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Consumer and industrial customer advocates want new legislation to encourage utilities to refinance leftover debt as they retire fossil fuel power plants.
Wisconsin utilities this month announced they will retire one of the state’s largest coal-fired power plants in 2024.
Now, ratepayer advocates want to make sure its owners don’t continue collecting profits from utility customers for another two decades.
The expected closure of the 1,110-megawatt Columbia Energy Center and other fossil fuel plants in the coming years has utility customer advocates calling for expanded use of securitization, a tool for refinancing coal plant debt with low-interest bonds to relieve ratepayers from the burden of stranded costs.
“Is it being used to keep the lights on?” Citizens Utility Board Executive Director Tom Content asked of closed plants. “If it’s not being used to power our devices and power our businesses, should the utilities still be earning a return? That’s the crux of it.”
Securitization isn’t new in Wisconsin. It was used to mitigate part of the ongoing cost of the Pleasant Prairie coal plant that closed in southeastern Wisconsin in 2018. A voluntary program created by a 2004 law allows utilities to issue bonds to cover the cost of past investments in pollution controls. We Energies, a subsidiary of WEC Energy Group, agreed to use securitization as part of a settlement with the Citizens Utility Board, Clean Wisconsin, and the Wisconsin Industrial Energy Group.
Utilities have typically been resistant to using securitization, though, and the Pleasant Prairie settlement was the first time that the law was used. An earlier attempt to convince We Energies to use securitization on Pleasant Prairie’s debt failed, recounted Todd Stuart, executive director of the Wisconsin Industrial Energy Group and a former legislative staffer who worked on the 2004 law.
Stuart and others would like to see new legislation to expand the use of securitization to cover more than just pollution control investments. In lieu of that, they at least want utilities to use securitization as spelled out in the 2004 measure.
Stuart said the issue has major ramifications for industrial customers, who typically pay a million dollars or more each month in energy bills — often making up the largest slice of their total costs.
“Very small pricing differences can make a difference between being competitive and not being competitive,” Stuart said. “It’s a big deal for a lot of these companies,” including foundries, paper mills, and other factories that make Wisconsin among the country’s top states for manufacturing jobs.
Costs huge and growing
Alliant Energy, the majority owner of the Columbia plant, still has about $500 million in undepreciated costs on that plant, which ratepayers will continue to pay under the current policy through 2038. Madison Gas and Electric Co. and Wisconsin Public Service, a WEC subsidiary, control another about $450 million in undepreciated costs on the plant.
Another Alliant plant closing next year, a 380-megawatt unit at its Edgewater facility in Sheboygan, also has hundreds of millions in stranded costs. Additional coal plants and natural gas plants are also expected to close in coming years, including the South Oak Creek plant near Milwaukee owned by We Energies, by 2025.
“The pile of stranded costs keeps getting bigger,” Content said.
Customers are expected to continue paying those costs on top of costs for utilities’ recent clean energy investments. WEC this month announced a new 310-megawatt solar and battery storage project, the biggest in the state. Meanwhile, Alliant has planned 1,000 megawatts of new solar in Wisconsin by 2023, which will make it the state’s largest solar provider.
Since the pandemic delayed proceedings last year, the state’s five major utilities are all scheduled to have rate cases this year, in which payments for coal plants will be debated and settlements involving securitization could theoretically be reached.
Consumer advocates point to the Pleasant Prairie settlement as a victory that could pave the way for additional settlements utilizing securitization. The arrangement, covering only pollution control, saved ratepayers about $40 million on a $100 million investment, according to the Citizens Utility Board. (Securitization doesn’t entirely let ratepayers off the hook; rather, they may pay to cover the low-interest bonds instead of the higher-interest debt.)
Stuart noted that roughly $800 million in pollution control upgrades were installed at the Columbia plant as part of a 2013 settlement for air pollution violations — making up a large share of the nearly $1 billion total costs that ratepayers may be billed for. While the existing 2004 law could let Alliant use securitization on much of this debt, advocates still want to see the prospects expanded.
It appears legislation would be needed to facilitate wider use of securitization, including by making sure the bonds offered would secure a top rating. Stuart noted that utilities could potentially agree to lower their rate of return or otherwise relieve some of the burden on ratepayers for stranded assets without securitization, but legislation would ideally help codify such processes as well.
But he noted the state is dealing with pandemic fallout and that passing any laws can be difficult with a Republican-dominated legislature and Democratic governor.
“It’s really important to have all the parties on board and singing from the same hymnal,” Stuart said. He thinks passing legislation is more likely in a future year, and this year a settlement using existing options — like the 2004 statute — may be customers’ best hope.
Consumer advocates have long argued that companies and investors should not be essentially rewarded — with a guaranteed rate of return — for spending money on pollution controls that they were mandated to install, in some cases after lawsuits or environmental violations, as at the Columbia plant.
Advocates also say that customers should not have to pay for coal plants that are no longer supplying them energy, especially when they are also paying for new, often renewable, energy sources, and especially when recent coal plant expansions or updates may not have been the wisest use of funds to begin with. In a regulated state like Wisconsin, critics argue that utilities face little risk and stand to benefit from continuing to invest in coal plants despite environmental pollution and questionable economics.
“Obviously renewable and storage are technologies that are most economical right now — fossil fuels are definitely not economic,” said Katie Nekola, general counsel of Clean Wisconsin. “If we’re going to have ratepayers on the hook for anything, it should be the least-cost and most environmentally protective technologies available.”
Depending on the laws and policies in a state, securitization doesn’t necessarily guarantee that savings obtained through the bonds will be passed on to ratepayers; advocates in Indiana are concerned about a securitization bill that does not ensure ratepayers benefit.
In addition to reducing costs to ratepayers, advocates often also want to see securitization legislation mandating or encouraging utilities to use revenue from the bonds to help transition the state to cleaner energy. This can be through direct investment in clean energy, job training for workers displaced from the coal sector, and aid to communities impacted by coal plant closures.
Content said securitization is key to making sure clean energy can be phased in without hurting residents.
“Many customers are embracing clean energy, solar is a coveted resource,” he said. “But you can’t just flip a switch and make a transition happen overnight. To have transition we can all feel was not only important but cost-effective, we need to be dealing with these retired coal plant costs.”