Financial News

Fortnightly Magazine - July 15 1996
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Despite two years of debate, little progress has been made toward a solution to the issue of stranded costs. And since the two sides have almost no common ground, any accommodation seems unlikely. Utilities that seek stranded-cost recovery appear to have the upper hand at present, but the stiffest resistance still lies ahead. The Federal Energy Regulatory Commission's Order 888 clearly favors utilities, but customer reaction signals a shift to another venue. In addition, opposition to stranded-cost recovery from utilities with little or no stranded-cost exposure has become increasingly vocal.

What provokes surprise is that utilities in favor of stranded-cost recovery have fared so well, given the issues involved. The heart of the problem is that utilities seeking recovery ask for a disposition that violates the way the American people believe their economic system should work. This breach of faith makes it unlikely that utilities can prevail in the end. Accordingly, utilities would probably be best served by settling for indirect financial benefits during the transition in lieu of identifiable recovery.

Consumer Entitlement

Stranded cost is not the parochial industry issue it may seem at first blush. On the contrary, the issue directly challenges the sovereignty of the competitive market, running afoul of what might be called the great consumer entitlement: the right to purchase goods and services at a competitive free-market price.

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