Stranded Costs : An Overview

The purpose of this article is to review the major results in the literature regarding stranded costs. Despite the starting differences in the areas of research included in the paper, they have one characteristic in common: all recognize that during the last decades, the treatment of stranded costs has been one of the most critical and controversial regulatory issue facing infrastructure industries, specially electric utilities, and regulatory agencies. To this end I attempt to describe the stranded-cost problem, its magnitude and the main arguments for and against recovery. I also seek to provide guidance about welfare implications and efficient recovery of stranded costs