Securitization of New and Existing Infrastructure Investments

Table Of Contents
  1. Why This Matters
  2. Policy Solution
  3. Model Policy Features
  4. Potential Limitations & Pitfalls
  5. Complementary Policies
  6. Additional Information
  7. Examples
  8. Resources
COMMUNITY BENEFITAffordability, Decarbonization
KEYWORDSDecarbonization, Electricity, Grid Infrastructure, Remediation, Fossil fuels
REGIONState
AFFORDABILITY STRATEGYFunding and Financing, Utility Reform: Energy Transition, Utility Reform: Cost Containment
OVERSIGHTUtility Commission
POLICY MECHANISMLegislation, Regulation

Why This Matters

Utility ratepayers are on the hook for utility investments made decades ago, whether or not those investments were sound or make sense today. Utility commissions often approve multi-decade payback periods for large utility investments, and ratepayers must still pay for these investments even if they are poised to become stranded assets and no longer play a useful role on the electric grid—or, for gas utilities, as part of the gas system. For example, many coal plants are no longer cost-effective to run compared to lower-cost alternatives such as renewable energy, but continue to be operated by vertically-owned utilities (who own their own power plants, which is not legal in all states) in part because they have little incentive to retire a plant that they are authorized to continue to charge ratepayers to pay for.1 In other cases, utilities are responsible for large and unexpected infrastructure investments, such as rebuilding after a hurricane damages grid infrastructure. These investments are typically financed through a mix of shareholder equity and debt, and can have a large and unexpected impact on customer bills.

Policy Solution

Securitization is a financial instrument that either enables new investment or restructures existing utility investments by effectively refinancing them with bonds, rather than equity. This approach lowers borrowing costs by enabling utilities to issue high-rated securitized bonds. This financing is still recoverable in utility rates, but at a much lower rate of return than shareholder-funded financing, thus reducing overall affordability impacts. It may also result in a smoother, levelized annual payback, as compared to traditional financing mechanisms for which payback is typically higher at the beginning and declines as an asset depreciates over time.2

Model Policy Features

  • Legislation permits securitization to be used as a form of utility financing that is recoverable in rates and regulated by a utility commission. 
  • Permissible financing must be considered in the interest of ratepayers with sufficient guardrails and utility commission oversight on authorized spending. Provisions include, for example, a clear demonstration that the investment will provide ratepayer savings; authorized spending for utility commissions to hire outside experts to provide additional oversight; and funding in the public interest, such as coal plant decommissioning and worker retraining.3 
  • Typically, a separate special purpose entity (SPE) is set up to issue bonds to investors. 
  • The bond repayment is recovered in rates through a dedicated charge which cannot be changed or removed over time until the bond is repaid (except adjustments to ensure full bond repayment, such as when the size of the customer base changes), yielding high-rated bonds with lower interest rates (e.g., 3–4 percent4) than for riskier investments.
  • The bond repayment schedule is typically levelized over the payback period, resulting in consistent ratepayer impacts as compared to debt- or equity-financed investments, which are higher initially and decline as the investment depreciates.
  • Financing through securitization is typically limited to specific types of investments, such as: 
    • Coal plant retirements: Aging fossil fuel power plants, particularly coal plants, often continue operating even when they are uneconomic to run because the initial investment has not been fully paid. Securitization of these investments can lower the required payback costs and enable early retirement.5 In some states, the funding from selling bonds can support just transition goals, such as workforce retraining in coal plant communities and coal mine remediation. Authorization of coal plant securitization can be coupled with guardrails for new generation investments allowed to replace the coal plant, such as ensuring they align with state carbon targets6 or requiring the inclusion of energy efficiency and distributed resources.7
    • Climate resilience and recovery: The costs to harden the electric grid in the face of mounting climate impacts, or to repair the grid in the wake of climate-related damages—such as from wildfires and hurricanes—can require substantial capital investments with potentially large ratepayer impacts. In the case of disaster recovery, these costs could have significant impacts on ratepayers due to their sudden and unexpected nature. Securitization of grid hardening and climate disaster recovery spending can reduce the ratepayer impacts of these climate-related investments.  
    • Capital-intensive grid investments: Securitization has been proposed for other capital-intensive grid investments, such as new transmission lines needed to facilitate widespread renewable energy adoption. Securitization can be used to reduce the ratepayer impacts of such investments as long as there are appropriate guardrails to ensure, for example, in the case of transmission, that lower-cost alternatives such as reconductoring or distributed energy have been fully considered. 

