TRANSITION-COST ISSUES FOR US ELECTRICITY UTILITIES

The US electric-utility industry is in the midst of major changes. The se changes include deintegration of the industry and substantial incre ases in competition. A major consequence of these changes is the expos ure of transition costs. These costs, which amount to $100-$200 billio n nationwide, reflect the differences between regulated prices for ele ctricity generation and the prices that might occur in fully competiti ve power markets. The large financial stakes, equivalent to nearly the total value of US electric-utility common stock, guarantee controvers y. Debates occur over transition-cost amounts; analytical and market m ethods to estimate these costs; the assets and liabilities to include in such calculations; the assumptions used in developing these estimat es; approaches that can be used to offset some of these costs; the all ocation of the remaining costs among utility shareholders, different c lasses of retail customers, independent power producers and other whol esale suppliers, and taxpayers; and appropriate cost-recovery mechanis ms.