GIVINGS, TAKINGS, AND THE FALLACY OF FORWARD-LOOKING COSTS

Mr. Sidak and Professor Spulber extend here the analysis in Deregulato ry Takings and Breach of the Regulatory Contract, published last year in this Review. They respond to comments and criticisms raised not onl y by Professors Baumol and Merrill, bur also by Judge Williams and Pro fessor Williamson in their Comments published last year. Sidak and Spu lber begin by exploring the constitutional limitations on the governme nt's ability to redefine the public purpose to which a regulated utili ty has dedicated its private property. Then, the authors examine wheth er the government has made ''givings'' that implicitly compensate the regulated firm for its diminution in value owing to the imposition of policies mandating network unbundling at regulated prices. Sidak and S pulber refine the limiting principles for the recovery of stranded cos ts that they articulated in their earlier article and show how those p rinciples reconcile with the actual treatment of losses from deregulat ion in disparate industries Next, they expose the economic fallacies b n the notion of ''forward-looking costs'' as that term has been used b y the Federal Communications Commission and state public utility commi ssions to set prices for mandatory network access under the Telecommun ications Act of 1996. The authors analyze the Supreme Court's 1996 dec ision in United States v. Winstar Corp. and argue that the reasoning e mployed by seven Justices in that case comports not only with earlier decisions of the Court construing the regulatory contract with public utilities, but also with the contemporary economic analysis of why the regulatory contract is essential and efficient Sidak and Spulber expl ain how ''transition bonds'' may solve the stranded cost conundrum in the telecommunications and electric power industries by permitting the securitization of stranded costs in a manner that restores investors' faith in the state's ability to make credible commitments. Finally, t he authors examine the significance of the Eighth Circuit's 1997 decis ion in Iowa Utilities Board v. FCC for the debate over deregulatory ta kings and breach of the regulatory contract.