2025
Depreciation, Reliability Theory and Yogi Berra
By: Branko Terzic
America’s future electric grid is expected to provide greater grid reliability and superior service at reasonable cost. This will come from the introduction of a “smarter” grid, “smart” metering, improved transmission efficiency, grid scale storage, and a variety of other new technologies (AI recently added to the list. Read more
The Electric Transition and Obsolescence
By: Branko Terzic
The nation’s electric grid must be rebuilt, expanded and digitized. Partly this will be due to the introduction of the “smart grid”, “microgrids” and “the Internet of everything.” In addition, the transition of transportation from internal combustion engines to electric vehicles has been estimated to require doubling the grid by 2050. If this is true, why aren’t regulators recognizing that the current grid will need replacement sooner than expected and reflect that in current depreciation rates? The operative issue is one of extraordinary obsolescence. Read more
Capital Recovery Requires Executive Attention
By: Branko Terzic
A major component of any public utility’s annual expenses is that of depreciation, the recovery of capital. Yet, it does not receive the attention it should from utility management. Most utility managements rely on a periodic review of their depreciation rates every four to six years by independent depreciation consultants. This is not adequate monitoring of the investor’s assets on the balance sheets. EEI members companies reported $ 1.7 Trillion in assets in 2021. Read more
New Technologies, Regulation and Risk
By: Branko Terzic
How difficult is it to predict when a certain technology will become obsolete? The trick is to both identify the new replacement technology and estimate some penetration rate as in how quickly the new will replace the existing technology. In the regulated utility industry that’s in essence the role of the depreciation engineer or analyst. There is also the additional consideration of whether the new technology presents new heretofore unrecognized risks. Read more
Prediction for Capital Recovery
By: Branko Terzic
Hydrogen fueled power pants, small modular nuclear reactors, utility scale storage, new transmission hardware and a variety of other new technologies are desired, and expected to be introduced, in the near future, into America’s electric grid. These and other, yet uncommercialized, technologies are required for the energy transition. In some cases, these anticipated technological improvements may accelerate the removal of existing obsolete plant assets and equipment. Clearly, as old equipment reaches the end of its economic life it needs to be retired and fully depreciated on the books of the regulated utility by the retirement date. However, one problem facing public utilities and regulators is that existing depreciation rates for asset classes are based on service lives, salvage values and cost of removal that are out-of-date and a relic of the older technologies. Thus, retirements may take place before the equipment is fully depreciated. This mistake leads to the necessity of making decisions about what to do with “stranded costs”, of anything at all. Read more
Old Wires Still Need Proper Depreciation
By: Branko Terzic
Reference is to the Washington Post May 29, 2024, article (Page A4) “Old wires limit capacity of US power grid, slowing transition to clean energy” by Shannon Osaka. As reported “…the nation’s sagging, out-of-date are being overwhelmed - slowing the transition to clean energy and the fight against climate change.” The article is fairly written with citations to various studies of US transmission grid prepared by universities, government agencies and consultants. Read more
Depreciation Considerations Under Energy Transition Scenarios
By: Branko Terzic
The “grand transition” in energy in the USA away from fossil fuels to renewable and/or non-carbon emitting technologies is well underway in many states. This transition will require: the replacement of existing coal and natural gas power plants with renewable energy production; the replacement of natural gas in space heating and cooking with electricity and the replacement of internal combustion engine (ICE) vehicles with electric vehicles (EV). Read more
Depreciation Analysis: Unique to Public Utility Regulation
By: Branko Terzic
Depreciation can be a fascinating subject. Or not. To the average citizen the subject comes up in polite, but heated, conversation only when discussing the loss in value of the consumer’s second biggest investment - a new vehicle - as the value drops instantly when one leaves the automobile showroom floor. The family home, the biggest consumer investment, however, for years been the subject of “appreciation” rather than “depreciation”. Of course, in this discussion the term “depreciation” refers to a “loss in value”, which is only one its definitions. It the other definition that deserves more attention in regulated utilities. Read more
Capital Recovery in Regulated Utilities: Needs Attention
By: Branko Terzic
Today the practice of depreciation analysis for regulated electric and natural gas utilities is almost exclusively devoted to the estimation of economic service lives and net salvage for regulated utility assets. Depreciation, also called capital recovery, is a major annual expense for regulated utilities. To review the significance of depreciation we can look at the Edison Electric Institute’s annual Financial Review which presents a consolidated balance sheet and income statement for the 44 member companies. I have reprinted some of the numbers from the EEI report in the table below. Note that: Read more
Annual Depreciation Review: No Surprises
By: Branko Terzic
Who oversees the $64 Billion each year in U.S. electric utility costs labeled “depreciation expense”? For many electric utilities, the answer is “Maybe nobody!” as depreciation for over $1.7 Trillion in assets is often left to review by consultants every four to six years. Read more
2024
Keep the Lights on at FERC!
By: Branko Terzic
It was reported that former Federal Energy Regulatory Commission (FERC) Chair Neil Chatterjee “gave a road map to the Trump transition team on how to implement job cuts” at the FERC. Once called a “backwater agency” by the New York Times, the FERC, at this point, in my opinion, needs to be adding not cutting staff. Here’s why. Read more