On December 12, 1994, Craven Crowell, chairman of the board of the Tennessee Valley Authority (TVA), issued two well-publicized announcements. First, TVA would not finish three of the nuclear...

## How Stranded Will Electric Utiliites Be?

have potential losses of $1 billion or more. These utilities are concentrated in a few states (em including California, Pennsylvania, Texas, New York, and Ohio, in declining order of importance. Lost revenues exceed 50 percent of utility equity in 13 states.

For the all-retail/combined-cycle price case (black bars in Figure 2), the total amount of SC is larger than for the industrial-only/ capacity-adjusted price case considered above (54 vs. 38 percent of equity). By far, the largest losses occur in NPCC (149 percent of equity). Losses are less than 10 percent in ERCOT and MAPP. Altogether, 100 utilities face some SC in this case. Of these, 36 have SC that exceed 100 percent of their equity; another 53 have SC between 10 and 100 percent of equity. Twenty-five utilities have potential losses of $1 billion or more. These utilities are concentrated in a few states (em including New York, California, New Jersey, Massachusetts, Ohio, and Pennsylvania, in declining order of importance. Lost revenues exceed 50 percent of utility equity in 16 states.

In both cases, the potential SC losses are especially severe in California, New York, Ohio, and Pennsylvania. Relative to the amount of utility equity, losses could be largest in several New England states (Maine, Massachusetts, New Hampshire, and Rhode Island).

As noted earlier, the amount of SC depends strongly on the assumptions made. The key assumptions are the market price of electricity and the fraction of retail load lost. Figure 3 shows the importance of these factors. At any market price, the loss to utility shareholders is 2.5 to 3 times as great when all retail loads are at risk than when only industrial loads are at risk. Raising the assumed market price of electricity by 1›/Kwh decreases the equity loss by 25 percentage points for all retail customers, and by 10 percentage points for the industrial class only. Lowering the market price by 1›/Kwh increases the equity loss by 33 and 14 percentage points, respectively. For the all-retail case, the change in SC is about $60 billion for every 1›/Kwh change in the market price of electricity.

Another key assumption that affects results is the number of years over which the utility loses this revenue. If the revenue loss would occur for only five years (rather than the 10 years assumed in Figure 3), equity loss would be cut by 40 percent. On the other hand, if the revenue loss were to occur for 15 years, then equity

loss would increase by almost

30 percent.

Finally, we varied the discount rate. Decreasing the real discount rate from 8 to 5 percent increases the amount of SC by 15 percent; increasing the discount rate to 11 percent cuts the amount of SC by 12 percent. These results show that the discount rate has less effect on results than does the number of years that lost revenues occur. Both factors are less important than the market price and the fraction of retail load able to obtain market-priced electricity.

What's Your Risk?

We developed a rudimentary method to estimate the amount of