Electric utility deregulation: Stranded costs vs. stranded benefits

This study re-examines the electric utility market value-book value relation in light of the changing regulatory climate. The change in the market value-book value relation is examined by comparing the market-to-book ratio in the post-regulatory period to the regulatory period. Additionally, this paper compares the stock market’s valuation of electric utility stranded costs (above market costs) to stranded benefits (below market costs). This paper demonstrates that electric utility market value and book value are no longer aligned. Additionally, this paper extends the research on deregulatory effects by documenting a differential market response to estimated stranded costs versus stranded benefits.