Should Big Utilities Pay for Their Bad Choices? — Episode 124 of Local Energy Rules

Date: 24 Feb 2021 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

An advocacy group in Boulder, Colo. has made the case for why utilities, not customers, should be responsible for the cost of retiring fossil fuel assets.

For this episode of the Local Energy Rules podcast, host John Farrell speaks with Leslie Glustrom, an advocate with Clean Energy Action in Boulder. They discussed Clean Energy Action’s white paper on utility accountability and how we can equitably transition to a clean energy future for a recent episode of ILSR’s Building Local Power podcast, republished here for Local Energy Rules.

Listen to the full episode and explore more resources below — including a transcript and summary of the conversation.

Leslie Glustrom: Yes. I think as we look at the challenge before New Mexico, before Colorado, some extent before Minnesota and many other States, there is an array of, of tools that can be used, an array of alternative approaches. But I think the citizens and the advocates will need to be empowered to ask those questions. That’s why we wrote the report along with the Institute for Local Self-Reliance and several other organizations that are supporting it, is to just begin the process
John Farrell: Just because an electric utility has a government granted monopoly, does that mean it shouldn’t bear the consequences of its bad decisions? A new policy idea called securitization aims to allow utilities to refinance and cut the costs of aging, fossil fuel power plants, helping them to retire early, but while the practice can save the utility and customers money, the key question is whether utility gets all its money back, especially if its decision to build, keep the power plant wasn’t in its customer’s best interest. Leslie Glustrom, energy expert and longtime advocate with Clean Energy Action joined me in December, 2020 to discuss her new report; Privatizing the Risks and Not Just the Profits: How to Truly Retire Coal Plants, Fossil Fuel Assets, Early and More Equitably. Quick note: this podcast is a rebroadcast from ILSR’s building local power podcast. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this is Local Energy Rules, a biweekly podcast sharing powerful stories about local, renewable energy. Leslie, welcome to the program.
Leslie Glustrom: Thanks John, great to be here.
John Farrell: You have been working for years and years advancing the cause of clean energy in Boulder. I was hoping you could start by just explaining a little bit about how did you get into clean energy work and, and why have you been so focused, as so many people have been in Boulder, on this idea of local energy, as well as clean energy.
Leslie Glustrom: Thanks so much, John. Uh, uh, some people know my actual background is as a biochemist, I’m trained as a biochemist. I always been interested at the interface of science and society. So I’ve worked on a wide array of issues in my now relatively long life – I’m in my sixties. So I’ve worked on everything from radioactive waste to livestock grazing on public lands to a lot of other things. But for the last almost 20 years, I’ve worked almost solely as a volunteer advocate on climate change and clean energy as a biochemist and someone who loves the natural world and a deep sense that we only know of one planet that supports life. There may be other ones out there, but they’re a long ways away that there, this planet is really priceless. And so about a little less than 20 years ago, as our children were in college, I said, I’m no kind of mother if I don’t do everything I can to address what was clear to me was a looming crisis in the livability of this planet.

So in 2004, with two kids in college, my husband a teacher, I resigned from my job doing biochemistry research and devoted full-time to climate change. So if you’re care about climate change and you want to actually do something about it and not just study it, then obviously decarbonization, which is now a word that’s widely used, but not wasn’t one that was widely used when I began you, you go there now, a lot of the inventories have been done, but back then we just thought, well, electricity burning coal, all of that is very likely the largest source of greenhouse gas emissions. So while there are literally millions of things we need to do to find a new way to live on this planet, we tried to simplify this as number one, decarbonize your electricity, number two, decarbonize your transportation, and number three, do everything else. And it’s been confirmed over and over and over again that really focusing on decarbonizing electricity is the first, the most cost effective and the most generally effective approach. So I always say in our, all of our endless meetings here in Colorado and I work with people around the country, I’m like, I’m a biochemist ask me about protein structure. I actually know more about that than I know about a lot of these things, but you are forced – And I think that’s one reason these podcasts are so helpful because it can help people realize that we all end up kind of coming to these same realizations, even though we come from many different places. And just watching Jonathan Scott’s power trip. But I, I strongly recommend it because you just see all these people from all these walks of life, coming to these principles, that Institute for Local Self-Reliance has done such a remarkable job of pulling together all these threads, cutting across many sectors of our economy and helping people think about a new vision. And so I just want to thank ILSR for that. So that’s how I got started in clean energy and monopolies and securitization and coal and all of those things.

John Farrell: Let’s talk a little bit about this specific issue of securitization. First of all, I just want to salute you and even be, even becoming an advocate who can understand the issue, I think is something to be proud of because it is, it’s a complex financial instrument, unfortunately. I’ve heard it described by some folks as basically like refinancing a house. You know, you take the existing debt and you try to go out and get a cheaper interest rate. And then with the savings, you try to do something different. Can you explain a little bit about how does securitization align with this goal of decarbonizing the electricity system? Why are we talking about securitization? What can it do?
Leslie Glustrom: Well, I want to be really clear. I see securitization, which I’ll describe a little bit more as a tool, like all tools. There’s a time to use it at a time to not use it. I sometimes refer to it as a sledgehammer. Sledgehammer is a tool too, but you don’t usually want to start with a sledgehammer when you have whatever you’re trying to get done. And so it’s, again, I am not a financial person in any way, shape or form. I’m a mom who’s trying to understand these issues. And here we go. So the concept behind securitization as you described is that when we retire, for example, coal plants, before they’re at the end of their useful life, you have money you still need to pay off: the underappreciated portion of the asset. And the concept behind securitization, the benefit of it… Now I’m here to talk about why we need to be careful about using this tool, but just to begin with the benefit, the benefit of it is that when we pay off undepreciated assets in say a coal plant at the utilities cost of money, rate payers will typically be paying about 7%. So again, using the mortgage example, it’s like having a mortgage of seven or eight percent give or take – what’s called the weighted average cost of capital for utilities, an average of the class of their debt and of the cost of their equity. And securitization allows the issuance of bonds that are likely to have a much lower cost of money, perhaps in the 3 or 4%. So the advocates talk about going from paying 7% on the money to pay off this underappreciated coal plant. The part that hasn’t been paid off instead of paying 7%, you’ll pay 3 to 4%. Just like if you refinance your mortgage, your monthly mortgage payment will go down and that’s can be true. But I believe we need to begin with the question of who should pay off the underappreciated asset that the utility has. And that should be our first question.

