Solving the Stranded Asset Problem of Retiring Coal Plants: An Evaluation of Regulatory Approaches

Authors

Matthew Appel, University of Michigan Law SchoolFollow

Abstract

Meeting the Biden administration's goal of cutting greenhouse gases by at least 50 percent from 2005 levels by 2030 will necessarily require transitioning the U.S. energy system away from carbon-intensive fossil fuels like coal. However, coal plants that are retiring early in states with regulated electricity markets usually still have undepreciated book value that has not yet been recovered from ratepayers. If not handled correctly, these "stranded assets" could have financial consequences for utility companies and cause them to actively oppose the energy transition. This Note aims to evaluate possible solutions to this problem. Through the prism of ratemaking legal standards, it will examine the four most commonly proposed approaches: accelerated depreciation, the creation of regulatory assets, cost disallowance, and ratepayer-backed securitization. While finding that there is no one-size-fits-all solution, this Note will nonetheless conclude that ratepayer-backed securitization shows the most promise because it can fairly compensate utility companies, control rate increases, and accelerate the energy transition.

Recommended Citation

Matthew Appel, Solving the Stranded Asset Problem of Retiring Coal Plants: An Evaluation of Regulatory Approaches, 14 Mich. J. Env't. & Admin. L. 222 (2024).
Available at: https://repository.law.umich.edu/mjeal/vol14/iss1/6