Recovering Stranded Costs: Not "If," But "How"

Fortnightly Magazine - January 15 1997
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Illinois has yet to face the issue, but when it does, it may find the road blocked by jurisdictional rules at the FERC. According to estimates by Moody's Investor Service, the state of Illinois would face stranded costs of nearly $6 billion if it should mandate retail wheeling to allow the state's electric utility customers to choose their own supply of electricity.

And, if this prediction should hold true, and if utilities should be made to forfeit some of those costs, then the Illinois Commerce Commission (ICC) and the other state public utility commissions (PUCs) will likely assume the job of calculating the stranded cost to be recovered (em one that could prove daunting.

Nevertheless, with all that has been written about the various methods for calculating stranded costs, the choice of method is not the critical issue. The more difficult task comes later: How can stranded costs be legally recovered in practice? That is the primary question that should concern legislators, regulators and financial analysts. Unlike the wealth of discussion about estimating strandable costs, not much has been written about recovery mechanisms. In fact, it always seems to be assumed that if stranded cost recovery is allowed, then such costs can be recovered. However, this assumption may prove overconfident.

So far, neither the ICC nor the state legislature has had occasion to address formally the question of utility recovery of stranded costs, but the issue has never strayed far from view.

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