APEC Principles, 2/12/98

Stranded Costs

Under rapid, radical deregulation, some electric power companies may not be able to recover the costs they incurred to provide electric service. The signers of this document differ in their views as to whether stranded cost recovery is necessary or appropriate. All agree, however, that restructuring should not proceed unless all customer classes benefit.

If deregulation is adopted, utilities might not be able to recover the costs they have incurred to provide service, especially investments in generation facilities that produce electricity at prices now above the prevailing market price.

APEC members have widely varying views on whether utility recovery of these stranded costs is appropriate. Groups representing consumers believe utilities should absorb all or a substantial portion of these costs because the utilities chose to make the investments. Groups representing publicly- and consumer-owned utilities believe recovery of costs stranded as a result of deregulation is generally appropriate, because utilities were required to build facilities sufficient to serve all retail consumers in their service territories.


Despite these widely varying views, the members of APEC do agree
on certain fundamental points:

APEC Principles, 2/12/98

Stranded Workers

Workers who have devoted their careers to the industry and made a commitment to gaining skills and experience are already suffering great losses with deregulation. Qualified workers are losing their jobs and receiving little or nothing in the way of severance pay, retraining, or other job placement assistance. To assure continued system reliability and safety, every effort should be made to retain electric utility workers.

Utility companies buy equipment and train workers to be prepared to respond rapidly to outages and emergencies, and to perform regular and preventive maintenance. In response to emergencies or disasters, utilities also "loan" skilled employees to each other to restore electric service as rapidly as possible. This needful cooperation may diminish when affiliates of these utilities are competing for customers.

Anticipating the possibility of competition, investor-owned utilities have, since 1990, cut the number of electricity employees nationwide by twenty-five percent. These cuts have had devastating effects on the affected employees and their communities. Utility maintenance and emergency response time have been impaired.

Extended blackouts of large areas of the nation's power grid have been directly attributed to utility cost cutting and reductions in maintenance. Cutting of workforces and reductions in employee training are creating a shortage of the skilled workers necessary for power restoration in emergencies.

Work force layoffs have also affected workers in the power generation plants, as well as clerical and customer service workers. The increased workloads and responsibilities are being shifted to the remaining utility employees who now cover expanded daily work routines. The work load is compounded when the inevitable emergency situations arise and there are fewer people to deal with them.


Any electric utility industry restructuring should ensure that:

APEC Principles, 2/12/98

Tax Revenues

Currently, electric power companies contribute significantly to the local tax base. In a deregulated industry, this tax revenue could dry up or drop considerably.

State and local taxes imposed on electric utilities may include gross receipts taxes, income taxes, franchise fees, and property taxes that may be applied differently than those imposed on other businesses. Taxes imposed on utility customers, but collected and remitted by the utility, include sales taxes, use taxes, and utility user taxes. In many states, the aggregate level of taxation on utilities is significantly greater than that imposed on other businesses.

Much of the existing tax regime for electric utilities could become obsolete under deregulation. Deregulation will present three basic tax issues for state and local governments:

  1. Revenues could decline in many jurisdictions. This could result from lower electricity prices, a shift in market share from more to less heavily taxed service providers who may be located out of state, and from declining values of property owned by utilities.

  2. If utilities continue to be taxed on different bases than other electricity providers, these tax variations will create a very different economic effect in a deregulated industry than under prior cost of service regulation. Taxes which utilities previously recovered as a matter of course under cost of service regulation may become unrecoverable, as consumers choose different electricity providers to avoid the payment of these taxes.

  3. If existing tax laws are changed, local jurisdictions could lose control of the tax revenues.


To protect consumers:

APEC Principles, 2/12/98

Universal Service

Deregulated electric power companies and new competitive power suppliers may not be obligated or motivated to serve low income customers or customers that need electricity in inner cities, rural areas, or regions suffering economic trouble. Service quality could deteriorate below acceptable standards.

Not every electricity customer is equally profitable to serve. Not every area costs the same to serve. In a deregulated industry, electricity service sellers that operate solely on a for-profit basis may be allowed to choose freely whom they will serve and the rate they will charge each customer. If they do, they can be expected to segregate customers by geographic area, past credit records and income level, and to sell to the most attractive customers. If they do, what quality of service at what price can people in high-cost, difficult to serve, areas expect? How will people with lower incomes be assured they can afford electric service? Unless these questions are equitably resolved, deregulation will not benefit the whole nation.


Before deregulation is adopted, there must be assurance that:

To assure these outcomes, any deregulation plan should:

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