The assumption tends to be that if the utility has an underappreciated asset, then their customers need to pay it off. And respectfully, only a monopoly would think like that because every other business that has a problem of whatever kind has to pay it off themselves, they have to write it off their books. They have to do all those things that that business is in the competitive world do. And respectfully only in these monopoly controlled utilities where they assume that somehow they can take frankly, the mistakes that they have and make their customers pay for it. And I’ll just there. We can continue on, but the, the bonds in the financial world are referred to as a ratepayer obligation charge bonds, or ROCH bonds. But I think those words, rate payer obligation charge, are important words because not many people…  like me, I’m a mom, right? I balance my checkbook. And after that, I’m, I’m kind of not a financial person. Let’s just say securitization is very, you know, like it’s scary. And that’s one reason I wrote this report is to try to begin the process of demystifying this. I think referring to these as rate payer obligation charge bonds makes it very clear that the end game is to have rate payers pay off the utility’s problem. While that may be a tool that we want to use, we should ask many questions before we think that somehow securitization is the key. And then just to go back, obviously, if you can pay off an underappreciated coal plant, 3 or 4%, instead of 7%, it makes it more cost-effective to do it. If we’re trying to accelerate the retirement of coal plants, that is one possible tool for doing it. There are many other possible tools, including having a utility own the mistakes. They are the ones who’ve made the profits for all these years. They can afford to bear some of the costs of, of this transition that we’re going through. They can more than barely afford to bear it, as we’ll talk about. But obviously we want to reduce, we want to decarbonize. We want to reduce our carbon emissions. I’m fully on board with that. I’m just not fully on board with assuming that rate payers should pay off utility’s mistakes.

