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Stranded Costs: The Next Great Energy Battle

Sheila S. Hollis, Mary Ann Ralls, The Electric Industry Opportunities and Impacts for Resource Producers, Power Generators, Marketers, and Consumers (1996)

First of all, stranded costs is a misnomer, someone always pays for it. Once you accept that premise, the question is who? As a rhetorical question, this is not difficult to grasp. As a question in search of an answer, however, “who” has prompted every segment of the electric energy industry seemingly to run head-first into each other creating a trainwreck of gargantuan proportions. Depending on your segment persuasion, you may espouse one of the following views. One, as a purchaser who regards stranded cost obligations as an obstacle to taking advantage of competitive alternatives, and who fears stranded cost recovery will allow utilities to maintain market power and competitive advantages. Two, as one of the utilities who portray themselves as having been forced to incur these expenses in order to provide the best possible service “available” to their customers or to enter into high-priced purchases pursuant to the Public Utility Regulatory Policies Act of 1978 (“PURPA”)1.