in competitive markets in the nuclear power stations in the face of uncertain demand wake of the Three Mile Island conditions, the result is not disaster. These events pricing based on volumetric triggered a substantial usage charges and low fixed regulatory review of approved charges. Rather, the and partially constructed revealed preference from power plants, raising the users and providers is that issue of the allocation of the or pay’ contracts risks and costs of changed ‘take predominate. These regulatory policy. commonly underwrite As Professor Ingo Vogelsang significant gas pipeline recently pointed out, a infrastructure, for example. choice exists compensation – In the case of toll roads, for of the owners before the example, volume and stranding event, or demand risk are increasingly compensation afterwards underwritten by taxpayers. (Vogelsang 2014). Delivery Literature on Regulatory of that compensation prior to Stranding any stranding also involves choices. Some options Due to the rarity of regulatory include the deliberate stranding actions, is a allowance of an additional substantially smaller allowance in the regulatory regulatory economic literature cost of capital, or equivalent around the issue than adjustments to cash-flows (in perennial regulatory issues a sense an ‘insurance such as pricing or alternative premium’). Regulators in approaches to access energy and pricing. An exception to this telecommunications have is examination of the issue of previously indicated that regulatory stranding advancing depreciation could associated with the be one mechanism adopted, construction by US utilities of
in competitive markets in the face of uncertain demand conditions, the result is not pricing based on volumetric usage charges and low fixed charges. Rather, the revealed preference from users and providers is that ‘take or pay’ contracts predominate. These commonly underwrite significant gas pipeline infrastructure, for example. In the case of toll roads, for example, volume and demand risk are increasingly underwritten by taxpayers. Literature on Regulatory Stranding Due to the rarity of regulatory stranding actions, is a substantially smaller regulatory economic literature around the issue than perennial regulatory issues such as pricing or alternative approaches to access pricing. An exception to this is examination of the issue of regulatory stranding associated with the construction by US utilities of nuclear power stations in the wake of the Three Mile Island disaster. These events triggered a substantial regulatory review of approved and partially constructed power plants, raising the issue of the allocation of the risks and costs of changed regulatory policy. As Professor Ingo Vogelsang recently pointed out, a choice exists – compensation of the owners before the stranding event, or compensation afterwards (Vogelsang 2014). Delivery of that compensation prior to any stranding also involves choices. Some options include the deliberate allowance of an additional allowance in the regulatory cost of capital, or equivalent adjustments to cash-flows (in a sense an ‘insurance premium’). Regulators in energy and telecommunications have previously indicated that advancing depreciation could be one mechanism adopted,
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