Recovery of stranded investment is clearly the central point of contention in the debate over utility competition. Customers oppose competition and utilities favor it (em for what appear to be clear-cut reasons. Recovery would delay the benefits of competition for customers, but would give utilities additional cash and temporary protection against competitive price pressures. The battle has unfortunately turned into a morality play that centers on the right to recover stranded investment. Utilities argue that the "regulatory contract" entitles them to full recovery; customers claim that no such entitlement exists.
These polarized positions obscure complicated self-interests that often conflict with public positions. Stranded investment, recovered or not, will have a major impact on the competitive positions of utilities relative to each other, which will also affect customers. Accordingly, both utilities and customers must consider recovery in terms of what is optimal. The optimal amount of recovery for utilities will vary from full recovery to partial recovery to no recovery.
Recovery and Cash Flow
Shareholder interests require that utility managements maximize the risk-adjusted present value of future cash flows. The historical cost of a utility's assets has nothing to do with this. What matters is future cash generation. Since utilities will be competing head-to-head with each other, a utility must consider the impact that recovery of stranded investment by rival utilities will have on its future cash flow. Recovery of stranded investment by a utility will increase a utility's future cash flow; recovery by rivals will diminish it.
A utility could obviously use the cash flow from stranded investment recovery in many ways that would benefit