Those generation and associated regulatory assets of the utility that currently are unrecovered are potentially strandable assets and thus generate strandable costs . A shift in state policy from rate regulation to effective competition to set retail rates must continue to ensure just and reasonable rates. Effective competition provides an opportunity for a fair return on prudent investment and fair prices. However, in the transition from rate regulation to effective competition, competitive losses may occur. Of equal concern is that this change in state policy not result in exploitative rates to consumers.
Current regulation ensures against exploitative rates by setting cost-based rates.
Exploitative rates could result in a competitive market due to market power and occurs when the marketplace prices an electricity product above the lowest long-run cost of producing the product. Therefore, policy makers must address these two issues in order to ensure just and reasonable rates. Definition of Strandable Costs . Exclude transmission and distribution costs. Are associated with unrecovered fixed costs.