The Regulatory Treatment of Embedded Costs Exceeding Market Prices: Transition to a Competitive Electric Generation Market

Any regulated industry facing a transition from a monopoly-oriented, obligation-to-serve context to a competitive structure must deal with the problem of the incumbent having embedded costs, incurred to meet an obligation to serve but not yet recovered from customers, where those embedded costs are associated with assets whose market value is lower.  Termed "stranded costs" by the industry, their proper treatment involves questions of economics and constitutional law, as well as accounting and politics.

This paper, co-authored with Robert Burns and Dr. Ken Rose, and published by the National Regulatory Research Institute, guides regulators toward economical, constitutional decisions.