Avoiding the Stranded Asset Mistakes of the Past: A Case Study in Wisconsin
Wisconsin ratepayers have already been stranded by fossil fuels once, but a second mistake — and higher rates — can be prevented.
Starting next year, Wisconsinites will pay an average of $2.40 each month for a coal-fired power plant that does not provide any electricity to the grid. And they will continue to spend roughly $28.81 each year, for the next 17 years, because of a past decision to invest in coal that proved uneconomic as more affordable alternatives became available. Wisconsin Electric Power Company (WEPCO) residential customers will have to pay over $681 million in net present value (NPV) due to this costly decision. If both coal and gas plants become stranded assets (in the same 17-year timeline), households will have to pay over $964 million (NPV) for both costly mistakes.
WEPCO is proposing to replace the coal-fired power with gas-fired power, a decision that will cost WEPCO residential customers an average of $6.52 each month, or $903 in net present value (NPV) over its full 30-year life. That assumes the gas plant runs for its full useful life and does not retire early like the coal plant.
As utilities in Wisconsin and elsewhere look to invest huge sums of money into new gas-fired power plants, they run the risk of repeating the mistakes of the past. But there is good news: there are opportunities to prevent another wave of stranded assets. Instead of leaving ratepayers with higher bills, utilities can instead invest in lower-cost, cleaner, and more durable alternatives.
The burdensome legacy of the Oak Creek Power Plant
At the end of 2025, WEPCO will retire the Oak Creek Power Plant, a 640 MW coal-fired power plant with $645 million left on the books, 17 years early. This early retirement will turn Oak Creek into a “stranded asset” — infrastructure owned by the utility that has lost value before the end of its planned life and that still has debt left to be recuperated. Because the investments into Oak Creek were approved by regulators, WEPCO will continue to profit from a power plant that is no longer generating electricity, with individual ratepayers on the hook for these costs at a rate of nearly $30/year for the next 17 years.
Once it became clear that Oak Creek was uneconomic because of cheaper electricity from natural gas and renewables, retiring the coal plant was the right thing to do, but WEPCO could have alleviated some of the burden on ratepayers by using a strategy known as securitization. Had WEPCO securitized the Oak Creek debt, it would have cut profits for WEPCO, but ratepayers as a whole would have saved $117.5 million — reducing the monthly burden by 20 percent, or about $5.25 every year for the typical residential customer.
History isn’t repeating itself, but we may be doubling down on bad decisions
In 2011 WEPCO believed coal was still the cheapest option and decided to invest in nearly a billion dollars’ worth of upgrades to keep Oak Creek running for another 30 years. However, alternative sources of energy quickly became cheaper than even optimistic projects assumed — leaving the power plant as an expensive sunk cost. WEPCO itself admitted that closing the coal plant would save ratepayers millions of dollars each year in operating costs alone.
Business as usual
Rather than learning from the mistakes of betting on fossil fuels in an era of declining clean energy costs, WEPCO is looking to invest billions in new natural gas-fired power plants to meet uncertain and potentially overstated load growth projections. If WEPCO decides to double down on fossil fuels and convert Oak Creek into a natural gas plant, RMI finds that WEPCO residential customers could be paying $902.89 (NPV) over the 30-year lifetime of the new gas plant. However, this assumes everything goes according to plan.
Accounting for risks
Natural gas prices are volatile, especially during extreme weather events, which are only expected to become more severe and frequent. Just a few days of spiking natural gas prices in 2021 during Winter Storm Uri cost households in Texas an additional $4 each month, Oklahoma households nearly $8 each month, and Colorado households up to $18 each month.
In addition, increasing the number of liquified natural gas terminals — as is the case under current US federal policy — opens up domestic natural gas to the global commodity market and is projected to increase natural gas prices by 31 percent. Even more, the current supply chain bottleneck for natural gas turbines is expected to lead to delays and additional costs that will ultimately be borne by ratepayers.
Higher overall fuel costs as a result of global markets, a fuel cost spike as a result of supply disruptions from severe weather events, and more expensive turbines due to supply chain issues could lead WEPCO residential customers to pay an extra $57.86 every year, for a total of $1,591 (NPV) through the next 30 years.
Furthermore, the Oak Creek gas plant could end up stranded by lower cost, less volatile, and cleaner electricity sources, just like its coal predecessor. Clean energy portfolios are already less expensive than 72 percent of new gas plants without subsidies, and cost less than 99 percent of new gas plants when fully maximizing Inflation Reduction Act tax credits. Grid-enhancing technologies could unlock additional low-cost renewables, saving $7 billion in the PJM region alone. Virtual power plants can be built quickly, improve grid reliability, and reduce the need for these peaking gas plants, saving $17 billion nationwide by 2030. Utilizing existing interconnection points to build clean energy via Clean Repowering could enable up to 250 GW of additional solar, wind, and battery storage, all while saving ratepayers $21 billion across the country. And recent research has shown that with minimal amounts of load flexibility, 100 GW of new load could be added to the grid without needing to add new electricity resources.
Another stranded asset
If WEPCO fails to properly consider these alternatives, it will be their customers who pay the price. If the gas plant becomes stranded just 10 years early, WEPCO residential customers could end up paying an additional $1.73 per month over the 10 years for a plant that is no longer in service, resulting in $33.57 (NPV) for each household. If the gas plant is stranded 17 years early, the same amount of time that the Oak Creek Power Plant is stranded for, it will cost residents $1.96 each month or an average of $87.59 (NPV) over those 17 years. On top of the $284 (NPV) that WEPCO residential customers will owe for the coal plant no longer in operation, total stranded asset costs could reach $371 (NPV) for each WEPCO residential customer.
Let’s learn our lesson the first time
Concerns around load growth have been driving large numbers of these new gas plants, including in Wisconsin. However, utilities have historically overestimated load forecasts, and it is unclear how much of new electricity demand is real, with some data centers already being canceled. Regulators can help illuminate what is real and what is not by using best practices when scrutinizing load forecasts, as well as exploring creative options such as co-locating clean energy resources with large loads.
Even as coal plants have been steadily retiring over the past decade, utility ratepayers are often still left paying for these stranded plants that are no longer providing benefits to customers. Today, that next stranded asset risk lies with gas, as fears around load growth coupled with declining clean energy costs could lead to a massive oversupply of new gas plants. WEPCO has a consequential decision to make — invest in a volatile, expensive fossil asset that could leave households on the hook for paying hundreds of dollars for an unused asset, or invest in cleaner, more affordable alternatives that are ready to be deployed today, while preparing its grid for the new clean energy sources of the future.
———–
Analytical note: Monthly and annual bill numbers are calculated as nominal 2025 dollars, and overall total costs are calculated in NPV. All NPV calculations were done in nominal dollars assuming a 2.43 percent 5-year inflation rate, 2 percent long-run inflation rate, and using a 7% discount rate. Cost allocation to residential customers was allocated according to the proportion of revenue requirement assigned to the residential class in WEPCO’s most recent rate case.