A recent conversation:
"When was the demise of the regulatory bargain? What you say is true, but at some point you had to know the bargain was over."
(em A state utility commissioner
"Beats me, it doesn't seem to be over yet. The electric industry still has a duty to serve all customers, and it must charge below-market rate confiscatory for many of our services because of the regulatory bargain. When these duties go away, I'll let you know the date of the demise."
(em The author
When Intel had to replace thousands of Pentium chips that might misfire once every million calculations, it took the loss (em about several hundred million dollars. When Ford built the Edsel, it also lost money. No one (to my knowledge) has ever sued Ford for a shortage of Edsels, or Intel for not making enough Pentium chips. But then again, no government agency ever forced Ford or Intel to build a certain number of cars or chips (em enough for everybody in the U.S. under all conditions (em only to recant and then announce a new set of rules: "Ooops, sorry, just kidding, something better came along."
We, the electric industry, however, still have a duty to serve. We are still required to build plants, transmission and distribution to serve everyone in our territory. We call this commitment the Regulatory Compact. Because of this compact, the electric industry is now stuck with outdated assets built under government mandates. Power plants built using old technology are now priced above market.
Who should pay for these "stranded" assets? Utilities, customers, shareholders? Despite the lessons learned by Ford and Intel, I believe utilities should be allowed to recover their stranded costs, and for a very practical reason (em a quick transition to a competitive market.