Should Energy Users Pay for Their Utilities' Stranded Costs?

Abstract

Millions of senior citizen shareholders are happy: Electric utility
stocks are selling near their historic highs, having completely recovered
from the big dere gulation-competition scare of 1993-1994. Why worr y?
Regulators ha ve mad e a solemn promi se: Nobod y will lose out when
comp etition comes, least of all the shareholders.
High-cost electric utiliti es, of course, face the same problem as did
other high -cost equated indu stries at the onset of competition. Once
ene rgy users, wh o are their customers, can choose their suppliers, utili-
ties won 't be able to charge mor e for electricity than the competitive
market pr ice. The high-cost utiliti es w ill argue that they incurred their
costs at the behe st of regulators wh o ordered them to buy overpriced
power from favored generators, who pr evented them from marketing
their product , and wh o demand ed support of costly social and environ-
mental pro gram s. They will claim that their colossally expensive nuclear
po wer sta tions we re constructed at a time when the nation's lead ers
sough t to reduce air pollution and min imize our reliance on foreign oil
supplies, and that they built pow er plants de signed to burn go vernment-
favored-rath er than economical-fu els.
Chan ging the rule s of the gam e now and leaving the ut ilities hang-
ing seems unfair becau se, after all, they argue, they wer e onl y acting as
good citizens.
All tru e, but ene rgy users don 't care. They kno w that new, small,
clean , mod ern gene ra ting plants produc e electricity at costs below what
man y utilities charge. The y know that the next gen er ation of power
plants w ill produc e at still lower costs. They sur ely know that, with the
oversupp ly that exists, the y can buy electricity on the spot market at
even lower pric es