Preamble: Numerous utilities and regulatory agencies have recently moved to voluntarily close coal and natural gas power plants before their full, useful life expired. When such electric plants are prematurely shuttered, significant debt may yet be remaining.  

Despite incurring what should be a loss for their ill-advised action of closing perfectly functioning power plants, utilities in many states are rewarded with a hefty 8-10% guaranteed rate of return on their capital costs, even if they have to borrow money to achieve it. Ratepayers wind up getting the short end of the stick.  

While companies benefit from such closures, consumers never get to realize the full value of these capital investments, at least in terms of lower costs and reliability they would otherwise experience by simply keeping the units in operation. Worse, these same firms that decide to close their hydrocarbon plants prematurely are often replacing them with unreliable sources of energy that are pricier, namely solar and wind.  

Unless the government requires a particular power plant’s early retirement, the utility should not reap windfall rewards in the form of a guaranteed return for its action. 

People often claim that wind and solar generation will replace the electricity from the shuttered plants. But wind and solar are weather dependent and intermittent. Wind energy, for instance, typically produces about 28–40% of its nameplate value. Solar produces about 18-22%.  

Neither replace on-demand coal, natural gas, nor nuclear electricity plants. Moreover, wind and solar energy sources displace traditional fuel and electricity generation methods, but they are less reliable and efficient. Indeed, it takes three to five times as much nameplate value of wind or solar to generate the same amount of electricity from on-demand sources. And the part-time intermittency problem remains.  

Electricity grids necessitate immediate electricity supply to meet demand. If they don’t achieve this, blackouts or curtailments occur. 

This practice of a “guaranteed rate of return” on stranded bonds incentivizes the premature closure of electricity generation. By closing a plant early and then building a replacement plant, the utility is able to get their 8-10% rate of return on the stranded bonds of the closed plant and on the newly built generation source. 

This bill forbids the provision of guaranteed rates of return on electricity generation units that undergo voluntary early retirement before their full, useful life cycle has expired.  

In addition, it include provisions to extend the rate of return on assets that continue to operate after their expected useful life. To encourage and reward the extended life of generation units of all types.  

We need electricity grids that are affordable, reliable, and meet demand all the time. Not just when the wind blows or the sun shines. Providing rate of return on generation assets that exceed their estimated lives will remove one of the incentives to closing them prematurely. 

Section 1. Definitions. 

A. “Early Retired” means an electric plant that has ceased operations ahead of its originally planned, expected, or economically useful life span. 

B. “Stranded bond” means bonds or other financing, or unrealized amortized capital investment from an early retired electric plant.  

C. “Fully depreciated asset” means generation assets that continue to operate after they have been fully depreciated for rate of return purposes. 

Section 2. Requirements. 

1. The electric utility regulatory agency shall develop rules and procedures to ensure that the owners of an electric generation facility shall not receive guaranteed rate of return on capital investments of stranded bonds, capital, or decommissioning costs for the early retirement of such facility.
2. Utilities shall continue to earn a full rate of return on fully depreciated assets by extending their depreciation schedule to include operation in excess of their depreciation schedule established by the commission in the original or subsequent rate application.  

Section 3. Severability. 

Each section, paragraph, and portion of each paragraph of this Act is severable. If one or more sections, paragraphs, or portions of one or more paragraphs of this Act are held invalid on their face or as applied to particular facts, then the remaining portions and applications of the Act shall be given full effect to the greatest extent practicable.  

Section 4. Application and Effective Date. 

This Act is in effect from the date this becomes law. [DATE].