Securitization of stranded costs: An overview
- Sidley and Austin, Chicago, IL (United States)
The benefits and costs of stranded cost recovery continue to be widely debated. Consumer and environmental groups have argued that such recovery over-compensates utilities for past investments which, although statutorily mandated at the time, have proved to be uneconomic. According to others, however, including credit analysts and academics, stranded cost recovery promotes competition by ensuring that all suppliers of electricity, both regulated and non-regulated, share in the historic costs of regulation until such time as the market has fully developed. Securitization, because it has been linked to stranded cost recovery in states such as Pennsylvania, has been unfairly caught in the debate. This is unfortunate. By enabling incumbent utilities to lower their capital costs during deregulation, securitization minimizes the need for direct forms of stranded cost recovery and facilitates the rate reductions which will fuel the transition to a competitive power generation market. Of key importance is that securitization achieves these lower costs by taking advantage of market preferences and not through subsidies from customers or the state. As one ratings analyst has noted, the politically difficult issue in this area is to determine what level of stranded cost recovery is desirable. once that decision has been reached, securitization should no longer be seen as a political issue but simply a cost-efficient means by which to accomplish recovery.
- OSTI ID:
- 320935
- Report Number(s):
- CONF-980426--
- Country of Publication:
- United States
- Language:
- English
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