My analogy is quite simple, maybe too simple. We paid our house off, now we are going to refinance it to get the mortgage interest deduction in our taxes. Nobody with any sense does this. No power company should not utilize a paid for coal plant for the absolute maximum amount of time it is feasible. How does this type of BS get this out of check with actual common sense….. it’s disgraceful. DOGE needs a DOCS associate agency!
CCS from my understanding isn’t ready for a commercial application? It is also climate hype imo. We need to do better as a country specifically on common sense and fiscal responsibility.
The major flaw in my mind is the concept of an investor owned utility. Electricity is a service and it should be ratepayer owned rather than investor owned. Everything I’ve seen shows coop utilities do the best in keeping rates low while maintaining reliability. Shareholder owned utilities are going to do what is instinctual, which is to maximize profit. Given their monopolistic market position, the ratepayer has no alternative when rates grow too fast except to move to another state or region.
Thank you, gentlemen. Good post, and good effort. But, efforts don't count - results do, and your closing statement tells the story: "Even if the House passes it, it is unlikely to pass the Democrat-controlled Senate." It is sad that political dogma is in control.
Nebraska tried similar legislation a year or two ago. The first bill, as written, was brilliant. If a plant is to be retired, it is to be replaced with a plant of like or greater reliability. Like Minnesota, one of Nebraska's major utilities is infatuated with wind and solar, and is gradually replacing its coal and gas with those two worthless sources. The bill passed committee, but failed before the full senate (Nebraska has a Unicameral gov't) due in large part to that utility's lobbying efforts, coupled with a strong Democratic minority who held other bills hostage as part of the process.
Common sense legislation such as this is doomed in this country so long as we allow fear to dictate our future.
Yes, it does! That journey also builds from the steps and missteps of others. You would do well to talk with the Nebraska bill's original sponsor to identify options you might employ to head off Democratic opposition in the Minnesota senate.
Minnesota has an aggressive RPS. That's going to have to be dealt with one way or another. Are the Minnesote utilities required to engage in competitive bidding for new generating resources? I haven't read enough to know. See my comment above; if this applies only to utilities, Minnesota is likely to end up only with more intermittent resources and utilities less financially able to do something about the reliability issues that arise. Of course, there is MISO -- I don't claim to understand the effect of its presence in the whole mess.
Thanks for the effort in having to deal with delusional politicians paid off by fake 'utilities' called green energy that doesn't work other than siphoning taxpayer money into their pockets.
Isaac and Mitch, accolades for having a go at changing a status quo which is based on the wrong equation. But, you have ignored one absolute fact: Associating 'renewable' and 'reliable' in the same sentence is an oxymoron!
How can any intermittent electricity source ever be regarded as being 'reliable'. Do you really believe that we know, reliably, that we cannot ever guarantee a renewable supply?
Further, an asynchronous supply is not a base load supply, and will never be a viable substitute.
Consumers should only be paying for a dispatchable synchronous supply (kW), along with a charge for what they use (kWh), nothing more.
The reality is that the renewables industry has been taking everyone for fools, and so far they are proving themselves to be correct in that view.
We all need to smarten up, and I sincerely hope that you will take this matter a big step further.
Excellent work Gentle Folk. I'm not sure how susceptible to this solution Texas' rate structure is, but I would love to see something, anything, that will put an end to wind/solar in Texas (and everywhere else).
"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. "
I think ya'll left out a few steps for the less well educated. Surely, if the plant is paid for (fully depreciated) but still operational, then it is producing electricity at OpEx without any more capital expenses. How does this lead to "They no longer profit from"?
Does the tax on profits from depreciated plant rise to 100%? Does the utility regulator not allow any profit on paid for equipment?
I'm missing some step in there. Or was the statement shorthand for the idea that they no longer receive a nice tax break, which is no the end all and be all of profitability (I hope).
If the explanation is in the video, feel free to refer me there. I have not yet watched it.
Yeah we simplified it a bit here. Ongoing capital expenses would generate a return on equity, but those are usually much smaller than paying back the depreciation on a new plant that also requires ongoing capx for operations.
