Vertical Separation

Separating a firm that had been characterized by vertical integration into several parts. For example, public policy might separate electric generation, transmission, and distribution functions of a utility into separate, stand alone companies. On the practical side, if a restructuring initiative is adopted (to un-bundle what was traditionally a vertically integrated industry), policymakers generally try to address the issue of how to deal with the lost economic values of company assets that are affected by the policy change. For example some U.S. states have imposed competitive transition charges to have consumers bear some of the burden of moving to a new market structure and new regulatory framework (sometimes labeled stranded costs). Revenues from these charges are used to compensate companies for the diminished economic value of their assets due to the restructuring initiative.