Utility deregulation and stranded investments

Electric utilities in the U.S. are moving towards full competition in the electricity market. Many utilities carry stranded investments on their balance sheets and the disposition of stranded investments is a public concern, affecting the competing interests of customers and shareholders. Stranded investments represent past utility investments that may not be recoverable in a competitive environment. Recent federal regulations allow utilities to collect their stranded investments in wholesale rates, which is a benefit to shareholders at the expense of existing customers. We find that investor owned utilities with high stranded investments enjoyed larger security returns on the date regulations that allowed utilities to recover stranded investments was enacted. We also find that firms with stranded investments had larger security returns in the one-year period following passage of legislation. In substance, the regulations delayed the movement of the utility industry toward competition and put the burden of stranded investments on consumers, as opposed to shareholders. © 2000 Academic Press.

Duke Scholars

Author Donald Pagach Fuqua School of Business