And why policy on
stranded costs defies
a traditional legal or
There are sound economic reasons why policymakers should allow electric utilities to recover stranded costs through a competitively neutral network access charge, or some similar fee. First, differences in the quality of utility management appear to have contributed little to differences in electricity rates among states. Second, without recovery of stranded costs fundamental features of electricity markets, coupled with variation in rates and costs, may greatly magnify the social costs of industry deregulation. These market features include: non-homogeneity of electric service; probable divergence between its marginal cost and its social value; and inadequate market incentives to properly limit nuclear and other environmental risks.
In the long run, failure to recover the costs of stranded investment may jeopardize the solvency of many utilities and reduce the availability and reliability of electricity supply to large customer groups. In fact, such a failure could impose public safety and heath hazards well beyond those which may presently exist.
Overall, many of the arguments presented pro and con on the issue of stranded costs fail to account for the special nature of electric service. Analyses based on equity, law or static economic efficiency alone may not suffice. An analogy may be drawn to the domestic automobile market (em another industry once threatened with massive unrecoverable costs. For the nation's car makers, import restrictions proved necessary to moderate the social costs of a transition to greater competition. In the use of electricity, of course, the addition of nuclear risks to the equation make caution all the more essential.
Equity and Fairness: