Perspective

Deck: 
An ode to the customer, the measure of all things.
Fortnightly Magazine - March 15 2001
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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."

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