I wrote about getting a new job but didn't share many details. I don't necessarily plan to share much - I like the modicum of anonymity that I have - but let's just say I'm learning a lot about the electric energy sector and carbon emissions.
One of the themes I've been exploring is a bit on the cusp of being on most mainstream asset manager's radars - but it's the early retirement of coal power plants and the subsequent early retirement of all fossil fuel power plants.
You can accuse me of being a greenie all you want, but it's coming and makes economic sense!
In the proposal, utilities would shut down their fossil fuel power plants earlier than planned. They'd be paid for the remaining book value of the asset by a ratepayer-backed securitization. This would create room in a customer bill for the utility to spend a ton of money on renewable power assets to fill the earnings hole created by the early retirement.
It's a win for all parties! Customers get a more clean source of power with unchanged bills. Utilities get to grow earnings fairly dramatically, in some cases. And the holders of these new securities get a pretty low risk instrument.
I don't want to get too far into utility earnings models here, but some utilities could see their earnings jump by 20-40% under this scenario! Without raising customer bills! And de-risking the earnings mix!
To invest with this theme in mind, you'd look for a utility with a bunch of regulated power generation assets that rely on coal & natural gas. You'd want any natural gas utility business to be as small as possible. (The future of natural gas utilities is a story for another day.)
I'm starting my nibbling on this theme by buying small positions in PNW and NWE. They're both vertically integrated, fully regulated utility companies that should benefit from a securitization and early retirement reality. Throw in a 4-4.5% yield, and I'm a happy shareholder!
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