Sooo, I need to weigh in a bit on this proposal with some basic ratemaking practices as I know them. I say "as I know them" because, while the formula for electricity rates is very similar across the states, there are a few differences and my experience with a utility in one state may not be the same for another. In the state in which I worked on ratemaking, a utility only made a profit, or you could call it the cost of equity capital, on investments the utility made that went in rate base. Amounts paid to purchase power were in rates only at cost -- no profit nor even some compensation for the risks associated with power purchase contracts. The profit basis doesn't change with intermittent resources (if a PPA and not in rate base, no profit), but states with a Renewable Portfolio standard may also have ratemaking statutes, rules or practices that 'favor' the renewables, since the utility has little choice but to follow the law.
I understand the appeal of the idea of paying a utility its equity cost of capital only on production (availability or capacity factor?), but I am unclear on several of the details. Over what period would the law look to determine a rate base plant's availability/capacity factor? One year? Two years? More? If it is capacity factor, would it make a difference if the utility followed economic dispatch or if dispatch was through an RTO or similar transmission organization? (Remember, generating plants typically get dispatched on variable (fuel) cost, not capital cost, so dispatch may not reflect 'value' of the plant to the system.) If the capacity factor is calculated on an average, is any non-dispatch counted against the utility or are there exceptions (e.g., failure of a component under warranty or similar)? If the availability/capacity factor is calculated on a forecast basis, what generating plants are used for the calculation? On what basis would investors put up money for a return on something less than their investment? Would the rate of return on these plants (typically only adjusted in general rate cases) be done separately from the rate of return on distribution equipment (which in an average basis across a year, may have only about a 50% capacity factor except on peak, of course, when it is all needed unless the service territory wants rolling blackouts)? What if investors require a higher return, either on just the affected investments or all investment?
These are just some of the questions I have, based no my understanding of ratemaking. I can't help but think an easier answer is to require that in resource planning, resource bidding, and any other acquisition of generating resources, all such resources must be put on the same operating assumptions and if that means some kind of back up, so be it -- the 'cost' of that backup goes in the IRP or competitive bidding process or wherever necessary. By the way, since most utility acquisitions of or investments in generating resources will only happen after the approval of resource plans, the penalty you suggest for less than 100% availability/capacity factors better come up then and the utility be warned that it may be allowed no return on unavailable generating plants. I'm not sure why this won't just drive those generating resources to be all purchased power agreements, but so be it. Sooner or later, the regulatory formula is going to have to address how utilities earn income if they manage electricity power production portfolios but earn no return (cost of equity capital) on any generating plants that aren't mostly or fully depreciated. Of course, this gets much easier if power costs are just a straight pass through as they are for natural gas utilities. In that case, the utility customers bear all of the risk and income compensation generally isn't needed. Ratemaking is one of the few zero-sum arenas I know of; maybe independent power producers can be a source of savings for ratepayers but if you are only looking at utilities, disallowances or even bankruptcies have a way of creeping back in to increase electricity rates. There is no free lunch. I, too, am worried about overall system reliability; I just have questions about the 'solution' you are proposing.
Hi Pamela, this is exactly the kind of feedback we love to get from our readers.
Regarding the placement of assets in the rate base. In the early years of MN’s RPS, a lot of the assets were contracted through PPAs, but that is changing . During the more recent debates over MN’s energy policy, the IOUs have put language in the bills that allow the utility to own the replacement generation for retired assets, locking them into the rate base.
Time period: We like the idea of using capacity value, either MISO’s DLOL or effective load carrying capacity for the basis of ROE calculations because peaker plants are essential for reliability but will have low capacity factors by design. This gets around the question of economic dispatch, and in our minds, it would also avoid the conversation of utilization of distribution resources. Let us know if you think that needs more work!
Your point about the utilities understanding the rules beforehand is well taken, and the reason we think this legislation can be effective is that it establishes clear ground rules that reward the utility for investing in reliable assets while only making ratepayers foot the bill for ROE for the capacity value of the plant.
