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Consumer Choice in Electricity: A Critical Appraisal

Fortnightly Magazine - October 1 1998

billions of dollars of stranded costs by electric utilities is more a testament to the political power of the electric industry than to the justice of their claims. In Pennsylvania, at least, given the nation's highest shopping credits, electric utilities have seen their stranded cost claims cut and are being made to face real competitors, in return for the stranded costs that they are recovering. Consumers, meanwhile, should save $1 billion in 1999.

Yet it is in those states that have yet to authorize competition that the political power of electric utilities has been most successful. In such states, unless unbundled generation costs are below the competitive market price of generation, customers even now are paying for stranded costs, as such costs are already included in the normal and current rates of electric monopolies. In those states that have yet to give their consumers the right of retail choice, stranded costs just have not been specifically quantified or separately itemized on the bills of customers. Many electric utilities would prefer that case to remain the reality for as long as possible. This out-of-sight, out-of-mind strategy is working in too many states. It is hoodwinking the very consumers and advocates who unknowingly write checks to their electric monopolies to pay for their stranded costs.

Consumers should avoid joining forces with those who want to slow the onset of competition. Instead, they should seek quickly to introduce genuine competition.

John Hanger is the senior resource fellow for the newly formed Center for Competitive Markets, a research organization dedicated to promoting genuine competition in the electric, gas, telephone and airline industries. He also is a partner at the firm of Hanger & Adels, with offices in Camp Hill and Elkins Park, Pa. He was a member of the Pennsylvania Public Utility Commission from 1993 to 1998, and participated in many of the restructuring decisions described here.

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