This paper goes further with the aim at demonstrating the capabilities of the thermoeconomic approach to the diagnosis of energy utility systems. This paper deals with a common vocabulary, definitions of concepts and mathematical principles, and above all, focuses on the concept of malfunction, starting from an engineering point of view and then shifting to a pure formalization as thermoeconomic parameters. Possible malfunctions of components of a combined cycle power plant are described in this part in terms of causes and effects. In addition, the main theoretical aspects of the thermoeconomic approach are shown. In particular the fuel impact formula, which constitutes the main thermoeconomic tool for quantifying the effects of degradation, is discussed. (C) 2004 Published by Elsevier Ltd.