I think your point about this shifting resource acquisition to PPAs is a good one and that could undermine the intent of the legislation. Thanks again for your detailed feedback and we look forward to hearing more from you!
I use to track the performance of our PV system in sunny CA monthly and we experienced upper single digit and low double-digit capacity factors in the winter months. The “MISO Capacity Accreditation DLOL” table seems to have some typo’s as there is no way a PV system in the upper mid-west will have a 24% capacity factor in winter.
Finding a way to minimize the cost allocations we use to pay PG&E for electric service in MISO’s service territory is important to keeping electrical prices affordable. We don’t miss paying over 40 cents a kwh on average to PG&E for service.
Hi Mark, the table shows capacity values, which are different than the capacity factors and show the availability of a resource to meet peak demand. MISO shows that solar has a low value during winter and because solar is generally working during periods of peak summer demand, it gets a higher accreditation. We simply averaged the seasonal capacity accreditation for ease of presenting our idea.
Many thank's, Gentlemen, a very fine effort. Such a simple but invaluable concept which has the potential to benefit so many electricity consumers. Why have we taken so long to realise this essential piece of logic?
I hope that we can spread the word, here in Australia. The trouble is, there's not much evidence of intelligent life in politics down-under. But, we will never know, if we don't give it a go...
In May, 2024, the fountain of grift from the infamous bi-partisan Infrastructure Act, sends $10.5 billion taxpayer dollars to 21 states to "begin" the construction of 100,000 ultra high voltage transmission lines. Not to be outdone in September, 2024, as the election nears, another $7.3 billion heads out the door for "investment" (taxpayer money) out of the other boondoggle IRA to empower rural America. So, as wind turbines are hit by lightening and fires erupt that can't be extinguished landowners are not happy with the great deal they made. Like wind farms onshore that are failing and offshore Vineyard Winds first blade (the only wind project that would have been commercial) crashes into the ocean offshore Nantucket, it spreads fiberglass and foam across beaches from MA to RI. The public has had an awakening to the disaster of false promises, hidden agendas, exploding costs and unreliable energy from CA to NY under the religion of a carbon neutral economy.
As those Ultra High Voltage transmission lines enter parts of the country where they cheered for the clean energy they dreamed of, places like Santa Fe, NM, a religious enclave for anything that says "green" the people are protesting wildly as these giant eyesores begin construction across their fair county. But, as always, it seems the Democrats that run these places ignore reality and, of course, the same goes for the people who live there. They can't figured out that they voted for the people who made this disaster happen, and when the time comes, they'll vote for them again.
Hallelujah for this common-sense approach to incentives for power generation!! Although it is destined to fail (initially) at the hands of the Democrat-controlled Minnesota legislature it needs to be widely publicized to other states. I intend to send this article to our new Energy Secretary Chris Wright. I can imagine red-controlled states adopting this approach quickly. Perhaps public policy will finally be shaped by the wishes of the people (read "ratepayers" in this context) and common-sense incentives will prevail. Well done Energy Bad Boys!
Thank you for this great effort! In my view the villain is subsidies that incentivize renewables only. It is my wish that Federal subsidies will and should be abolished. By the way, I wrote an article on our local Utility in South Carolina which is related, but a very humble effort compared to your testimony to Lawmakers. https://dickstormprobizblog.org/2025/02/28/existing-epa-rules-increase-costs-and-will-cause-rationing-of-electricity-in-south-carolina-if-endangerment-finding-is-not-repealed/
Yep and unfortunately the subsidies will be harder to repeal than they should be.
My analogy is quite simple, maybe too simple. We paid our house off, now we are going to refinance it to get the mortgage interest deduction in our taxes. Nobody with any sense does this. No power company should not utilize a paid for coal plant for the absolute maximum amount of time it is feasible. How does this type of BS get this out of check with actual common sense….. it’s disgraceful. DOGE needs a DOCS associate agency!
The previous Administration and the EPA Powerplant Rule were responsible for many or those decisions.
