Utility Dive, Opinion: Steel-for-Fuel, Data-for-Fuel, and Other Good Ideas for Asset Retirement
Carl Linvill, principal, and Megan O’Reilly, associate, at the Regulatory Assistance Project contributed this article Utility Dive.
Excepted from Utility Dive on March 18, 2019. You can read the full article here.
This article focuses on three important elements addressed by steel-for-fuel:
- The need to retire obsolete coal assets and determine the allocation of stranded costs in so doing;
- Use of a securitization approach, which can reduce the cost to ratepayers of retiring the stranded asset while offering utility shareholders acceptable but not excessive recovery of sunk costs; and
- The need to then design a replacement portfolio aligned with state policy objectives — and to recognize that “steel in the ground” may not be the only ingredient in this portfolio.
Collaborative processes like the e21 initiative in Minnesota and the power sector transformation process in Rhode Island are good, inclusive forums that allow competing objectives, alternative solutions and appropriate performance metrics to be comprehensively considered and evaluated.
Securitization is a powerful strategy, and the Steel-for-Fuel approach was well-executed in Colorado. But that does not mean this approach is universally applicable. If applied injudiciously elsewhere, it could result in solutions that cost too much and inappropriately transfer risk to ratepayers.
Securitizing obsolete assets well requires simultaneous attention to several things: stranded asset cost-sharing, an open competitive process that puts all steel-based and data-driven solutions on the table and consideration of utility business models that reward the utility appropriately for offering a platform that lets the best solutions emerge.