WICHITA, Kansas — Utility companies in Kansas will soon have a new accounting tool that could speed the closure of coal-fired power plants — and save customers money.
The financial tool is known as securitization. It’s not a new idea, but it is complex. The Kansas Legislature passed a bill approving the use of the tool after more than two years of discussion.
It’s a way for a utility company to refinance what it owes on some of its large investments — think mostly coal plants — at a much lower interest rate.
Instead of paying off an old loan at a higher interest rate, a utility can clear the debt from building a plant off its books, replacing that cost with a lower-interest bond backed by bill-paying customers.
And while the debt is paid off through the new bonds, the utility has new freedom to switch to cheaper sources of energy like wind, solar.
One key is how the sort of return utility shareholders are promised by state regulators. Without the refinancing, they’re promised about a 9% return on the money they invested in an old power plant. With the refinancing, the company no longer makes a return on the plant and customers only have to pay the interest from the bond — about 2%.
Closing a plant also eliminates operational and maintenance expenses. If replaced with renewable energy, a closure also eliminates fuel costs. A utility company doesn’t make money on that fuel, but does pass the expense on to customers.
Ashok Gupta, an energy economist with the Natural Resource Defense Council, said replacing coal with renewable energy is better for the environment, less expensive to operate and provides utilities with new investment opportunities.
“That’s what creates this win-win-win for utilities, their customers and the environment,” he said.
State regulators won’t sign off on any plan unless utilities can show that the total costs of retiring and refinancing a plant and any new investments won’t increase customers’ bills.
