In discussions of electric power generationderegulation, stranded costs represent a public utility's existing infrastructure investments that may become redundant after substantial changes in regulatory or market conditions.[1] An incumbent electric power utility will have made substantial investments over the years and will carry debt. The whole-life cost of electricity includes payments on this debt.
As technology improves, with all else equal, the cost of generating electricity falls. A new entrant to the market, unencumbered by debt, can build a modern plant and generate electricity at a lower cost than existing providers. Logical customers leave the incumbent utility for the new entrant, reducing the incumbent's revenue and spreading its debt payments across fewer remaining customers.
The problem is often caused by overlong depreciation schedules for capital investments by utilities, presuming that regulatory and market conditions would not change substantially.
Solutions to the stranded costs problem include assigning a portion of the incumbent utility's debt to the new entrant as a condition of entry, or charging all customers in the market area a "stranded cost recovery fee". In some cases, a government may assume a portion of an incumbent utility's debt and assign it to the public debt, thus freeing the incumbent to compete more efficiently against new entrants.[2]
^. Tennessee Power Company. Archived from the original on January 4, 2010.{{cite web}}: CS1 maint: unfit URL (link)
^"Stranded Costs" (PDF). Draft Working Model for Restructuring the Electric Utility Industry. Virginia State Corporation Commission. 1997. Retrieved October 17, 2016.
April 27, 2024
stranded, costs, discussions, electric, power, generation, deregulation, stranded, costs, represent, public, utility, existing, infrastructure, investments, that, become, redundant, after, substantial, changes, regulatory, market, conditions, incumbent, electr. In discussions of electric power generation deregulation stranded costs represent a public utility s existing infrastructure investments that may become redundant after substantial changes in regulatory or market conditions 1 An incumbent electric power utility will have made substantial investments over the years and will carry debt The whole life cost of electricity includes payments on this debt As technology improves with all else equal the cost of generating electricity falls A new entrant to the market unencumbered by debt can build a modern plant and generate electricity at a lower cost than existing providers Logical customers leave the incumbent utility for the new entrant reducing the incumbent s revenue and spreading its debt payments across fewer remaining customers The problem is often caused by overlong depreciation schedules for capital investments by utilities presuming that regulatory and market conditions would not change substantially Solutions to the stranded costs problem include assigning a portion of the incumbent utility s debt to the new entrant as a condition of entry or charging all customers in the market area a stranded cost recovery fee In some cases a government may assume a portion of an incumbent utility s debt and assign it to the public debt thus freeing the incumbent to compete more efficiently against new entrants 2 See also editStranded assetReferences edit What s Stranded Cost Tennessee Power Company Archived from the original on January 4 2010 a href Template Cite web html title Template Cite web cite web a CS1 maint unfit URL link Stranded Costs PDF Draft Working Model for Restructuring the Electric Utility Industry Virginia State Corporation Commission 1997 Retrieved October 17 2016 Retrieved from https en wikipedia org w index php title Stranded costs amp oldid 1000134849, wikipedia, wiki, book, books, library,
