Moody's Frowns at Stranded Costs

A recent report by Moody's Investors Service, Stranded Costs Will Threaten Credit Quality of U.S. Electrics, estimates total stranded costs for

investor-owned electrics at $50 to $300 billion, depending on market-price assumptions. The most likely scenario would produce about $135 billion in stranded costs, compared to present total industry equity of about $165 billion and total assets of $570 billion. Moody's places more than 40 percent of total industry stranded costs among companies in the Northeast and Western United States.Nevertheless, Moody's does not consider all costs at risk of being stranded (em mainly fixed costs associated with production, especially those presently incurred (such as purchased-power contracts) and those previously incurred and carried as assets on a utility's balance sheet (such as nuclear plants). Its analysis hinges on the crucial distinction between what a utility charges for electric energy (actual power, measured by kilowatt hours, that customers use) and what it charges for electric capacity (the uninterrupted availability of energy, measured in kilowatts, that can be used at will). Moody's believes that distinction will become more explicit in the competitive market of the future.