As the U.S. Congress works to pass federal legislation introducing competition into the electric utility industry, one of the most divisive issues regulators and policymakers must grapple with is that of stranded cost. In a recent study completed by Resource Data International, we have found that an important issue will be how "negative" stranded costs are handled.
At the heart of our study is a detailed, plant-by-plant, analysis of stranded costs for every utility in the country. We estimate that the total above-market stranded cost nationally is $202 billion. The lion's share of this stranded cost ($86 billion) results from heavily financed nuclear power plants. Utilities with stranded costs, however, are able to offset some of their stranded nuclear costs with other generating assets that have market value higher than current book values ($17 billion offset). The second largest component of stranded costs results from power purchases from other utilities ($54 billion). The third largest component is regulatory assets ($49 billion). The final component of stranded costs, a nagging relic of the Public Utilities Regulatory Policy Act of 1978, consist of $42 billion in above-market power-purchase contracts from nonutility generators. Utilities with stranded costs will be able to offset a small portion of these costs through long-term, above-market sales to other utilities ($12 billion offset). These stranded costs burden all portions of the utility industry: investor-owned utilities account for $147 billion; public utilities for $33 billion; and cooperatives for $22 billion.