Structural Separations-Structural Surpluses

A system whereby the competitive and non-competitive components of the sector are provided by separate entities, which may be under common or separate ownership. This is a more comprehensive division of responsibilities than provided under “accounting separation” when there is common ownership. The latter only keeps the accounting for different businesses or parts of businesses within companies separate. The result is that costs and revenues can be identified with their associated enterprises. Nevertheless, some cost allocations associated with shared costs can present problems. Structural separation provides a stronger “wall” between different business activities. The purpose of such arrangements is to reduce the likelihood of cross-subsidization whereby the non-competitive activity subsidizes the competitive activity; if that is allowed, the entity providing such services is in a position to dominate a market that is potentially competitive.