Potential Limitations & Pitfalls

  • Securitization could be used to smooth out the ratepayer impacts of investments that are typically recovered in short-term ratepayer charges (e.g., for energy efficiency programs), but this does incur increased total costs due to the additional financing costs.8 
  • The economic benefit of securitization depends on the existing utility cost of capital (from equity and debt), so these relative economics must be assessed to determine if securitization will reduce costs. 
  • As with any utility financing mechanism, appropriate guardrails and oversight are required to ensure that the investment is in the public interest (e.g., limiting investments in new fossil fuel infrastructure that may become a stranded asset; not requiring ratepayers to pay for costs that should be borne by shareholders; or ensuring bond repayment terms are favorable to customers).
  • If securitization is considered an “escape valve” for poor investment decisions, it may limit utility accountability and discourage utilities from making smart, risk-averse investments (e.g., it may reduce the disincentive to invest in fossil fuel infrastructure if the risk of stranded assets and volatile fossil fuel costs may be offset through future securitization). 
  • The levelization of repayment under securitization may reduce current ratepayer impacts, but it may result in higher relative ratepayer impacts in the future than other financing mechanisms, as costs are spread out over decades. As the surcharge typically appears as a fixed charge on bills, it is not progressive (meaning, low-income customers and wealthier households typically pay the same amount).

Complementary Policies

Complementary policies to securitization of new and existing grid investments include:

Additional Information

Securitization is currently legal in dozens of states for specific types of cost recovery. Depending on the state, securitization laws enable its use to fund recovery from disasters and extreme weather events, early power plant retirements, restructuring stranded costs, energy and fuel costs, and other capital investments such as pollution controls.10

Examples

1. Colorado Energy Impact Bond – SB19-236: Sunset Public Utilities Commission (2019)

Details:11

  • Enables utilities to use securitization as a financing mechanism if they can demonstrate net cost savings. 
  • Provides authority for “state regulators” to issue up to 30-year bonds and charge ratepayers a required (“non-bypassable”) charge to pay for those bonds.
  • Can be used to refinance power plants and enable early retirement as well as support worker retraining and assistance, and replace local tax revenue previously paid by the retiring facility (e.g., for schools).
  • The Commission can hire outside consultants to evaluate the financing structure and ensure the lowest-cost financing pathways are achieved.
  • Requires annual disclosure of securitization impacts on consumer rates.
  • SB19-236 requires utilities to file a Clean Energy Plan, and the Colorado Energy Impact Bond is intended to facilitate uneconomic fossil fuel plant retirement in pursuit of achieving a utility’s clean energy goals.

LIMITATIONS:

  • In its current structure, utilities must voluntarily choose to refinance using securitization, leading to an ongoing push in Colorado to empower the utility commission to force coal plant retirement and securitization when it is expected to be in the ratepayer’s best interest.12

Resources

Written: April 2026

  1. Varadarajan, U., Posner, D. and Fisher, J. (2018). Harnessing Financial Tools to Transform the Electric Sector. The Sierra Club. ↩︎
  2. Tierney, S., and Hibbard, P. (2025). Securitization: Using a Well-Established Tool to Support a More Affordable Energy Transition in Massachusetts. Analysis Group. ↩︎
  3. Lehr, R. and O’Boyle, M. (2020). Comparing 2019 Securitization Legislation in Colorado, Montana, and New Mexico. Energy Innovation. ↩︎
  4. Lehr, R. and O’Boyle, M. (2020). Comparing 2019 Securitization Legislation in Colorado, Montana, and New Mexico. Energy Innovation. ↩︎
  5. Climate XChange. Coal Plant Securitization. Climate Policy Dashboard. Accessed: April 10, 2026. ↩︎
  6. Lehr, R. and O’Boyle, M. (2020). Comparing 2019 Securitization Legislation in Colorado, Montana, and New Mexico. Energy Innovation. ↩︎
  7.  Sierra Club Lone Star Chapter. (2021). Comments on HB 4492. ↩︎
  8. Tierney, S., and Hibbard, P. (2025). Securitization: Using a Well-Established Tool to Support a More Affordable Energy Transition in Massachusetts. Analysis Group. ↩︎
  9. St. John, J. (2024). How $7.3B will help rural co-ops build clean power—and close coal plants. Canary Media. ↩︎
  10. Menhorn, C. and MacDougall, I. (2025). Securitization: A valuable tool for cost recovery opportunities outside a normal rate case. MCR. ↩︎
  11. Lehr, R. and O’Boyle, M. (2020). Comparing 2019 Securitization Legislation in Colorado, Montana, and New Mexico. Energy Innovation. ↩︎
  12. Weiser, S. (2026).  Colorado regulators could force Xcel customers to pay for troubled plant for decades. Colorado Politics. ↩︎