The Heritage Foundation has released its second report in a series on electric deregulation, aimed at capturing the attention of lawmakers on Capitol Hill now holding hearings on proposed legislation to restructure the electric industry.
The new report, Electricity Deregulation: Separating Fact From Fiction in the Debate Over Stranded Cost Recovery, by Adam D. Thierer, concludes that lavish stranded cost recovery is not justified, and that the "sky will not fall" if stranded cost recovery is limited or denied.
Thierer said, "If policy makers demand that customers and competitors pay for the losses of inefficient utilities, it could mean the end of a competitive electric future."
Thierer cited a variety of studies, which estimate total stranded costs anywhere from $10 billion to $500 billion. He called attention to a Moody's Investors Service study that set stranded costs for 114 investor-owned utilities at $135 billion in 1995, and another by Data Resources Inc., which estimated such costs at $88 billion in 1995.
Just because an asset is deemed uneconomic today, Thierer explained, does not mean it has no future worth. For example, some utilities are experimenting with using their transmission and distribution lines to enter the communications business. Some are already offering telephone, cable television and Internet services over fiber-optic cables running alongside electric wires that monitor energy use.
If every new utility was forced to pay a high stranded cost fee, fewer firms would enter the competitive fray, the report said. Customers forced to pay an exit fee would be less likely to switch electric suppliers. Thierer cited a poll by Research/Strategy/