John Farrell: So the report that you referenced that you’re working on now, but should be released by the time this podcast is out planned for release here in mid December, it was tentatively called Privatizing the Risks and Not Just the Profits: How to Truly Retire Coal Plants and Fossil Fuel Assets Early and More Equitably. And it is really a response to this conversation that we’re having about securitization, because it’s really been touted by a lot of folks as this is a great deal. You know, just like me refinancing my home can be a great deal for me. It seems like, Hey, if we can pay less to retire these dirty power plants, that’s a great deal. But as you highlight, the sort of missing piece of the conversation has been well, whose who owns things and who pays for them. Cause when I refinance my own home, I’m the only one that’s paying for it. There’s not any, there’s not some third party involved who initially bought the house and has been making investments in it or has been using my money to make investments. And I don’t know that the analogies are really going to hold up. The idea that a refinance is a good thing from that perspective, sort of trivializes that very important distinction between who’s owning things and making choices in the utility business under a monopoly system and when it’s happening with a home. So let’s dive into that a little bit. You’ve, you’ve already kind of alluded to this, but we’re talking about power plants that we want to retire because they pollute. And we’re talking about power plants who, somebody in an executive suite of a utility company decided that should be built at whatever time that they were built. So some of these power plants are older. Some of them are newer, as you say, there are some of same costs that we still haven’t paid in terms of paying off these power plants as customers, because we’re usually on the hook for that. And over 30 states, utilities are monopolies. And so they get to charge to their captive customers, whatever their regulators let them get away with. Why shouldn’t we as customers pay to refinance utility power plants. Why shouldn’t we be on the hook for that?
Leslie Glustrom: That’s a good question. And you know, obviously at this point, mostly utilities commissions will make this decision and they could decide that customers will pay for some or all of the fossil fuel plants. I’m going to use coal plants, cause that’s kind of what’s right in front of us right now. Customers may be required to pay for some or all of that. And if you paid at 4%, you’re better off than at 7%. But my argument is that we should first ask what’s the equitable resolution here. And, and so the utilities did make the decision to build these plants. They did make the decision to, in our case in Colorado, customers may need to pay off some part of these underappreciated fossil fuel assets, but in most businesses, if you’re caught carrying the fashions from five years ago and you can’t sell them, that’s your problem, right? And so the utilities commission are going to come up with some decision. I think it’s unlikely that they will force the utilities to carry the full burden of having built fossil fuel plants that are no longer wanted, needed, or cost-effective. But I don’t think they should also just assume that rate payers now are responsible for a hundred percent of this problem that utilities have had. So in my mind, it should be, we should first ask this question. And in some cases I’ll be honest. There are, there’s a big coal plant in this state where, you know, the utility knew from the beginning, they shouldn’t have build it. It’s supposed to operate till 2070 completely off scale. And we ought to be asking that question…
John Farrell: Is this the Comanche three plant by the chance?
Leslie Glustrom: Yes. It’s a big coal plant in Pueblo, Colorado. It’s, what’s called unit three in Pueblo. The utility refers to it as Comanche Three. And when we look at the analysis that we just came out last week by Emily Gruber did appeared in science. You know, we’re, we’re either the last or one of the very last coal plants planned for. I think it’s important that we ask ourselves, given what the utilities knew or should have known, should they have invested in a billion dollar coal plant that they thought would operate until 2070? So that’s kind of a Colorado specific question, but when we think about the national audience, if you’re in Georgia or Kentucky or South Carolina, or, you know, Utah, or wherever it is, you probably have a coal plant that has maybe a hundred or 200 million left on it that hasn’t been paid off. And all I’m trying to do is empower citizens and advocates to ask the question of what’s the equitable way to deal with what are referred to as the stranded assets from our fossil fuel era. And I believe the answer to be unique to each state and to each power plant, to each utilities commission, to each utility, but I want to empower citizens and advocates to ask that question and not assume that because the utility has a problem, the utility’s customers need to pay for that problem. No other business would ever make that assumption.
John Farrell: I think it’s really important that you raise this particular question at this time, Leslie, because I look at the kinds of news stories and disclosures that we’re hearing about the fossil fuel industry in general, that in the past few decades, they knew about the implications of burning fossil fuels, you know, since the seventies or the sixties, like they were even studying it themselves in the case of oil companies. And so it’s funny to me to think so number one, we have this issue of what did they know and when did they know it in terms of the decision-making process. And we have, unfortunately for a long time, let utility companies off the hook on environmental harm in terms of being able to produce electricity and not pay for the environmental impacts obviously. And I think there’s certainly an element of that to the kind of decision-making, but I feel like as well, what, and probably what has motivated you and it certainly motivated me. And a lot of the work that we’ve done is that there are a lot of cost-effective alternatives available in the last decade or two to building coal plants and gas plants while we’re at a point now where it is in fact generally cheaper to do those clean energy options. It was still at least competitive, and definitely when you take into account those pollution costs, even a decade or two ago. And to me that seems like one of those important questions about how much customers should be on the hook is to what degree could the utility have made a different choice at a similar price to deliver the same power to customers? And it seems that we’re going to have several examples, I would think, across the country where it would be the case that they could have made a different choice and could have avoided this situation. And therefore the customer should not be liable for all of the remaining costs on these power plants.
Leslie Glustrom: Yes, I think that’s exactly right. Thank you, John. I think you’ve said it very well. What did the utilities know? And when did they know it? So on a coal plant that was built in 1960 or 1970, I mean, they could have known… the science on climate change has been clear since the 1850s Eunice Foote look her up. She’s great. She figured it out in 1856, if I remember. So if they’d been paying attention, even in the 1960s and seventies, they definitely could have known that carbon dioxide was going to warm the planet with very powerful consequences. But if you build a power plant in the sixties or seventies, it’s pretty much fully depreciated. Now most of the profits have been taken. It’s a, it’s a, you, they were cheaper back then. So we’re talking 50 to a hundred million dollars. It’s not going to have a big impact either way. I still think it should at least be split. Um, but, uh, not a hundred percent, one way or the other probably.

But when as you get closer and closer to the 21st century, business, uh, the role of a business person, man, or woman, is to look ahead and to understand and to think about how markets are changing. And of course, when you’re a monopoly, you don’t do that as much because you’ve got this captive audience. And so I think it’s part of this discussion over securitization has also this discussion that Institute Local Self-Reliance has done such a great job of helping us think about monopoly and near monopolies and, and how that goes. So, yeah, I think it’s very important that citizens and advocates feel empowered to ask what did the utilities know? And when did they know it? And they could have known about climate change in 1850, so 1856. So, uh, and even a little earlier, actually. So, uh, but the closer it gets in time, the more responsibility they have. Um, and again, they’ve reaped the power. When we have regulated monopolies – investor owned utilities, they’ve reaped the profits from these capital expenditures known as coal plants, they’ve earned their 7%. So on a billion dollar coal plant the first year they got about 70 odd million in profits for having built a coal plant. That’s accelerating the destabilization of the climate of the only planet we know. I mean, how, I mean, it’s unconscionable to be making profits destroying the only home we know of. So, and, and this has been increasingly clear, I’d say by the early 1990s, it was really, really clear if you read the science. Now we all know the stories of what the utilities and the oil companies and everybody else did to obfuscate this, or we know some part of those stories, but what they knew or what they should have known when they knew it, they should have known it a long time ago. And many of them did know it a long time ago. The reports on What Exxon Knew, David Pomerantz’s report and What Utilities Knew from the Energy Policy Institute, are all important resources as, as citizens and advocates ask is key question that you’ve identified. What did they know? And when did they know it?

John Farrell: We’re going to take a short break. When we come back, we ask, what did the utilities know? And when did they know it about the follies of continued fossil fuel investment? And we get into the weeds of securitization. This is a Local Energy Rules podcast with Leslie Glustrom of Clean Energy Action.