What utility management would install CCS on a fully depreciated powerplant and suffer a 25-40% loss of net capacity? "Enquiring minds want to know."
There's a handful looking at it but this was meant to make the coal plants retire, imo
CCS from my understanding isn’t ready for a commercial application? It is also climate hype imo. We need to do better as a country specifically on common sense and fiscal responsibility.
The mortgage analogy is a good one!
The major flaw in my mind is the concept of an investor owned utility. Electricity is a service and it should be ratepayer owned rather than investor owned. Everything I’ve seen shows coop utilities do the best in keeping rates low while maintaining reliability. Shareholder owned utilities are going to do what is instinctual, which is to maximize profit. Given their monopolistic market position, the ratepayer has no alternative when rates grow too fast except to move to another state or region.
This is exactly why coops have been more likely to oppose RPS mandates and EPA regs.
Thank you, gentlemen. Good post, and good effort. But, efforts don't count - results do, and your closing statement tells the story: "Even if the House passes it, it is unlikely to pass the Democrat-controlled Senate." It is sad that political dogma is in control.
Nebraska tried similar legislation a year or two ago. The first bill, as written, was brilliant. If a plant is to be retired, it is to be replaced with a plant of like or greater reliability. Like Minnesota, one of Nebraska's major utilities is infatuated with wind and solar, and is gradually replacing its coal and gas with those two worthless sources. The bill passed committee, but failed before the full senate (Nebraska has a Unicameral gov't) due in large part to that utility's lobbying efforts, coupled with a strong Democratic minority who held other bills hostage as part of the process.
Common sense legislation such as this is doomed in this country so long as we allow fear to dictate our future.
A journey of 1,000 miles begins with the first step
Yes, it does! That journey also builds from the steps and missteps of others. You would do well to talk with the Nebraska bill's original sponsor to identify options you might employ to head off Democratic opposition in the Minnesota senate.
Absolutely.
Minnesota has an aggressive RPS. That's going to have to be dealt with one way or another. Are the Minnesote utilities required to engage in competitive bidding for new generating resources? I haven't read enough to know. See my comment above; if this applies only to utilities, Minnesota is likely to end up only with more intermittent resources and utilities less financially able to do something about the reliability issues that arise. Of course, there is MISO -- I don't claim to understand the effect of its presence in the whole mess.
Thanks for the effort in having to deal with delusional politicians paid off by fake 'utilities' called green energy that doesn't work other than siphoning taxpayer money into their pockets.
Congrats on the win so far! 🤞you get it over the goal line!
Thank you sir!
Isaac and Mitch, accolades for having a go at changing a status quo which is based on the wrong equation. But, you have ignored one absolute fact: Associating 'renewable' and 'reliable' in the same sentence is an oxymoron!
How can any intermittent electricity source ever be regarded as being 'reliable'. Do you really believe that we know, reliably, that we cannot ever guarantee a renewable supply?
Further, an asynchronous supply is not a base load supply, and will never be a viable substitute.
Consumers should only be paying for a dispatchable synchronous supply (kW), along with a charge for what they use (kWh), nothing more.
The reality is that the renewables industry has been taking everyone for fools, and so far they are proving themselves to be correct in that view.
We all need to smarten up, and I sincerely hope that you will take this matter a big step further.
We think relying on wind and solar for capacity is unwise. The RTOs seem to be slowly coming around to that perspective too.
Excellent work Gentle Folk. I'm not sure how susceptible to this solution Texas' rate structure is, but I would love to see something, anything, that will put an end to wind/solar in Texas (and everywhere else).
Texas would be immune from this, except in the panhandle where they have monopoly utilities. ERCOT is its own animal as an energy only market.
"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. "
I think ya'll left out a few steps for the less well educated. Surely, if the plant is paid for (fully depreciated) but still operational, then it is producing electricity at OpEx without any more capital expenses. How does this lead to "They no longer profit from"?
Does the tax on profits from depreciated plant rise to 100%? Does the utility regulator not allow any profit on paid for equipment?
