Surely the same will occur with contracts giving too high a price to independent power producers. Further questions arise about the distribution of these burdens among different utilities and particularly, whether those bearing the largest part of the loss of transmission network value also have the largest amount of stranded generating plant costs. Further difficulties arise in implementing a sensible stranded cost recovery program. The amount of money recoverable from the rate base is limited to returns from the prices that maximize returns to the seller. The profit maximizing prices necessarily set a limit on how much stranded cost can be recovered.
Regulators are incapable of setting prices at the point where profit maximization occurs.
Thus, Baumol and Sidak propose an unworkable solution to an ill-defined problem. Finally, Irwin Stelzer has pointed out most of the limits of the compact concept. He correctly noted that the compact never was intended to protect against all losses, and practice for several decades has denied recovery of substantial parts of what Baumol and Sidak apparently believe are protected investments. In contrast to Stelzer, Baumol and Sidak used the bulk of their space to assert that a compact existed, and they failed to respond satisfactorily to Michaels's other explanations for why stranded cost recovery is bad policy. A broader point can be made.