After Stranding Recovery, What?

Fortnightly Magazine - June 1 1996
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Intense though it has been, the debate over stranded electric investment has addressed only half of the issue. What the utilities will do with the money is as important as whether they should recover anything at all.

Retail competition will accelerate the decline of utility-owned generation; utilities will rely less on their own production and more on purchased power to serve their remaining customers. Because the per-megawatt cost of most new generation remains quite low, utilities with stranded assets (as well as some restructured systems without any) can expect to receive more cash than they need for investments to fulfill their service obligations. No utility has stated that it will fully dedicate its stranding recovery to retiring debt, repurchasing stock, or shrinking the company by other means. Companies such as Edison International (formerly SCEcorp) and Pacific Gas & Electric are making substantial paydowns and repurchases, but they too will probably spend some stranding revenue on projects that would normally call for external finance.

The efficiency and fairness of recovery depend critically on what happens to the proceeds. Any metaphorical regulatory compact that warrants making customers pay for stranded assets must also apply to how such monies are spent by recovering utilities. As understood by its believers, the compact insulates the value of shareholder investments because they were made in the expectation of guaranteed cost recovery. However, the price of a share of stock reflects the market's

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