An ode to the customer, the measure of all things.

For years we have debated the legitimacy of allowing electric utilities to recover their "stranded costs" as absolution for past indiscretions now deemed useless in the face of competition. Regulators now have come to accept this idea, but have they overlooked something? Is it not the ratepayers—even more than the utilities—-who are now owed something, with at least a color of law supporting their claim?

The original idea was that utilities had won approval back during the for plants and contracts now seen as out of the money in the Brave New World of market competition. These assets literally would be stranded—like a beached whale—in a situation where the wholesale price of electric power, established by competition, was too low to keep these expensive sources of power afloat. So it was thought to be fair by many economists—especially those retained by utilities—to allow utilities that had invested in these expensive assets under a "regulatory compact" to recoup their losses. This recoupment would come through extra charges assessed during the transition to wondrous competition. And of decisive importance, the incumbent electric utilities bought in to the deal. "Give us our stranded costs," they said, "and we'll accept the loss of our monopoly franchise without a murmur."

Of course, there were soreheads who opposed the whole idea of the utilities recovering stranded costs. They believed that these behemoths should be treated just like everyone else who made investments that didn't pan out. But the utilities pledged to turn over a new leaf. "Please treat us differently just this once," they said, "and we'll promise to get competitive forever after. If we get our stranded costs, there won't be anyone else more wild about deregulation than we are." The utilities beat their breasts and asked forgiveness for the mortal sin of monopoly. (But how could it be a sin, if electricity was a "natural" monopoly?) They tore their garments in contrition and avowed never again to mention the obsolete concept of reliability. Instead, they would devote themselves to reform and innovation—those twin pillars of glorious progress.

All that was theory; now we have it reduced to painful reality in California. No stranded assets there, however. The state is so short of power that I presume every tea kettle capable of generating a kilowatt-let alone a megawatt-of juice is being pressed into service. And the price of wholesale power has climbed so high that I assume it has made every source of electricity not only viable, but cherished as a pearl without price. The rising tide has lifted all boats, even the leakiest. The generation of electricity, once scorned as the work of fools, is now profitable beyond even the monopolist's fondest dreams. Paradise has arrived, so why complain? The answer is simple, though increasingly awkward. Instead of stranded assets, we now have a new phenomenon— the stranded ratepayer.

Why the Price Cap Was Right

By way of analogy, suppose ratepayers, for their part, had installed electric baseboard heating or home air conditioning in reliance on