What are stranded costs and where do they come from?
• How can they be measured? • What are the pros and cons of making different groups–consumers, taxpayers, utilities, and their stockholders–pay some or all of the stranded costs? The analysis evaluates various answers to the third question using the criteria of economic efficiency, fairness, and administrative ease. It finds that whether utilities are compensated for their stranded costs is more a question of fairness and politics than of economic efficiency. This paper focuses on compensating the stranded costs of investor-owned utilities, which make up about three-quarters of the electricity-generating industry. Electricity is also produced by publicly owned, cooperatively owned, and federal power entities. Restructuring the electricity industry may have an impact on those entities if their consumers are also allowed to choose alternative suppliers. However, compensation of losses may be less important to those utilities because, in many cases, publicly owned and cooperative utilit
