“Securitization” or Ratepayer Obligation Charge (“ROC”)Bonds for Stranded Coal and Other Fossil Fuel Plants

Opposition to CO HB19-1037—“Securitization” or Ratepayer Obligation Charge (“ROC”)Bonds for Stranded Assets

These talking points will be revised as more information about the bill becomes available.

Representative Chris Hansen introduced his “securitization” bill (HB19-1037) on Friday January 4, 2019.  It’s important to think very carefully before signing on to this bill with some of the reasons to oppose the bill discussed below.

The full name of the bill is the Colorado Energy Impact Assistance (CO-EIA) Act and the bonds that it would enable are often referred to as Ratepayer Obligation Charge (“ROC”) bonds. The bill is inequitable in that it effectively transfers all of the accountability for Xcel’s decisions to invest in coal plants from Xcel to Xcel’s customers, and largely to the next generation which had nothing to do with the decisions to spend money on coal plants.

Xcel is on track for over $500 million in after-tax net income in 2018; they can afford to bear some accountability for their ill-advised and cavalier decisions to spend about $1.5 billion on Colorado coal plants in the 21st century—and to reap the profits that flowed from those expenditures.

The bill could be regressive since it sets up a non-bypassable charge for utility customers. This could mean that small users of electricity could be responsible for paying as much as large users in the same class (otherwise customers could reduce the size of their payments by reducing their use of electricity which would threaten the ability to pay off the bonds). While it is unknown how the PUC would set up the CO-EIA charges, there is a distinct risk that low-usage and low-income customers would be paying the same amount as larger and higher income customers. Moreover, if solar plus storage technology evolves in the way that many people expect it to, this could lead to customers leaving Xcel’s system leaving those that are less well-off behind on the system and now responsible for all of the ROC charges, making the securitization bonds increasingly regressive as we go through the coming decades.

The sequence is wrong; we need community and worker transition now–not 5-10 years from now.  Now is the time for Colorado, the Governor-elect (or the Legislature) to initiate a discussion of transition planning for coal-dependent workers and their communities now–not 5-10 years now as envisioned in the CO-EIA bill (HB19-1037). Northwest Colorado (e.g. Hayden, Craig and Moffat and Routt Counties) are particularly dependent on coal and with the coal mines playing out and the coal plants no longer being cost-effective, Colorado leaders should be initiating a discussion now of how these workers and communities can best prepare for the inevitable transition away from coal over the next decade.

There are more direct ways to accelerate coal plant phaseout. If the Legislature wants to accelerate the phase out of coal plants it can pass a law that does that more directly–e.g. by introducing legislation directing the PUC to consider the health and environmental impacts of coal burning and to create plans for reducing reliance on coal, consistent with maintaining grid reliability. (Coal plant phaseout doesn’t have to be through full retirement, it could be through reduced utilization or what is known as “capacity factor” for Xcel’s coal fleet allowing Xcel to keep the coal plants for a period of time while they experiment with ever higher levels of renewable energy, storage and demand management options.)

There are more direct ways to reduce the carrying charge for stranded assets. If the legislature wants to reduce the carrying cost for coal plants that are either retired prematurely or being largely unused, it can pass a law directing the PUC to reduce the return on investment to something like the cost of debt. There are many ways to structure reduced carrying costs for assets that are no longer used or used very little. This Legislature can help reduce costs to Xcel customers by addressing this issue directly.


Possible Amendments to a Securitization Bill


(HB19-1037—Colorado Energy Impact Assistance (“Securitization/Ratepayer Obligation Charge Bonds))

  1. No more than 50% of a power plant’s value can be securitized. The PUC shall determine the proper amount, given what the utility knew or should have known at the time the power plant investment was made and the remaining life on the plant. The PUC is specifically authorized to remove all or some of the remaining depreciation on fossil fuel assets ​from the utility’s revenue requirement/”rate base” determination.
  2. Securitization may not be used for fossil fuel resources acquired after the effective date of this legislation.
  3. Ensure that CO-EIA charges are as minimally regressive as possible (not sure how to do this…)
  4. At least 15% of the utility capital freed by the securitization process shall be used to support distributed and low-income solar projects.
  5. Savings from securitization not used for Energy Impact Assistance or for distributed and low-income solar projects will be passed through to ratepayers, not kept by the utility.
  6. An investor-owned utility that pursues the securitization path shall have its Return on Equity adjusted by the PUC to reflect the fact that the risk of utility investments has been lowered by the availability of the securitization process.
  7. Any projects that will replace a securitized asset shall be put out to bid and any such projects that will be owned by the utility using securitization shall not be more than 10% more expensive than the lowest bid project that met the utility due diligence standards but which was not accepted by the utility.

Proposed Replacement Bill(s) for HB19-1037

(“Securitization/Ratepayer Obligation Charge Bonds”)

I) Bill/Executive Order Creating Task Force to Begin Transition Planning for Coal Dependent Workers and Communities in Colorado  

II) Bill Directing the PUC to Develop Electric Plans that Get Xcel and Black Hills to the Lowest Possible Levels of Fossil Fuel Generation ASAP Consistent with Cost and Reliability Considerations

  1. Consider external costs of fossil fuels, including climate impacts
  2. Use discount rates of 5% and 3% in decision making
  3. Ensure minimum PVRR (not just “lower” PVRR; but find “lowest” PVRR). PVRR = Present Value Revenue Requirement—think cost to customers)  

III) Designate that for Utility Fossil Fuel Generation Assets (Coal and Natural Gas) that Are Used Less Than 10%:

  1. No more than 50% of undepreciated asset will be included in the utility’s revenue requirement; and
  2. The return on the remaining undepreciated asset will be set at the cost of debt (specify time frame)