Mass. Study Finds Stranded Costs Really Assets

Fortnightly Magazine - June 15 1996
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Five Massachusetts electric companies stand to gain more from industry restructuring than they would lose in stranded investment. A study by Resource Insight of Boston, MA, a consulting firm contracted by the state attorney general, concludes that utility generation assets are worth more than the net investments, "producing a restructuring gain."

For example, Boston Edison's $532-million stranded nuclear investment, the largest of any utility in the state, would be offset by $789 million in restructuring gain from other generation, for a net gain of $257 million.

The study calculates stranded costs by subtracting the likely market value of generation assets from book value. Negative net stranded cost, or "restructuring gain," results when an asset's market value exceeds its sunk costs, minus depreciation.

DC PSC RFP Technical Consultant for Formal Case (FC) No. 1156

The utilities count only the book value of their assets, assuming a market value of zero. Using that method, Boston Edison values its stranded investment at more than $1 billion.

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