John Farrell: I’m curious, Leslie, to what degree this might have been. This might’ve played out differently. You know, utility monopolies were set up a hundred years ago or a little longer because when we were doing it, it would be really conceived, was considered very inefficient to try to, you know, string up multiple sets of wires, teach residents, right? Like the, you have these networks that you’re building out, you didn’t really want lots of duplicative infrastructure. So we said, okay, well, we’ll give you protection from competition. We’ll let you have captive customers, even though that’s an anathema to our usual belief in free markets in this country. Um, and we stuck with it for a really long time. And I feel like we had this moment in the seventies where we really got a lesson in the costs of that kind of system where utilities got really burned by inflation because they were financing really big power plants that took a long time to build and cost overruns multiplied against higher inflation rates. And there were a lot of really terrible investments that utilities made 50 years ago. And I kind of always wonder about the counterfactual. What if instead of doubling down on monopoly at that point in the way that we did, a lot of states basically said, well, we’re going to have more oversight of how utilities plan and build power plants, that if we had said, why don’t we think about opening this up to competition? And there was one law that did that. The federal public utilities policy regulatory act of 1970, PURPA, did at least start opening up some opportunities for competitive generation. But I’m just curious, like, do you think things would have played out differently if we had really invested in, you know, by that time there were alternatives. I mean, there were solar panels put on the white house in the late seventies. Uh, there were wind turbines being put up in California. If we had gone that route, you know, two decades before we really started seeing states do it through mandates, might we be in a very situation now?
Leslie Glustrom: Yeah, of course we would have been in, of course the argument is, and thank you very much for that piece of history. And I would suggest to your listeners, the book Power Struggle by Rudolph and Ridley as a very good accounting, both of these big struggles over monopoly control in the early part of the 20th century, as well as what happened when utilities overbuilt invested heavily in nuclear power plants. It’s a great resource, again, Power Struggle, and the authors are Rudolph and Ridley. So, yeah, I mean, you know, we can play this game a lot. You know, what if, there’s all a few more than a few of those things we could say about our history. And one of the things I say is what if George Washington had given up, you know, he got beat a lot. Maybe he should have just given up. The King was really powerful, most powerful army and Navy, you know, Navy on the planet. Like what, why did they go and to die, advocates these days we suffer, but we’re not dying or sleeping in the cold. And so what if George Washington had given up and we were still part of England. Obviously this is analogous in a sense to this, frankly, battle we’re having over control of in this case energy, but Institute for Local Self-Reliance helps us see how it’s connected across all these segments of our economy.

So what if George Washington had given up and the King was still in charge? But he didn’t give up. And that’s an amazing story. Again, I encourage your listeners to go back and remind themselves what they all did and, you know, freezing in the, you know, in Valley forge and all of that. So I believe we need to continue on and yes, we fail. We did not take advantage… The obvious argument back then was, yeah, you could do solar, but that was solar thermal on the White House. And solar is too expensive. It’s 40 or 50 cents a kilowatt hour. And we can do coal for three. So you wouldn’t want to do something stupid, like make more people pay for expensive power. So those were those arguments back then, I think now we can see that again, the planet is priceless and we should have understood that because when you destabilize the climate of the planet, you destabilize everything, including government civil society. This is the most profound consequence of all, which is that we lose the ability to maintain stable states, which people all over the world already live with that problem. But when you start to think about, you know, the industrialized north, all of a sudden, not being able to maintain a stable government, stable society, and what that means is just profound. And we should have at least had a more profound conversation, but again, I’m either an economist in our time machine, so we can’t turn it back, but we can go forward.

And we do have another moment now in history where we can use this moment to ask the questions that you’ve just asked about the 1970s, and why I think securitization is one of the important kind of threads to pull on is because the way it’s presented and the response we’ve written, that you’ve mentioned, as a response to a report by the Rocky Mountain Institute, I have a lot of respect for the Rocky Mountain Institute, but in this case, I feel like they didn’t think deeply enough or broadly enough about where we are and this point in time and what our opportunities are. And in a sense, what are, it’s not just an opportunity, but it’s really an imperative to come up with a different structure. That’s both more equitable for customers and the providers, and also has a different topology, which brings us back to the local power story that Institute for Local Self-Reliance has told so often. And so well, when we rely on the big grid, we end up with big problems. Most recently, right before this podcast was recorded, we had a big snow storm in the Northeast and at least 200,000 people without power. We’ve had fires in California, fires in Colorado, fires in Oregon, and, you know, floods… the big grid is an amazing contraption, but it’s also a very, not very stable. You know, when squirrels can bring down the grid, you know, there’s a problem – to say nothing of fires and floods and massive snow storms. And as we move into this century with more and more extreme weather, I think it’s important that we consider that just continuing on and on and on with the big grid, big power plants, several hundred miles away from where you live, bring the electricity to your refrigerators and computers and TVs over big power lines that when the snow falls or the trees fall, or those big tornadoes or hurricanes or whatever, all of a sudden people are sitting in the dark. And obviously there’s another model kind of sprouting up underneath it. It’s often referred to as sort of a micro grid model, a more decentralized model where you’ve got solar panels somewhere, either on your roof, or on the school down the street, or on the grocery store or whatever, you’ve got some storage built in. And when the big grid goes down, these micro grids are often the one place where you can actually go and charge your phone, while the food rots in your refrigerator or whatever.

