Nine Slides on Our Win Reining in Utility Green Plating

One small step for ratepayer kind

We have some great news! This week, the Minnesota House Committee on Energy Finance and Policy passed a version of our “Only Pay for What You Get Act” out of committee. The bill passed along partisan lines, with the eight Republicans voting in favor and the seven Democrats voting in opposition.

While the bill will likely need a few amendments, the committee members endorsed the concept behind it that ratepayers should only be forced to pay utility profits on the reliable portion of a power plant.

This is a great first step in our journey to get Only Pay passed in states throughout the country. If you know of state lawmakers who are interested in reining in electricity costs, please put them in contact with us.

The Testimony

Isaac presented the bill to the committee and you can watch his testimony below.

Also, Sarah Montalbano did an excellent job testifying on the bill. Watch her testimony below and make sure to subscribe to the Montalbano Mondays Substack.

Now, for the slides.

Realigning Utility Incentives with Customer Benefits

As Oren Klaff laid out in his excellent book, Pitch Anything, the most important job for any presenter is to answer the audience’s unspoken question: “What’s in it for me?”

The first slide in Isaac’s presentation discusses how better aligning the incentives of utilities and their ratepayers will result in a more reliable electric grid and billions of dollars in savings for Minnesota families and businesses based on the Integrated Resource Plans (IRPs) filed by Minnesota utilities.

Only pay address looming reliability concerns

Reliability is a growing concern in Minnesota as utilities in the state prematurely retire their coal plants and replace them with a combination of wind, solar, battery storage, and natural gas plants.

The retirement of thermal resources is why the North American Electric Reliability Corporation states that the Midcontinent Independent System Operator (MISO) is the region most at risk of rolling blackouts in the country.

Variable weather and wind droughts compound issues

Reliability challenges are compounded by the fact that the wind and solar resources that are supposedly replacing the retiring coal plants are variable and weather dependent and therefore less reliable than the retiring thermal generators.

Most state lawmakers have been inundated with the incorrect argument that the “wind is always blowing somewhere,” which is why Isaac highlighted an 80-hour wind drought in the MISO region in the winter of 2020. During the wind drought, the entire installed wind capacity on the MISO system operated below 10 percent of its potential output for 80 straight hours. For 42 straight hours, the output was below 1.5 percent of its potential.

During this period, MISO’s coal, natural gas, and nuclear plants in MISO kept the lights on because these dispatchable power plants are able to ramp up to meet demand and offer far more reliability value to the grid than wind or solar.

MISO DLOL reflect the low value of wind and solar

We didn’t ask the lawmakers to take our word for it. MISO is in the process of refining its capacity accreditation process to more accurately reflect the reliability values of all the resources on its system by transitioning to a Direct Loss of Load calculation.

The slide below shows the seasonal capacity values of each resource, and we averaged these seasonal accreditations for the benefit of the lawmakers in the committee hearing. Dispatchable power plants have ratings ranging from 77 for natural gas to 89 percent for nuclear, whereas wind has a capacity value of 15 percent, and solar has a value of 29 percent.

The “energy transition” is being used to bolster utility profits

As we discussed in our piece, Green-Plating the Grid, vertically integrated Investor-Owned Utilities (IOUs) across America are raking in record-breaking profits under the guise of the so-called “energy transition.”

From 2014 to 2024, earnings for American electric utilities have more than doubled, growing at more than 15 percent per year for the last three years, largely due to surging spending on new wind turbines, solar panels, and natural gas plants.

The problem is that monopoly utilities operate under the cost-of-service formula, which allows them to charge enough for their electricity to recover the cost of providing the service to everyone in their service territories, plus a government-approved profit, often five to ten percent, on their capital investments.

As long as the regulator approves the expenses, utilities profit from every dollar they spend on new builds such as wind turbines, solar panels, natural gas plants, or even renovating corporate offices.

The more money monopoly utilities spend, the more money they make.

Utilities currently incentivized to close depreciated plants

On the other side of this equation is depreciation. Every year, the company pays off a little bit more of the plant, and as a result, they no longer profit from this depreciated capital expense.

The slide below is a hypothetical power plant on a 30-year depreciation schedule. The utility makes a cool $11.25 million in corporate profits in the first year, but by year 31, the asset is entirely depreciated, delivering no returns for shareholders.

As a result, utilities have a powerful financial incentive to work against the interest of their customers by retiring reliable, low-cost existing generators so they can spend as much money as possible building new infrastructure to put in their rate base, thus maximizing their government-approved profits.

Only Pay realigns incentives to match customer benefit

Only Pay helps blunt these perverse incentives for utility companies by only allowing the utility to profit on the reliable portion of the asset, in this case, the DLOL value calculated by MISO.

The DLOL values show that Xcel Energy, the largest investor-owned utility in Minnesota, will get very little reliability bang for its wind and solar buck.

The company plans to build over 8,700 megawatts (MW) of wind in the coming years, but this will only translate into 1,300 MW of accredited capacity. Xcel’s plan to build 2,085 MW of solar will provide just 604 MW of accredited capacity.

Without Only Pay, Minnesota families and businesses would be on the hook for paying $9.8 billion in utility profits on the wind, $2.9 billion for the solar, $2 billion for the battery storage, and $3.6 billion for the natural gas in the company’s IRP.

However, with Only Pay, the ratepayers would pay only $1.5 billion for the wind, $800 million for the solar, $900 million for the storage, and $2.8 billion for the natural gas plants. The total savings for customers amounts to $12.3 billion over 20 years. This equates to $9,062 for the average Xcel customer, or $453 per year for 20 years.

Conclusion

We are grateful to Representative Shane Mekeland for introducing this bill and to the committee members who voted for it. The bill was referred to another committee, and we will see if the entire House votes on it. Even if the House passes it, it is unlikely to pass the Democrat-controlled Senate.

Nonetheless, the committee vote is an important proof of concept, and we look forward to engaging with lawmakers in other states on this issue and saving money for ratepayers throughout the country.

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