Opinion: Is this really Colorado’s plan for clean energy?

Last week I testified at a Colorado legislative committee hearing regarding HB19-1037, the “securitization” bill. This arcane but important concept emerged as many states shifted from supplying electricity through regulated monopolies to competitive systems, where customers and communities have choices as to where they get their power. As a result, these monopolies lost their captive markets, so their uncompetitive power plants built under the old regulated system no longer had customers. But the utilities had relied on the regulatory structure to provide a guaranteed revenue stream, so the states had to cover the utilities’ losses to avoid “regulatory takings,” where utilities are involuntarily deprived of something they relied upon.

Securitization was a way to reduce the cost of solving this problem: Bonds were sold that had backing from a governmental entity. The proceeds paid off the utilities for their remaining investment in these plants; the bonds were then paid off by the ratepayers. This governmental backing made the bonds more secure and so significantly cheaper to issue than the utilities’ own equity or debt, saving the ratepayers some money.

The concept re-emerged here in Colorado a few years ago, because the electricity from wind and solar was becoming cheaper than even just the operating costs of existing coal plants. If these plants were subject to a functioning market, the utilities that owned them would not be able to sell their power, and even if they could, they would have no revenue left to pay off the stock- and bond-holders that had invested in these plants. (Typically these plants have been financed with both equity and debt and paid off through regulated rates over many decades, including a return on equity and interest on the debt for the unpaid-off portion.)

This securitization concept sounds like the perfect energy plan — consumer choice, competitive power, rapid conversion toward renewable energy and shutdown of CO2-emitting coal plants, and stable or lower electric rates. The problem is that HB19-1037 does none of these.

First, it does not require coal plants to be shut down as soon as possible. It leaves it up to the utility to decide if and when to use this approach. So the utility gets to set the schedule that works out best for it, which may mean decades of waiting.

Second, it does not create a competitive system where customers get to choose clean energy at the lowest price. In fact, it reinforces the monopoly utilities’ position by allowing them to instantly recover their money invested in coal plants (if they ever choose to shut them down), reinvest it in other power systems they would own (the bill does not require them to be renewables), and continue to charge monopoly rates.

Third, it does not really reduce costs. It leaves in place the outmoded system we’re under currently, where the utility is rewarded with a high (and almost guaranteed) return on equity calculated as if there were real risk, even though in reality there isn’t. For example, the $400 million that Xcel invested in refurbishing coal plants under the misnamed 2010 Clean Air-Clean Jobs Act was protected from such risk, because the act’s language asserted a “presumption of prudency” for these investments, thereby eliminating any legal grounds to cut returns.

Fourth, it fails to hold Xcel even marginally responsible for building Comanche 3, a recently completed billion-dollar coal plant, when it was crystal clear that climate change was a serious reality. Under this bill, existing and future ratepayers could be forced to cover 100 percent of Xcel’s remaining investment when this plant is throttled back or shut down.

Fifth, given all the above, this bill is completely unnecessary. A dead coal plant is just a hole in the ground to fill with ratepayer money. The utility’s risks are gone, because there are no more decisions that could be found “imprudent.” So the Colorado Public Utilities Commission could simply pay the utility a low rate of return, like any other essentially risk-free investment would earn.

The bill also attempts to undercut any city that chooses to municipalize as allowed under the Colorado Constitution, because the bill (probably illegally) puts such cities on the hook for these securitization bonds, even though the bonds might not be issued for a decade or more. And the bill creates serious equity and Taxpayer Bill of Rights issues by attempting to add charges to people’s electric bills to compensate jurisdictions with shut-down coal plants for lost property taxes and provide re-education for workers. But even with all these problems, the committee passed the bill.

Steve Pomerance is a former Boulder City Council member. Email: stevepomerance@yahoo.com.