An asset owner raises low-cost debt to retire legacy coal-based assets and develop renewable replacement capacity and, in some cases, fund a Just Transition. The debt is repaid via a surcharge on ratepayers (i.e., customers), who are contractually obligated to pay a fair return on the utility’s capital. Following securitization, ratepayers typically see lower utility bills because higher-cost utility capital (equity and debt) is replaced with lower-cost capital (i.e., ratepayer-backed debt) and because operating costs of renewable energy are generally lower than those of a coal-fired power plant.

Case study

New Mexico's San Juan Generating Station



Key elements

Size of issue: Electric utility Public Service of New Mexico (PNM) received government approval to issue $360 million in ratepayer-backed bonds to fund the early retirement of the coal-fired San Juan Generating Station (SJGS). 

Use of proceeds:

• $283 million for coal plant cost recovery (i.e., compensate PNM for the anticipated write-down of the coal power plant). 
• $30 million for plant decommissioning and coal mine reclamation. 
• ~$40 million planned for a just transition fund, including $20 million for severance and job training (administered by PNM) and $20 million for worker assistance and economic development (to be administered by the state).

• The retired capacity will be replaced with 650MW of solar, 300MW of storage and 24MW of demand response. Note that renewables capacity will not be funded entirely using this ratepayer-backed bond.

Benefits of this structure 

• The utility is effectively “made whole” for the write-down taken due to the early retirement of the coal power plant.

• Ratepayers receive two key benefits: meaningful reductions in their electricity bills, and reduced levels of local pollution. 

• Funds can be made available for a Just Transition programme. 

Enabling conditions 

• State legislature grants the utility approval to employ this type of financing.

• Ratepayers are obligated to pay a fair return on the invested capital of the utility.

• Well-developed local debt markets.