stranded costs

Costs incurred by a utility company, such as an electric company, in building new generation plants and increasing capacity, which the company is not able to recoup because of changes in regulations. For example, a power plant may have been built when prices were regulated and the utility was able to accurately predict the amount of money it would earn. However, if the market is deregulated shortly after a plant is built, and competition comes into the market, the rates that the company can charge will fall. As a result, future revenues won’t be enough to pay for the plant thereby stranding the costs.