Colorado: Support a Just and Equitable Transition via Securitization

Utility securitization can be a prescription for lowering energy costs and reallocating funds previously committed to expensive fuels and reinvesting them in lower cost clean energy infrastructure. Securitization is also a useful financing tool to help fund a Just and Equitable Transition to clean energy infrastructure.

Securitization is a financing tool that has existed in the financial sector for decades and is a special type of utility bond offering that gets funds from private investors at a very low interest rate. It can be used to replace more expensive capital and costs that utilities pass on to customers.  Securitization provides a lower cost to customers. 

Legislation is needed, in Colorado and elsewhere, to guarantee a regulated dedicated rate and an unavoidable charge with Public Utility Commission oversight to ensure that the bonds are paid in full.  This dedicated rate along with other conditions allow for high credit score on the bonds to get the lowest interest rate from investors and therefore the lowest costs for customers. 

For example, when a utility says they need to securitize something, they are looking into refinancing their costs of raising capital at a secured lower bond rate, just as you would with decreasing interest charged on a credit card. The regulated utility can then repurpose the money raised into a variety of cleaner operations and transition funds. 

A Just and Equitable Transition builds from the indigenous and labor movement to create a just transition.  Adding equity expands the policymaking to include diverse community voices and help make change livable for all impacted.  

Just and Equitable Transition describes both where we are going and how we get there. If the process of transition is not just, not fair, the outcome will never be. This type of transition sits at an intersection of labor, finance, social impact, equity and the environment. 

A Just and Equitable Transition for coal communities is... 

Hampered by:

Benefited from:

Insensitivity and unawareness on the part of environmental advocates around the economic and social impacts of coal’s decline that is disproportionately born by coal communities. 

Financial tools to help build a new economy.

Misrepresentation around available funds, economic impacts, timetables, and clear objectives for just and equitable transitions. 

Economic diversification efforts for communities experiencing the retirement of power plants and mining infrastructure.  

Rarity of legislative and regulatory changes to ensure a robust clean economy for impacted communities.

And organizations like The Just Transition Fund that provide a variety of tools to help stimulate transitioning coal communities such as Colstrip, as well as with the closure of Navajo Generating Station.

Communities who have hosted the fossil fuel facilities that powered our country for decades are now adapting to either forced or chosen changes in direction. For example, Navajo Generating Station coal plant is closing because its generation is more expensive than other alternatives means a loss of jobs and property tax revenue, as well as lost businesses that served the power plant or mining workers. 

Existing legislation in western states such as New Mexico helps affected communities and their workers by allocating transition funds for job retraining, and more. This type of proactive leadership supports a healthy economy and provides continuity for local communities adapting to changing times.  

Regulatory and legislative action is needed to set aside a percentage of funds either public or private or both for the transition. Carbon reduction legislation introduced this year in Colorado (HB19-1313) requires qualifying retail utilities and allows other utilities to get to 80% emissions reductions (from 2005 levels) by 2030.  The bill includes community impact assistance with transition funding and allows the Public Utilities Commission to use securitized funds.  

Here are some other financial tools communities and local governments can use:

  • Green Banks – provide investments in clean energy 
  • Green bonds – free up capital to invest in all sorts of green infrastructure and provide additional resiliency 
  • Impact investment – environment social good investing provides a tool also known as Pay for Success
  • Green tariffs – are carbon reducing focused, equitable and provide diversification and risk management
  • Securitization – refinance existing capital costs at a lower rate with secure bonds
  • Capital Recycling – move money from one source to another in same locale  
  • Opportunity Zones – newly established areas for capital gains dividend investments 
  • State and Federal grants and loans (POWER) (SCIPPA)

These tools can be used separately or bundled, such as creating securitized customer backed bonds from a coal plant and use refinanced debt with low interest, creating the capital to pay for renewable energy built at the plant, utilizing existing land and infrastructure such as transmission lines.

In designing these changes, we must not only consider environmental impacts, but also the well-being of our families and communities directly affected by the reduction in fossil fuel extraction.

My colleagues note in their “steel for fuel” article, solar and steel can form a bond where local communities form new partnerships to maintain their livelihoods. 

Colorado is demonstrating leadership by supporting legislative and regulatory changes to ensure a resilient clean economy for affected communities.

A transition is never perfect or easy, but with political support, investment, and community involvement, a Just and Equitable Transition is possible.  

About the Authors

Julia Prochnik

Western Renewable Grid Planning, Renewable Energy, Lands Division, Nature Program

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