ORIGINAL REPORTING: Securitization fever: Renewables advocates seize a Wall Street way to end coal
Securitization fever: Renewables advocates seize Wall Street's innovative way to end coal; New laws passed across the country allow customer-backed bonds to pay off stranded coal assets in favor of renewables, but utilities are hesitant.
Herman K. Trabish, May 28, 2019 (Utility Dive)
Editor’s note: The idea of issuing bonds secured by utility assets to finance the energy transition is gaining traction nationally.
With the cost of building new renewables now lower than the cost of operating most existing coal plants, the major remaining obstacle to this energy transition is resolving the financial burden of stranded coal assets.
State legislation — like bills recently passed in Montana, Colorado and New Mexico — can give coal-owning utilities the option to issue bonds secured by the certainty of customers paying their bills. This financial strategy, called securitization, has attracted over $50 billion from investors to resolve other utility obligations, and can be used to pay off stranded coal assets.
Accelerated depreciation, which more quickly resolves the stranded financial obligations, has also been used to transition from coal to renewables. But it imposes rate increases on customers. Securitization avoids rate increases by using new capital from bond sales to pay off obligations. But it can impose losses on investor-owned utility (IOU) shareholders.
Utilities prefer accelerated depreciation, they told Utility Dive. Some renewables advocates also oppose securitization’s excusing of utilities from the burden of imprudent coal investments. But many renewables advocates see securitization financing the transition from coal while protecting ratepayers and coal-dependent communities. Securitization is an option in 24 states and has been used in 65 IOU transactions involving $50.9 billion in bonds, according to Saber Partners CEO Joseph Fichera.
While it hasn't been used yet for a coal plant closure, securitization has been used to smooth deregulation, reduce renewable and distributed generation costs, defer utility debt and finance pollution control upgrades, nuclear plant losses and storm recovery, Fichera said. A bill passed March 21 in New Mexico designates it for use in shuttering PNM's San Juan Generating Station.
Securitization can be used to retire uneconomic coal generation, Energy Innovation Director of Electricity Policy Mike O'Boyle told Utility Dive. To fully cover utilities' losses, regulators in Colorado have allowed accelerated depreciation. But that increases customer bills in the short term, while securitization "rebalances the scales in favor of consumers," O’Boyle co-author on three securitization policy briefsand former Colorado Public Utilities Commission Chair Ron Lehr told Utility Dive. Bonds issued through securitization give utilities capital to reinvest in a 'Steel for Fuel' exchange of coal assets for renewables assets that can earn comparable returns, Lehr added… click here for more
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