I'm missing some step in there. Or was the statement shorthand for the idea that they no longer receive a nice tax break, which is no the end all and be all of profitability (I hope).
If the explanation is in the video, feel free to refer me there. I have not yet watched it.
Yeah we simplified it a bit here. Ongoing capital expenses would generate a return on equity, but those are usually much smaller than paying back the depreciation on a new plant that also requires ongoing capx for operations.
Sooo, I need to weigh in a bit on this proposal with some basic ratemaking practices as I know them. I say "as I know them" because, while the formula for electricity rates is very similar across the states, there are a few differences and my experience with a utility in one state may not be the same for another. In the state in which I worked on ratemaking, a utility only made a profit, or you could call it the cost of equity capital, on investments the utility made that went in rate base. Amounts paid to purchase power were in rates only at cost -- no profit nor even some compensation for the risks associated with power purchase contracts. The profit basis doesn't change with intermittent resources (if a PPA and not in rate base, no profit), but states with a Renewable Portfolio standard may also have ratemaking statutes, rules or practices that 'favor' the renewables, since the utility has little choice but to follow the law.
I understand the appeal of the idea of paying a utility its equity cost of capital only on production (availability or capacity factor?), but I am unclear on several of the details. Over what period would the law look to determine a rate base plant's availability/capacity factor? One year? Two years? More? If it is capacity factor, would it make a difference if the utility followed economic dispatch or if dispatch was through an RTO or similar transmission organization? (Remember, generating plants typically get dispatched on variable (fuel) cost, not capital cost, so dispatch may not reflect 'value' of the plant to the system.) If the capacity factor is calculated on an average, is any non-dispatch counted against the utility or are there exceptions (e.g., failure of a component under warranty or similar)? If the availability/capacity factor is calculated on a forecast basis, what generating plants are used for the calculation? On what basis would investors put up money for a return on something less than their investment? Would the rate of return on these plants (typically only adjusted in general rate cases) be done separately from the rate of return on distribution equipment (which in an average basis across a year, may have only about a 50% capacity factor except on peak, of course, when it is all needed unless the service territory wants rolling blackouts)? What if investors require a higher return, either on just the affected investments or all investment?
These are just some of the questions I have, based no my understanding of ratemaking. I can't help but think an easier answer is to require that in resource planning, resource bidding, and any other acquisition of generating resources, all such resources must be put on the same operating assumptions and if that means some kind of back up, so be it -- the 'cost' of that backup goes in the IRP or competitive bidding process or wherever necessary. By the way, since most utility acquisitions of or investments in generating resources will only happen after the approval of resource plans, the penalty you suggest for less than 100% availability/capacity factors better come up then and the utility be warned that it may be allowed no return on unavailable generating plants. I'm not sure why this won't just drive those generating resources to be all purchased power agreements, but so be it. Sooner or later, the regulatory formula is going to have to address how utilities earn income if they manage electricity power production portfolios but earn no return (cost of equity capital) on any generating plants that aren't mostly or fully depreciated. Of course, this gets much easier if power costs are just a straight pass through as they are for natural gas utilities. In that case, the utility customers bear all of the risk and income compensation generally isn't needed. Ratemaking is one of the few zero-sum arenas I know of; maybe independent power producers can be a source of savings for ratepayers but if you are only looking at utilities, disallowances or even bankruptcies have a way of creeping back in to increase electricity rates. There is no free lunch. I, too, am worried about overall system reliability; I just have questions about the 'solution' you are proposing.
Hi Pamela, this is exactly the kind of feedback we love to get from our readers.
Regarding the placement of assets in the rate base. In the early years of MN’s RPS, a lot of the assets were contracted through PPAs, but that is changing . During the more recent debates over MN’s energy policy, the IOUs have put language in the bills that allow the utility to own the replacement generation for retired assets, locking them into the rate base.
Time period: We like the idea of using capacity value, either MISO’s DLOL or effective load carrying capacity for the basis of ROE calculations because peaker plants are essential for reliability but will have low capacity factors by design. This gets around the question of economic dispatch, and in our minds, it would also avoid the conversation of utilization of distribution resources. Let us know if you think that needs more work!
