis of information that is currently available.

"To draw conclusions about the equity of stranding compensation, we must look both backward and forward. Every hour of every day, America's electricity users are