The one reason I think we want to have these questions asked now, at this moment in history, is that to continue the big centralized monopoly controlled structure is not only inequitable from an economic point of view, It’s also not wise. As we move into a new century, that’s going to be just characterized by one narrow way. You know, how many times have you heard on the news “we’ve never seen, we’ve had floods, but we’ve never had a flood like this; we’ve had fires, but we’ve never had a flood, a fire like this in Colorado.” It used to be a big deal to have a fire above 10,000 acres. This summer, we had three fires above 100,000 acres and one was above 200,000. That’s not going up linearly. That’s going up more exponentially. We have no idea how big the fires will be in 2030, 2040, 2050. And not only is that devastating from both, all the people who’ve lost their homes and all the animals who’ve lost their hair habitat, all the forests that we will lose, but the power goes out. And if we haven’t rearranged our electric system in a way that’s much more, the term is resilient, ability to continue to function in the face of these extreme weather events, I don’t even know how to think about it. What about when the fires are three and 400,000 acres all over Colorado and, and floods in the Midwest are just way beyond the floods that you and I remember from when we were kids. I think, yes, if we made that change in the seventies, we’d be in a different place, but I can’t turn the clock back, but this is now 2020. And it’s very important that people ask these fundamental questions. And securitization is one, because if we just securitize, we in a sense support the existing monopoly power structure with large centralized generation, and we will miss another amazing opportunity.

John Farrell: You know, we’ve talked about these, sort of three issues here. One is the sort of imperative to decarbonize and to address climate change, but then there’s this issue of equity and, and a kind of this issue of monopoly and decentralization that are at stake. Why don’t, why don’t we talk a little bit about what specifically in the report, in terms of the critique and a different approach to securitization, kind of like, how do we retire these in a, in a more just manner, these fossil fuel power plants? How do we also, so how do we do right by the communities and the workers and customers, and then what does, what’s a different future look like? And I keep thinking about, as you know, I don’t know if we want to talk specifically about this, but, you know, in New Mexico, they passed a law that essentially enshrined securitization and also essentially handed off all of the potential profits and benefits from clean energy to the utility, the same utility that made all the bad bets and said, not only are we going to let you extract from customers payment for the bad bets you made, we’re also going to let you make profits off of all the good things that we want. This bill… I think we don’t want to go there. I’m guessing that we share that opinion. I should also mention too, as far as this report is concerned that the Institute for Local Self-Reliance is signed on to it as a supporter of this excellent critique of this tool. But let’s, let’s talk about how, what a more just, and equitable approaches to using these kinds of tools to decarbonize the electricity system.
Leslie Glustrom: I think as we look at the challenge before New Mexico, before Colorado, some extent before Minnesota and many other States, there is an array of, of tools that can be used in array of alternative approaches. But I think the citizens and the advocates will need to be empowered to ask those questions. That’s why we wrote the report, along with several other, Institute for Local Self-Reliance and several other organizations that are supporting it, is to just begin the process. Again, I don’t hold myself out as an expert in any of this, but I wanted to help others begin to ask these questions and just to take sort of a spectrum of responses. First off, just in paying off the stranded assets, then we can talk about the workers and a lot of other things in terms of paying off the stranded assets. Typically, when a business has a mistake, they have to, they have to write it off. So that’s one end of the spectrum, which is the utility has to write it off. In Colorado, our local investor-owned utility, they’re part of Xcel in Colorado. They’re known as Public Service Company, Colorado, their old name and public service company of Colorado in 2019, which is most recent data. We have, they had 578 million of after-tax net income from Colorado. So after they’ve paid all their executive salaries and all of everything they do, frankly, some of the gold plating that they do, and a whole lot of other things, they still had $578 million leftover. So even if we had, in our case, let’s call it an $800 million problem, they could write it off in four years at 200 million a year and still have 300 million, over 300 million dollars of after tax net income. So they can certainly afford to do this. I’m not advocating for the utilities to bear a hundred percent, but you know, we could, maybe somebody tougher than I would do that. But I do think we can split it. You could just start 50/50 just because, you know, that makes life easy. Just we’re going to split it. The regulatory system failed our state here in Colorado. So we’re going to force customers who are represented by that regulatory system to pay half of it. It, it hurts me to say that because customers clearly had no meaningful involvement in this process. They tried, we had hundreds of people say, don’t build this new coal plant down in Pueblo that’s supposed to last till 2070, and we failed. So we could split it 50/50. We could also say let’s, for example, if the coal plant is 60% of the way through its life, then customers would be responsible for 60% of what’s remaining and utilities 40%. So the farther the plant is, if it’s 80 or 90%, then customers have gotten most of the benefit and they might pay 80 to 90% of what’s left and the utilities would pay 10%. Again, that’s just a, a way to kind of rough cut it. You could, the utilities commission could take their job very seriously and ask the question that you asked John, which is what did the utilities know? And when did they know it? And when should they have known it? Very strong argument that utilities knew back in the 1970s, eighties, and certainly the nineties. And if they didn’t know it, they should have known it that heavy reliance on fossil fuels was going to destabilize the climate of the only planet we know that supports life. So you could do a big long investigatory docket or whatever it would be in your state and then decide, oh, it’s going to be 49/ 61. Have I done that right? Whatever the division is, or you could do what seems to be the assumption in the securitization.

You know, in this particular case, the securitization report for Rocky Mountain Institute, utilities have a stranded asset. Customers pay a hundred percent of it off. And what I’m trying to advocate for is we should not start at that place. Securitization may be a tool. It may not be a tool. We could also pay off the plant and the utilities commission could say, we’ll pay it off, but we’re only going to pay you the cost of debt, which has maybe three or 4%. You don’t have to do the whole bonding securitization pathway. So there’s lots of options. But the first step is to ask that question. When the utilities have a stranded asset, what is the whole array of options we have, let’s not start with the assumption that customers, and of course this will fall disproportionately on low income customers, middle and upper income customers are often getting solar. So they’re much more insulated from this. So basically we’re saying utilities have a problem and poor people and small businesses will pay it off. And that just intensifies the economic inequities in our society.

