Getting to the harder question about stranded assets

diablocanyon

John Farrell at the Institute for Self-Reliance argues that existing utility fossil-fuel plants should not be given “stranded assets” status. While his argument about “stranded assets” makes sense from a society wide economic sense, it doesn’t conform with the utility regulation world in which “stranded assets” is actually relevant. Having gone through California’s restructuring and competitive transition charge (CTC) (I’m the only person outside of the utilities to conduct a complete accounting of the CTC collection through 2001), it’s all about what’s on the utility’s books and what the regulatory commission agrees is an acceptable transfer of risk. And based on what happened with Diablo Canyon in 1996 (the correct treatment would have recognized that PG&E had collected its entire investment at the regulated rate of return by 1998—I did that calculation too), it’s not promising.

So I suggest focusing on the shareholder/ratepayer risk sharing arrangement and how that should be changed in the face of the oncoming utility 2.0 transformation as a more fruitful path. We have to change the underlying paradigm first. That there are benefits from retiring generation assets is not a hard argument to win—that was the case in 1996 in California. The harder one is that the past regulatory compact should be changed and that it won’t somehow impact future investment in the distribution utility.

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