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Stranded Assets

How did engine 503 become a stranded asset?
20160410 engine walton
Engine 503

The problem, Bob said, is that we are creating too many stranded assets. Bob is one of the regulars at our morning coffee group down at Tim’s. Bob reads a lot, maybe too much, and then gets hooked on something, and like a rat terrier, won’t let go until he studies it to death and bores us with his explanations. He was using his stranded assets theory as another reason why he did not want a new gas / oil pipeline running near our city.

Quoting ‘evolving social norms’ and our desire to be rid of fossil fuels as an example, Bob says building new pipelines or transportation systems to deliver fossil fuels makes no sense since we will stop using said fuels long before the value of the asset (rail cars, pipelines, storage tanks) have been depreciated by age or wear. Why would anyone support a business that is investing in things that will become stranded assets?

Bob knows just enough about accounting to be dangerous and when he said that these stranded assets would require a write-down of profits and a resulting loss to shareholders, he had some of us coffee-time investors worried. Then he added that new government regulations could also result in a company suddenly having stranded assets. That was a concerning revelation. How could a government to that to us? Carbon pricing? I thought that was supposed to help us, I said.

Then Bob dropped the bombshell that lawyers and litigation could also create stranded assets. I was going to ask how litigation could affect our investments but I thought if lawyers were involved, it was most likely true.

Apparently even service industries could have stranded assets. Bob explained that technology, even in desktop computers for example, created a measure of stranded assets. Companies invest dollars in a device that should last eight or ten years and find that in three years it is ‘obsolete’. They cannot keep using a perfectly good system because their competitors are using something newer, faster and cheaper. Write it off as a stranded asset. Just consider how many old steam engines and aircraft are sitting on pedestals around our town - all just stranded assets, according to Bob.

Jack, who taught Sociology and Human Resources up on the hill before he took an early retirement package, said he had warned for years that we were creating human stranded assets when we taught courses that had no practical use in the modern world. Worse still, he said, was that when companies did not re-train their people on new systems, they stranded their employees (‘our best assets are our employees’) in jobs that would disappear along with the old technology they had been using. How many people had been ‘retired’ out of a company while they still had many useful years ahead of them? We were not certain whether Jack was speaking of his own experience or not.

The problem, we resolved over the second cup of double double, was that we cannot look that far into the future with any certainty. We have to invest in the assets and technology of the day to keep our economy moving. If we worried too much about stranded assets, nothing would evolve. It seems many dreams are made of stranded assets.

Although the City does not account for assets, that may have been what Councillor King was thinking of when he said we should not be putting ‘assets’ in the ground for something that may never materialize. Pipelines for fossil fuels and water and sewer lines for un-built houses might have something in common if we rural northern cities keep exporting our people assets south to the big smog.

Which started me thinking about my own stranded assets. Things I had bought (I told my wife they were assets at the time) and no longer use. That pair of genuine leather-webbed snowshoes, for instance. The cross country skis hanging on the joists downstairs in the storage room. My hockey skates and baseball glove. All those LP records and the turntable, amp and speakers that are gathering dust in the storage room. We may have to donate more stranded assets to the Warriors’ garage sale in the spring.

All one has to do is take a drive in the countryside to see hundreds of stranded assets abandoned near the barns and sheds. Old cars and trucks; even tractors and farm implements. In fact, one might even consider the fields that are going fallow and turning into wasteland, full of alders, willows and goldenrod. Some hard-working person turned that land into an asset fit for crops or pasture. The present owners have abandoned the asset, stranding it by non-use.

Houses, barns, empty warehouses and stores are stranded assets that people once used, if not for commerce, for raising a family. Those buildings were most often abandoned before their economic value reached zero. That might be like our old hospitals that were physically stranded in the heart of the City and needed to be demolished. However, the Provincial government, like the City, does not have assets on the books so that was just our money down the drain.

The conversation got around to stranded debt and we all knew about that since our hydro bills had that line right there for us to complain about. The conversation must have notched up a little in volume because the assistant manager came by and asked us to keep it down so the clerk on the drive-thru window could hear the customer’s orders. Bob tried to explain to us that the City calling in the Hydro’s stranded debt and moving the resulting money into stranded assets was a good thing but I left before we had a consensus on that. I had a jigsaw puzzle that needed some serious work at home.

I wonder if our 15 or 20 old jigsaw puzzles could be stranded assets. They are still useable and although the original purchase price of what seemed like an entertainment asset at the time was less than $20, they still had value. The one with the missing cloud piece, not so much, but still . . . There should be line on my personal income tax return for writing off things like my stranded assets. Just saying.

 





Bill Walton

About the Author: Bill Walton

Retired from City of North Bay in 2000. Writer, poet, columnist
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