John Farrell: I love that you have so many different ways that we can approach this because it is really disappointing how much of the conversation is just about, Hey, we’re going to refinance and it’s great because we save money and we just ignore the fact about responsibility and, which I think utilities would love to have us do. I mean, I would say you asked about somebody who would be sort of more forthright or whatever about it. And I’d say ILSR, I’d be happy to say that a hundred percent covered by the utility. If nothing else, it’s a better negotiating position. But I think we do have, we should have a presumption that the utility has responsibility for this. For sure. I really do admire to the way that you’ve worked up this notion too, about the useful life of the plant that the older the plant is, the less likely it is the utility would have known that there were these implications, the less likely it would have been that there were really cost-effective alternatives available in the market and maybe customers have a higher responsibility. Whereas I think that plant, that you’ve mentioned in Pueblo only 10 years old now, and expected to run to 2070, it’s ludicrous, that customers should really be on the hook for very much of that. There’s so many, everybody has known by 2010, and it’s really sad that you even have a utility commission that would have approved that plant, frankly. But I don’t think that means that we can’t hold the utility liable for making a poor decision anyway, working in a lot of my opinion in there, obviously. What are some of the things that we can do, other than there’s this question of the remaining debt of these stranded assets and who between the utility and the customers is going to carry it? What are some other ways that we can make sure that the outcome is more equitable in terms of how we use the savings once we’ve made that decision about how we refinance or who is writing off the expense, how do we use those resources in a good way?
Leslie Glustrom: Yeah. Thank you so much. That’s an excellent question. And I do want to talk both about using the resources to support a just transition, which I strongly supportive for the workers in the communities and also for kind of creating a differently configured electrical system. But I want to make sure your listeners understand one concept that they will run up against quite quickly. And that is the regulatory compact and the report that will come out in mid-December from Clean Energy Action and supported from Institute for Local Self-Reliance, we’ll talk a little bit about this and I want to thank so much professor of law at Harvard Ari Peskoe for doing a very detailed analysis of the concept of a quote-un-quote “regulatory compact,” because what citizens and advocates will hear is like, Oh, we have a regulatory compact, you approve this coal plan. And so now you have to pay for it because of the regulatory compact and professor Ari Peskoe at Harvard has written a detailed analysis of this concept of regulatory compact. And as he says, framing utility regulation as a compact is a rhetorical device that’s been invoked by industry to argue against competition and in favor of rate increases and cost recovery for investments that did not benefit rate payers. Professor Peskoe did detailed analysis of many utilities commission decisions, as well as court cases. And Ari concludes on the contrary PUCs, and courts, have explicitly rejected such arguments based on the regulatory compact. Undoubtedly citizens will run a, you know, the attorneys will say, Oh, there’s a regulatory compact, but feel empowered to push back against that concept.

Scott Hempling, who has also been on the ILSR podcast – It’s a great podcast for those that haven’t listened to it yet – And Scott Hempling, who had been involved in utility regulation for a long time, also took a look at the regulatory compact and he says it even more succinctly, the bottom line: repetition does not create truth. There is no regulatory compact. So what do utilities want us to think as well? We have regulation the regulators approved. And so now we get cost recovery and our customers have to pay and use these rate payer obligation charge bonds known as securitization, or they have to pay us our full weighted average cost of capital 7%. And you know, they have a lot of attorneys and they’ll say that. So I think those two resources, they are the Peskoe paper and the Scott Hempling analysis on regulatory compact, are important. You can also ask, just show me where in the laws of my state is the regulatory compact exists. And you, I tried that with several powers to be in Colorado. And I asked at least 15 times, and never got an answer because it doesn’t exist.

But even, you know, people who I respect, attorneys that have been around this for a long time in Colorado, like, Oh, there’s a regulatory compact. I’m like, I respect you, but there is not such a thing. There’s a concept. It’s a rhetorical device. Scott Hempling says just because they repeated a lot, doesn’t mean it exists, but it does exist in the minds of a lot of regulators and certainly a lot of utility attorneys and all of that. So feel free to push back. And again, that Ari Peskoe paper, as well as Scott Hempling’s analysis are very helpful.

So you asked, John, about how do we use this kind of, if we’re going to save money, if we’re going to pay off these coal plants and either the utility writes it off, or we pay for less of it at three or 4% instead of 7%, that can lead to some savings in Colorado. The bill that authorizes securitization here slices off 15% of those savings to use for just transition for fossil fuel workers in their communities. And I just want to say, I have profound sympathy if you’ve ever been through job change, you know how terrible it is, millions and millions and millions of Americans have been through that process. So I’m very profoundly sympathetic, but it’s very important for the fossil fuel workers to understand this is not a political issue. Fossil fuels are nonrenewable when it comes to both coal and natural gas. The two I know, well, the ones that can be to reproduced at a profit are long gone. They’re now carbon dioxide and methane in the atmosphere. So this is not just, get a new president or get a new governor or get a new whatever, and you’ll get your job back. You’ve got to face the reality. These are non-renewable resources and it’s time to pivot as millions and millions of Americans have done. I get that. That’s very difficult. I would like to have support. I would like to have training. I’d like to have transitioned payments for these workers, given that millions and millions of Americans have had to do it, including my husband and millions and millions of Americans have had to do it more than a few times without any support of any kind.

