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11 Colum. J. Tax L. 1 (2019-2020)

handle is hein.journals/colujoutl11 and id is 1 raw text is: STRANDED ASSETS AND EFFICIENT PRICING FOR REGULATED UTILITIES: A FEDERAL TAX SOLUTION Tracey M. Roberts* Abstract Most businesses recoup their investments in property, plant, and equipment from the income they earn from using those assets. When changes in markets, technology, or regulations reduce income from those assets or increase operating costs, businesses may not recover their full investments in those stranded assets. Unregulated firms generally contain these risks by diversifying assets and income streams, procuring insurance, or engaging in hedging transactions. Public utilities, however, must obtain a regulator's permission both to manage these risks and to pass the costs of those assets forward to consumers. Globally, over $20 trillion in global fossilfuel assets may be stranded as countries pass climate change legislation. To date, investor and consumer concerns about stranded costs have delayed the adoption of carbon pricing schemes, spurred the rejection of greenhouse gas regulation altogether, andformed the basis for bankruptcy filings, takings litigation, and demands for relief This article makes four contributions. First, it clarifies that under the existing tax and regulatory rules, the economic benefits of substantial tax subsidies are currently being passed forward to consumers, artificially reducing fossil fuel electricity rates, encouraging waste, and increasing emissions. Second, it quantifies the extent of stranded assets held by public utilities in the United States, pulling data on unrecovered capital from the securities filings of the fifteen largest firms in the country. Third, it argues that U.S. tax measures have left fewer assets to be stranded, identifying $110 billion in accumulated deferred income taxes or ADIT, the tax savings from deferral, as a source of recovery. Finally, the article proposes a change in tax and regulatory policy that will enhance efficiency, remove one of the supports for carbon lock-in, and help manage the threat of stranded assets, smoothing the transition to a carbon-neutral economy. * Tracey M. Roberts, Associate Professor, Samford University, Cumberland School of Law, A.B. Harvard College, J.D. Vanderbilt Law School, LL.M. New York University School of Law. The author wishes to thank Michael Vandenbergh for organizing the Renewable Energy in the Southeast conference at Vanderbilt University Law School, the George Mason University Antonin Scalia Law School's Law and Economics Center for their Workshop on Empirical Methods, the participants of the 10th Annual Meeting of the Society for Environmental Law & Economics, the 16th Annual Meeting of the Midwest Law and Economics Association, the 2019 Law and Society Association Annual Meeting, and the 20th Global Conference on Environmental Taxation for their thoughtful feedback, and Adam Chodorow, Mirit Eyal-Cohen, Daniel Cole, Mike Floyd, Jonathan Foreman Josh Galperin, Michael Gerrard, Mitchell Kane, Ben Leff, and Larry Zelenak for their valuable comments and suggestions.

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