When thinking about calculating and recovering stranded costs it is important to remember why we are undertaking this exercise in the first place. The move toward competition has been driven by the inability of the current, administratively-oriented system of setting prices and allocating costs to cope with a rapidly changing energy market. Although regulators were supposed to induce economically efficient behavior, utilities are now burdened with billions of dollars of investment that are worthless under competition. This waste of capital, and the high prices consumers have paid and will continue to pay to cover the cost of these assets, are significant damage. Relying on the methods that got us into this problem to solve it is paradoxical, and only promises continued punishment for Arizona's electricity consumers.
Net revenues lost is the preferred method for computing stranded costs.
The net revenues lost method of calculating stranded costs uses the discredited rate hearing approach to calculating stranded costs. We concur with all of the disadvantages listed, although the report does not give them their proper weight when compared with the advantages cited. While the uncertainty and cost in terms of both time and money are serious flaws, the advantages listed are either shared with other methods, trivial or irrelevant. Although the math may be simple, it is in the assumptions where the traditional method stumbles. The stock market valuation approach offered by the Goldwater Institute also reflects both above and below market value of assets and depreciation and amortization of sunk costs.