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Stranded Utilities: How Demographics, Not Management, Caused High Costs and Rates

Fortnightly Magazine - June 1 1997

percent set equal to 1.0, and lesser values set equal to zero. States falling into the former (i.e., "congested") category are Connecticut, Massachusetts, New York, New Jersey, Florida, Maryland and California.

9Of course, differences in rates among individual utilities, rather than states, may demonstrate a closer relationship.

10Through, for example, a competitive transition charge imposed on transmission or distribution services.

11Limiting the precision of these estimates of the effects of stranded costs are three principal factors:

(1) The estimation procedure used is one of statistical inference, as opposed to direct measurement, i.e., stranded costs have not been explicitly identified on a utility-by-utility basis;

(2) Investment in nuclear facilities is estimated only approximately, based on capacity amounts rather than dollars, and thus with the tacit assumption that the unit cost of nuclear capacity is invariant (in this case, we estimated the hypothetical capacity of nuclear generating units currently out of service); and

(3) Stranded costs unrelated to nuclear plant are not considered.

Nevertheless, these estimates, for the first time to our knowledge, highlight the potential handicap imposed by stranded costs relative to other important competitive influences arising from location.

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