Off Peak

Fortnightly Magazine - December 1998
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Mitigation depends on the market. For regulators, that means a going-forward view.

If regulators allow recovery of some stranded costs, they should at least ensure that utilities operate their generating plants in a manner consistent with the actions taken by other owners of similar resources that participate in competitive markets for bulk power.

A priori estimates of stranded costs are almost certain to be wrong. Therefore, regulators should adjust recovery to reflect actual events (em in particular market prices for electricity.

Recharge the Economy with Renewable Energy Tax Credits

Regulators should hold utilities responsible for all future avoidable costs. These avoidable fixed costs include operating and maintenance expenses, administrative and general expenses, and capital additions. By contrast unavoidable fixed costs include depreciation, property and income taxes, interest payments and return on equity. In short, the recovery mechanism shouldn't indemnify the utility against the types of risks faced by its competitors. What costs are truly avoidable, however, will depend on the market.

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