DEPRECIATION AND EARLY PLANT RETIREMENTS

The document analyzes the role of depreciation in managing stranded assets during the early retirement of coal-fired power plants. It explains how regulators can use depreciation schedules and 'regulatory asset' accounts to balance the interests of utilities, consumers, and clean energy advocates. Key policy options discussed include accelerating depreciation to match retirement dates or extending schedules to reduce immediate rate shocks for consumers. The brief also highlights the potential for refinancing high-cost equity with lower-cost debt to lower the overall cost of the energy transition.

• The declining cost of wind and solar power has made the operational cost of coal generation exceed the cost of replacement in many U.S. regions, leading to a reconsideration of the prudency of continuing coal operations.
• In regulated utility markets, depreciation is an allocation method rather than a valuation method, and it determines the 'rate base' from which utilities earn a regulated return for shareholders.
• When plants retire early, regulators may move remaining book values from 'plant in service' accounts to 'regulatory asset' accounts to allow for the recovery of investments in rates.
• There is a regulatory debate regarding equity returns on regulatory assets; because the operational risks of a plant are gone after retirement, some argue that the justified equity return should be lower than that of an active plant.
• Accelerating depreciation to match early retirement dates can improve utility cash flow and ensure current users pay for the assets, but it typically results in immediate rate increases for consumers.
• Extending depreciation schedules can reduce the immediate financial burden on consumers and may be justified if future ratepayers benefit from the transition to lower-cost clean energy.
• Refinancing the undepreciated balances of retired plants by replacing high-cost equity with lower-cost corporate debt, ratepayer-backed bonds, or green bonds can reduce overall costs for consumers.

APA

LEHR, R., & O’BOYLE, M. (2018). DEPRECIATION AND EARLY PLANT RETIREMENTS. Energy Innovation. https://energyinnovation.org/wp-content/uploads/Depreciation-and-Early-Plant-Retirements-Brief_12.3.2018-2.pdf

Chicago

LEHR, RON, and MIKE O’BOYLE. DEPRECIATION AND EARLY PLANT RETIREMENTS. Energy Innovation, 2018. https://energyinnovation.org/wp-content/uploads/Depreciation-and-Early-Plant-Retirements-Brief_12.3.2018-2.pdf.

Wikipedia

{{cite report |last1=LEHR |first1=RON |last2=O’BOYLE |first2=MIKE |title=DEPRECIATION AND EARLY PLANT RETIREMENTS |publisher=Energy Innovation |date=December 2018 |url=https://energyinnovation.org/wp-content/uploads/Depreciation-and-Early-Plant-Retirements-Brief_12.3.2018-2.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{lehr2018depreciation, author = {LEHR, RON and O’BOYLE, MIKE}, title = {{DEPRECIATION AND EARLY PLANT RETIREMENTS}}, institution = {Energy Innovation}, year = {2018}, month = dec, url = {https://energyinnovation.org/wp-content/uploads/Depreciation-and-Early-Plant-Retirements-Brief_12.3.2018-2.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }