Stranded what, exactly
Just as retail wheeling is about pricing and not the movement of power, stranded investment concerns financial impairment-not plant closure in a physical sense. Stranded investment arises even for an efficiencly run plant when regulatory action causes the price of plant output to fall to a level where the utility can no longer earn a fair return on investment. This decline in profitability reduces the plant's capitalized economic value. If a plant cannot operate profitably at the reduced price, it will be shut down, and its economic value reduced to salvage value. Or it will continue to operate, although less profitably and with a lower economic value than before the price cut. In either event, stranded investment marks the difference between the plant's undepreciated book value and its reduced capitalized value. Low profitability can obviously stem from operational inefficiencies as well as overcapitalization. While a plant may produce a satisfactory return under traditional rate regulation, the utility may not operate as efficiently under competition. A plant's excessively high operating costs, rather than its high fixed-investment costs, rather than its high fixed-investment costs, may cause low profitability. The stranded cost lies rooted in the utility's organization.
- OSTI ID:
- 6662490
- Journal Information:
- Fortnightly; (United States), Vol. 132:22
- Country of Publication:
- United States
- Language:
- English
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