Securitization of Coal Plant Retirements: Implications for Just Energy Transitions

Abstract

Climate change and its destabilizing effects are already here. Yet there is a chance to prevent even worse scenarios if carbon emissions can be quickly and drastically reduced, especially in the carbon-intensive energy sector. While the need to transition to low-carbon, renewable sources of energy is urgent, many legal, political, and economic barriers stand in the way of an efficacious and equitable shift away from fossil fuels to cleaner energy sources.

One such barrier involves the massive investments that have already been made in now-obsolete energy infrastructure. Ratepayers are still paying for initial construction and improvements to coal-fired power plants that produce one-fifth of the nation’s electricity. To retire those plants for new, clean energy infrastructure would risk saddling ratepayers with the costs of new infrastructure while they continue to pay off debt associated with plants that are no longer operational. Quick shifts from old to new energy infrastructure also pose a risk of severe economic displacement to coal-reliant workers and communities.

This Essay assesses a financial tool that states have begun to use to incorporate equity for ratepayers into transitions away from coal-fired power plants: securitization. Securitizing rate payments allows utilities to refinance their debt at a lower cost. This means that even though ratepayers do pay new costs for clean energy infrastructure, these costs are lower, and the ratepayers are relieved from paying for all or part of the remaining value of the coal-fired power plants. Some securitization laws also offset losses for coal-reliant workers and communities, embracing a “three-part approach” to securitization: shift to clean energy, refinance infrastructure debt, and provide transitional financial assistance. The Essay surveys recent state action enabling securitization and evaluates the efficacy of certain features of those statutes. It argues that securitization could be an important piece of the puzzle in both reducing opposition to the coal phaseout and facilitating an equitable distribution of costs and benefits in the process. However, variations in the specifics of these statutes can impact the extent of the benefits to the environment, ratepayers, workers, and communities.

Keywords: energy, coal plants, just transitions, community economic development, climate change, climate mitigation