Using Auctions to Divest Generation Assets

Deregulation of the electric power industry is proceeding rapidly, forcing utilities to compete on price at both the retail and wholesale level. To ease the transition to competition, most states will compensate utilities for the difference between costs incurred on past capital investments under regulation and the profits they can expect to earn on these assets under competition. This difference, which is referred to as stranded cost, is typically calculated by subtracting the market value of an asset from its book value.