The flawed case for stranded cost recovery

Recovery of stranded investment today marks the central issue in the debate over electric utility competition. Unfortunately, the utility argument in favor of recovery is flawed. It assumes that utilities invest in plant to meet a public need; that a regulatory compact guarantees cost recovery; that the public must acquiesce. But consider the circumstances that prevailed when the utilities took on the investments now deemed at risk for stranding. Those circumstances suggest no such public need. Moreover, the idea of a regulatory compact presents a self-serving view. It does not square with the hard realities of ratemaking politics. The utilities stand on weak ground.