StrandedCapitalPFMC

StrandedCapitalPFMC - Stranded Capital in Fisheries Jim...

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Stranded Capital in Fisheries Jim Wilen Department of Agric. & Resource Economics University of California, Davis March 2007
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Questions What is stranded capital? How has stranded capital been treated in other policy settings? What are the potential effects on processors of IFQs? When are stranded costs likely to be significant? What are the arguments for considering these effects? How should we measure stranded capital? What mechanisms can be used to address impacts?
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Stranded Capital: the Policy Context Deregulation wave of 1980s: trucking, airlines, gas production, electricity Electricity Deregulation of 1990s Prices deregulated--competitive market for power Inefficient investments no longer guaranteed ROR (particularly high capital cost nuclear plants) Some long term contracts above market prices (green power, co-gen, small scale hydro) Utilities argued: investments/contracts induced by old regulations and unprofitable under new deregulated policy arena were “stranded”
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Stranded Capital: the Compensation Arguments Implicit “regulatory compact” between firms and regulators Failure to ensure rate of return is breach of implicit regulatory compact Without compensation, utility investments may be seen as more risky, cost of capital and prices to consumers may rise, reducing benefits of deregulations Unfair to investors to reduce value of shares by regulatory action---a “takings”
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Responses to Stranded Capital Compensation Arguments Regulatory response Compensation was not an issue in trucking, airlines, banking, and natural gas deregulation Large size of stranded capital claims in electricity; ongoing debate over compensation is holding up some deregulation Legal responses Courts have not supported notion of breach of “regulatory compact” Courts have not upheld idea that failure to compensate is a “takings” Economists’ responses Risk of deregulation and its impact already taken into account in capital
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This note was uploaded on 11/11/2011 for the course MATH 220 taught by Professor Kearn during the Fall '11 term at BYU.

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StrandedCapitalPFMC - Stranded Capital in Fisheries Jim...

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