Your point about the utilities understanding the rules beforehand is well taken, and the reason we think this legislation can be effective is that it establishes clear ground rules that reward the utility for investing in reliable assets while only making ratepayers foot the bill for ROE for the capacity value of the plant.
I think your point about this shifting resource acquisition to PPAs is a good one and that could undermine the intent of the legislation. Thanks again for your detailed feedback and we look forward to hearing more from you!
It took me a few minutes to pull up the
Holliday Creek Solar
Plant id: 64738 | Operator: MidAmerican Energy Co | Operator code: 12341
performance data this afternoon as the beta version of the EIA web site was a bit SLOW.
https://www.eia.gov/electricity/data/browser/#/plant/64738
I use to track the performance of our PV system in sunny CA monthly and we experienced upper single digit and low double-digit capacity factors in the winter months. The “MISO Capacity Accreditation DLOL” table seems to have some typo’s as there is no way a PV system in the upper mid-west will have a 24% capacity factor in winter.
Finding a way to minimize the cost allocations we use to pay PG&E for electric service in MISO’s service territory is important to keeping electrical prices affordable. We don’t miss paying over 40 cents a kwh on average to PG&E for service.
https://view.officeapps.live.com/op/view.aspx?src=https://www.pge.com/assets/rates/tariffs/res-inclu-tou-current.xlsx
Hi Mark, the table shows capacity values, which are different than the capacity factors and show the availability of a resource to meet peak demand. MISO shows that solar has a low value during winter and because solar is generally working during periods of peak summer demand, it gets a higher accreditation. We simply averaged the seasonal capacity accreditation for ease of presenting our idea.
Many thank's, Gentlemen, a very fine effort. Such a simple but invaluable concept which has the potential to benefit so many electricity consumers. Why have we taken so long to realise this essential piece of logic?
I hope that we can spread the word, here in Australia. The trouble is, there's not much evidence of intelligent life in politics down-under. But, we will never know, if we don't give it a go...
In May, 2024, the fountain of grift from the infamous bi-partisan Infrastructure Act, sends $10.5 billion taxpayer dollars to 21 states to "begin" the construction of 100,000 ultra high voltage transmission lines. Not to be outdone in September, 2024, as the election nears, another $7.3 billion heads out the door for "investment" (taxpayer money) out of the other boondoggle IRA to empower rural America. So, as wind turbines are hit by lightening and fires erupt that can't be extinguished landowners are not happy with the great deal they made. Like wind farms onshore that are failing and offshore Vineyard Winds first blade (the only wind project that would have been commercial) crashes into the ocean offshore Nantucket, it spreads fiberglass and foam across beaches from MA to RI. The public has had an awakening to the disaster of false promises, hidden agendas, exploding costs and unreliable energy from CA to NY under the religion of a carbon neutral economy.
As those Ultra High Voltage transmission lines enter parts of the country where they cheered for the clean energy they dreamed of, places like Santa Fe, NM, a religious enclave for anything that says "green" the people are protesting wildly as these giant eyesores begin construction across their fair county. But, as always, it seems the Democrats that run these places ignore reality and, of course, the same goes for the people who live there. They can't figured out that they voted for the people who made this disaster happen, and when the time comes, they'll vote for them again.
Hallelujah for this common-sense approach to incentives for power generation!! Although it is destined to fail (initially) at the hands of the Democrat-controlled Minnesota legislature it needs to be widely publicized to other states. I intend to send this article to our new Energy Secretary Chris Wright. I can imagine red-controlled states adopting this approach quickly. Perhaps public policy will finally be shaped by the wishes of the people (read "ratepayers" in this context) and common-sense incentives will prevail. Well done Energy Bad Boys!
Let us know if you hear back from the Secretary!
Btw, another excellent article. Doing the hard work is the only way this Green Scheme Scam will be stopped.
Thanks, Dave!
Fantatistic post!
Thanks, Thomas!