So then of course, the other thing that I’m very interested in is opening up the market to more competition, to more innovation, to more decentralization, to a different typology for our electrical system. Relying on the big grid in the 21st century, it’s already led to very, very big problems. And as we go through year after year, decade after decade, it’s going to become increasingly obvious that making your power 200 miles away and putting on transmission lines is a very brittle, unstable way to run the system. So put those solar panels on your schools and on your churches and on your grocery stores or on your roof. The wires create a little micro grid, build in some storage, start to envision a different decentralized mode. Just as when I was in college, all the computers were centralized. Now we all carry around a massive amount of computing power in our briefcases or purses or whatever. And we have these little black things in our pockets that we call phones, but I really do 200 or 300 other things. And then we want to come through the same kind of revolution in electricity. But we, the first thing we have to do is to not accept that the 20th century structure is the proper structure for the 21st century, whether it was proper for 20th or not, we could discuss a long time… but it is not going to be the best solution for the 21st century. It’ll stifle innovation and it’ll make us very vulnerable to these extreme weather events, as well as cyber attacks and a whole lot of other things, and squirrels, that destabilize the grid. And we’re very dependent on it. So it’s a big problem when the big grid goes down.

John Farrell: So the kinds of things you’re talking about, I hope we give maybe some specific examples, but when you talk about decentralizing, the grid we’re trying to move from, as you said, these power plants that are cited hundreds of miles away from where we use electricity, it creates that big vulnerability about where that power line is. Californians can talk all about that in terms of wildfires, not just from the power lines that are actually damaged by climate change, but the ones utilities are now turning off preemptively in order to avoid damage or really avoid financial liability. I guess I should say more than anything, but we’re talking about rooftop solar and things like that, right? We’re talking about energy generation that is located close to where we’re using electricity.
Leslie Glustrom: Yes, exactly. The great news is that more and more people, you don’t have to be some sort of geek. You don’t have to be of this party or that party. You don’t have to be urban or rural. And that’s why Jonathan Scott’s movie power trip, which at least for now is available for free viewing on at You can just look at it on your computer screen. It’s great. He goes all over the country and he goes to Georgia and to Nevada and Kentucky and Washington DC. And he talks to people of all different economic backgrounds and all different, and they all get it. Like I put these things on my roof, they made electricity. I’m now in charge. My utility bills have gone down now, the utility doesn’t like it. And so we’re having some really big “power trips,” big battles over that. But then if you can add in some storage, if you start to have distributed ledger technology or blockchain sort of things going on where neighbor a produces, but doesn’t need it. And neighbor B uses it and then neighbors C has it at a different time. And all of a sudden you’ve got a big network of exchanges that blockchain, is great or distributed ledger technology is great. All of a sudden we’ve built a much more integrated network system that also distributes both the power generation, as well as the control of the system, instead of one utility with what seems like endless attorneys and, you know, they’re good folk. I appreciate them as people, but endless attorneys to defend the one utility monopoly, you know, have all these different things.

And as part of this, I did a little reading on the history of the monopoly game monopoly, cause I’m like, so not an economist. So I encourage everybody to kind of read that and realize that actually was a woman who designed the game in the early 1900s, uh, uh, Lizzie, I wrote it down and I lost it… Lizzie Magie. And she designed it to, because you wanted people to understand that when you had a few people controlling all the property, this was a problem. And so this is 1903 and it’s great fun when you’re a monopoly, we all know from know those long summer afternoons or whatever, when you have the monopoly, it’s really fun. Cause you just get to suck all the money out of everybody else and then you win. But as it turns out, and this is my PhD in economics at work, no, I’m just kidding. As it turns out, if you don’t have the monopoly, it’s not a lot of fun. And again, our utility here in Colorado, our investor owned utility Public Service Company of Colorado, 578 million of after-tax net income in 2019 alone. Many of those profits driven by their investments in fossil fuel infrastructure. So making profits out of destroying the only planet we know of that supports life is there. The people are fine, but this system it’s, it’s unconscionable to have this sort of thing still going on. And it’s the misery all over the planet that we’re contributing to – the mudslides in Guatemala and the hurricanes in Nicaragua and the floods in Asia and the dying of the coral reefs. And as Americans, we have an outside share. We have the largest per capita emissions and the largest cumulative emissions.

So it’s well past time that we did what you suggested maybe we could have done in the 1970s, in addition to passing that PURPA act, public utility regulatory policy act. In addition to PURPA, we could have done many other things, but we can’t turn the clock back, but we can now in what’s coming to be the third decade of the 21st century, take a hard look at the system we built last century and ask very hard questions about whether it’s really the right system. Is it going to bring us the optimal solutions, the balance of big grid and micro grid sorts of things? Is it gonna allow people, is it gonna allow more equitable distribution of income instead of so much going to the monopoly, right? And how do we do this in the most just and equitable way and the most resilient way.

