Unstranding “Stranded Cost” Securitizations

Abstract

Stranded cost securitization techniques were originally developed to compensate U.S. electric utilities for regulatory assets rendered obsolete and uneconomic by deregulation. These techniques permitted an affected utility to recover stranded costs in rates charged to customers and to issue bonds backed by such charges. Today, stranded cost securitization techniques are finding new applications in the financing of mandatory pollution control equipment and other similar expenditures, for catastrophic storm reconstruction expenditures and, as proposed by the author, possibly for “synthetic” carbon emission reduction for new fossil-fueled power plants or purchases.