Stranded costs
Stranded costs are reductions in income for investments or legal transactions that arise as a result of market opening or deregulation . The term is mainly used in the field of energy supply (electricity generation).
In a regulated market, utility companies usually have exclusive rights to sell electricity within a certain area. The prices are set by regulators. In many countries, the energy supply market has been deregulated, i.e. the protection of areas for electricity generation has been lifted. As a result, investments and legal transactions that were previously made in the regulated market, so-called sunk costs , could no longer be covered by future revenues in the competitive environment.
Individual evidence
- ↑ Baumol, WJ; Sidak, JG, (1995), Transmission Pricing and Stranded Costs in the Electric Power Industry, The AEI Press, Washington DC, p. 180.
- ↑ Doane, MJ; Williams, MA, (1995), Competitive Entry into Regulated Monopoly Services and the Resulting Problem of Stranded Costs, The Hume Papers on Public Policy, vol. 3, no. 3, pp. 32-53.
Web links
- Ordinance of the Austrian Federal Minister for Economic Affairs, which regulates the raising and granting of operating subsidies to cover reductions in revenue from electricity companies for investments and legal transactions that could become unprofitable through the opening of the market
- Congressional Budget Office: Electric Utlities: Deregulation and Stranded Costs (PDF; 153 kB), October 1998