UTILITY FINANCE LAW: ELECTRIC UTILITIES’ RECOVERY OF “STRANDED COSTS” AS INDUCEMENT TO SWITCH FROM REGULATED MONOPOLIES TO COMPETITION

For decades, investor-owned utilities functioned as vertically-integrated, regulated monopolies providing electricity. Firms charged “bundled” rates to furnish end-users with all three components of electric power service – – generation, transmission, and the retail provision of power. Energy shortages, improvements in technology, and shifting economics, however, propelled forward a wave of laws by the mid- to late-1990s to “unbundle” rates, deregulate, and restructure the industry. Restructuring aimed to foster competition and reduce electric costs, while boosting supply, conservation and efficiency.

To ease the transition, these measures granted utilities a right to recover uneconomic sunk (“stranded”) costs prudently invested in power generation assets under regulation. With billions of dollars at stake, litigation often ensued. Thus, for example, in Office of Public Utility Counsel v. Public Utility Com’n of Texas, 303 S.W.3d 904, Util. L. Rep. P 27,085 (Tex.App.-Austin Jan 15, 2010), the court resolved questions of which items did and did not qualify as recoverable “stranded costs”, and how the burden of payment of “stranded costs” should be allocated among residential, commercial and industrial ratepayers. Roger Greenbaum’s thorough and scholarly report collects and analyzes all federal and state court cases that address the recovery of “stranded costs” by utilities. It is entitled, Special Report, Recovery of ‘Stranded Costs’ by Utilities. It appears in ThomsonReuters/West Publishing Co.’s American Law Reports (6th) series, at 80 ALR6th 1 (2012) (West).