Givings, Takings, and the Fallacy of Forward-Looking Costs
99 Pages Posted: 22 Jan 2001
Mr. Sidak and Professor Spulber extend here the analysis in Deregulatory Takings and Breach of the Regulatory Contract, published last year in this Review. They respond to comments and criticisms raised not only by Professors Baumol and Merrill, but also by Judge Williams and Professor Williamson in their Comments published last year. Sidak and Spulber begin by exploring the constitutional limitations on the government's ability to redefine the public purpose to which a regulated utility has dedicated its private property. Then, the authors examine whether 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 Spulber refine the limiting principles for the recovery of stranded costs that they articulated in their earlier article and show how those principles reconcile with the actual treatment of losses from deregulation in disparate industries. Next, they expose the economic fallacies in the notion of forward-looking costs as that term has been used by the Federal Communications Commission and state public utility commissions to set prices for mandatory network access under the Telecommunications Act of 1996. The authors analyze the Supreme Courts 1996 decision in United States v. Winstar Corp. and argue that the reasoning employed 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 explain 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, the authors examine the significance of the Eighth Circuit's 1997 decision in Iowa Utilities Board v. FCC for the debate over deregulatory takings and breach of the regulatory contract.
JEL Classification: KO, K2, L4, L5, L9
Suggested Citation: Suggested Citation
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By Ian M. Dobbs