March 1, 2018 Read More →

In New U.S. Tax Code, an Impetus for Coal-Plant Retirements

S&P Global Market Intelligence:

In a Jan. 30 report, The Brattle Group suggested utilities could find “creative ways” to return tax savings to customers other than a simple rate reduction, including accelerating book depreciation for early retirement of power plants or other at-risk assets.

Accelerated depreciation reduces an asset’s book value more quickly, allowing an entity to recoup costs over a shorter time period than initially accounted. For coal plants retiring before previously projected, accelerated depreciation can help match the end-of-life date of a plant and the full depreciation of that asset to avoid stranded costs.

On a Feb. 20 call with analysts, Duke Energy Corp. CFO and Executive Vice President Steven Young noted Florida regulators approved the company’s proposal to use benefits of tax reform to offset future increases in rates. Duke struck a deal in late 2017 that would fund investments in energy technology such as solar energy, grid modernization and battery storage in Florida. The deal also gave a green light to accelerate depreciation of certain coal units in the state.

As companies shift from coal, a counterweight to deciding to retire coal power is often the cost consumers will incur closing a plant that has not yet returned a utility’s investment. Often, accelerated depreciation allows for recouping costs more quickly, but by increasing customer rates.

For example, IDACORP Inc. proposed an accelerated depreciation schedule for its Valmy plant in late 2016 as part of its “glide-path away from coal” to ensure the costs of Valmy were paid by customers benefiting from the asset.

“Similar to paying off a home or car loan early, costs are compressed into a shorter schedule,” the company explained.

More ($): US tax reform could make it easier for some generators to speed coal retirements

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