John Farrell: Thank you so much for taking the time to talk to me about some of these very specific and complex policies on the road to sustaining life on this one planet we know, as you’ve put it so eloquently so many times during this conversation, and for really helping people understand the structures that are behind it. I think it is challenging enough for people to even grasp the climate problem that we face. And I think it is helpful for folks to understand that some people actually bear some responsibility for it and that we can make rules that make things fair for everybody. So thank you for your dedication to this, so much that you have been a volunteering and probably one of the most experienced and smartest person that I’ve worked with and the clean energy space. I know you told me that I’d have to eat my shirt for saying that, but I still think it’s true. So thank you for your work. And as, as we mentioned, this report will be out in mid December. So by the time you hear this podcast, you should be able to find it at Leslie, really thanks again for taking the time to talk with me.
Leslie Glustrom: Thank you so much.
John Farrell: Thank you so much for listening to this episode of Local Energy Rules, discussing how we can get securitization right with Leslie Glustrom of Clean Energy Action. On the show page, look for links to the report from Clean Energy Action, the original report from Rocky Mountain Institute, as well as links to several other resources, including ILSR’s securitization overview and recent testimony we gave on legislation in Minnesota. While you’re at the website, you can also find our recently relaunched segment of the community power toolkit focused on shifting utilities toward cleaner energy. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear more powerful stories of communities taking on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.

Securitization: One Tool for Early Fossil Fuel Retirement

Leslie Glustrom, a biochemist-turned-clean energy advocate, was a founding member of Clean Energy Action. She has been volunteering in support of carbon-free, local energy for 20 years. For her, accelerating the transition to clean energy means helping other energy industry outsiders grapple with complex concepts – one being securitization.

Farrell compares securitization to refinancing a house. Essentially, it allows utilities to refinance their debt owed on aging power plants. When a coal plant is retired before the end of its useful life, the remainder of that plant’s useful life must be paid off. Securitization can lower the rates on these payments from seven percent to three percent.

Securitization is a cheaper way to retire fossil fuel plants early. However, securitization leaves utility customers on the hook for paying “ratepayer obligation charge bonds.” A large share of the burden will fall on small businesses and low-income customers, who are less likely to have solar power or other insulation from utility charges.

The endgame is to have ratepayers pay off the utility problem… I’m just not fully on board with assuming that rate payers should pay off utility’s mistakes.

Privatizing the Risks and Not Just the Profits

Glustrom is critical of a Rocky Mountain Institute report on coal plant retirement, which essentially assumes that utility customers will bear the burden. Instead, she wants to reframe the conversation. Communities are already burdened by the pollution and climate impacts of fossil fuel plants, so why should they carry the financial burden of retiring them early?

In most businesses, if you’re caught carrying the fashions from five years ago and you can’t sell them, that’s your problem.

The new white paper by Clean Energy Action explores how many tools, including securitization, can be properly implemented to “retire coal plants and fossil fuel assets early and more equitably.”

Like all tools, there’s a time to use it at a time to not use it.

Ultimately, responsibility for fossil fuel debt will be decided by public utility commissions. Commissions are unlikely to shift responsibility entirely to the utility, but Glustrom hopes they will be open to splitting the burden between the utility and ratepayers.

Read John Farrell’s testimony in support of an improved securitization bill advancing in the Minnesota House.

How Long Have Utilities Known the Costs of Climate Change?

Electric utilities are granted monopolies in the interest of customer service, but making investments in fossil fuel infrastructure has been contrary to the public interest for some time.

Thanks to Eunice Foote, says Glustrom, climate science has been clear since the 1850s. At that time, utilities had few cost-effective alternatives to coal and gas-fired generation. Now, solar plus storage is the cheapest way to generate electricity – and it curbs greenhouse gas emissions. At what point should utilities have realized that fossil fuels were a bad bet?

Read the Energy And Policy Institute report Utilities Knew: Documenting Electric Utilities’ Early Knowledge and Ongoing Deception on Climate Change From 1968-2017

To hold utilities accountable for poor investment decisions, public utility commissions could determine what utilities should have known at the time of their fossil fuel investment. If a utility built a coal plant in 2010, for example, the commission could hold the utility responsible for retiring the plant early. The utility should have known better and it had other options.

Given what the utilities knew, or should have known, should they have invested in a billion dollar coal plant that they thought would operate until 2070?

The Need for Broader Grid Reform

Farrell and Glustrom also discuss problems with the energy system more broadly. The top-down electric grid, which transmits electricity hundreds of miles from large generators, is not adaptive to our present circumstances. While customer-sited generation and storage is becoming more popular, storms and natural disasters are becoming more destructive and frequent.

When we rely on the big grid, we end up with big problems.

Glustrom hopes that as coal and gas plants retire and we transition to a cleaner grid, we can also envision a decentralized electric grid – but it’s going to take a revolution, she says.

The first thing we have to do is to not accept that the 20th century structure is the proper structure for the 21st century.

Episode Notes

See these resources for more behind the story:

For concrete examples of how cities can take action toward gaining more control over their clean energy future, explore ILSR’s Community Power Toolkit.

Explore local and state policies and programs that help advance clean energy goals across the country, using ILSR’s interactive Community Power Map.

This is episode 123 of Local Energy Rules, an ILSR podcast with Energy Democracy Director John Farrell, which shares powerful stories of successful local renewable energy and exposes the policy and practical barriers to its expansion.

Local Energy Rules is Produced by ILSR’s John Farrell and Maria McCoy. Audio engineering for this episode by Drew Birschbach.

This article originally posted at For timely updates, follow John Farrell on Twitter, our energy work on Facebook, or sign up to get the Energy Democracy weekly update

Featured Photo Credit:  Alan Stark via Flickr (CC BY-SA 2.0)

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Maria McCoy is a Researcher with the Energy Democracy Initiative. In this role, she contributes to blog posts, podcasts, video content, and interactive features.