In his article, "The Flawed Case for Stranded Cost Recovery" (Feb. 1, 1995), Charles Studness made many good points. Yet he omitted to mention one critical factor that influenced several utilities in the late 1970s to go ahead with new coal and nuclear capacity: the Carter Administration's 1978 Fuel Use Act, mandating that utilities cease burning natural gas by 1989.
For many companies operating in the south central United States, this requirement meant conversion or replacement of most existing capacity. Conversion to fuel oil increased already high risks of supply interruption and runaway costs. And although many gas-burning units were indeed converted to oil, management "prudence" dictated the addition of at least some plants dependant on secure indigenous coal and uranium, energy sources that also promised longer-term fuel price stability.
Whether this was an appropriate strategy, given the existing circumstances of reduced load growth, is something one can debate at length. However, two important facts should be kept in mind. One is that the energy crisis of the 70's came in two stages. The first began in late 1973 with the Yom Kippur war and the accompanying Arab oil embargo, which pushed oil prices up from $3 to around $15 a barrel. The second stage began five years later with the overthrow of the Shah of Iran by the Ayatollah Khomeini, which pushed prices up to $30 to $35 a barrel and seemed to confirm the prudency of fuel-switching strategies.