You've got to reinvest the proceeds (em and not just anywhere.
Recovering stranded investment is sometimes equated to preserving shareholder wealth. In fact, full recovery of stranded investment by itself will not preserve shareholder wealth in most cases.
What is missing all too often in discussions of stranded investment is the role that capital investment plays in the creation of shareholder wealth. Full preservation of shareholder value requires more than recovery of stranded investment; it demands new investment that replaces the original earning power of the impaired assets.
To fully preserve shareholder wealth, any resolution of the stranded investment question must leave the utility's valuation equal to what it would have been if the matter had never come up. That means no net change in: 1) the present value of a utility's prospective stream of risk-adjusted earnings, and 2) the way the market values that earnings stream. Investors must remain just as confident about future earnings as they were before the stranded investment issue arose.
Capitalizing the Income Stream
The effect of stranded investment recovery on shareholder wealth can be illustrated with a numerical example. For this purpose, assume that a steady state exists under regulation in which all earnings are paid out as dividends and the utility's equity investment and earning power are both in constant perpetuity. Specifically, suppose that the utility's equity investment is 200 and that it earns its allowed return on equity of 12 percent. Earnings are thus 24. Since rates are set at a level that enable the utility to earn its allowed return, book value and regulatory economic value coincide. (See table.)