Indiana Utility Regulatory Commission and Indianapolis Power & Light and Energy & Environment and Environment and Utilities

IPL seeks to expand green plans

September 4, 2006

Electric customers would gain new payment options and more access to "green power," and Indianapolis Power & Light would have more opportunities to profit, under a plan the utility filed Aug. 23 with state regulators.

The Empower Plan would expand on and replace IPL's 8-year-old Elect Plan, which expires at the end of the year. Only a small percentage of IPL's 465,000 customers have signed up for Elect Plan, which is not subject to standard, regulated rates.

As with Elect Plan, Empower asks that revenue generated under the program not be counted toward earnings regulators consider when approving standard rates.

The coal-burning utility also proposes taking a baby step toward renewable energy infrastructure. Under Empower, IPL would contribute up to $5,000 toward a customer's installation cost of photovoltaic solar panels.

IPL, which has a total generating capacity of 3,370 megawatts, also proposes investing in at least 20 megawatts of renewable energy production, such as wind turbines or biomass fuels.

The plan filed with the Indiana Utility Regulatory Commission may come at an opportune time for IPL, as consumers suffer "energy pricing strain," said Ann Murtlow, president and CEO of IPALCO Enterprises.

"[The strain] really results in a desire for folks to have some control over their expenses," she said, noting rising gasoline prices and energy costs in general.

Many aspects of Empower are geared toward residential customers. For example, the plan includes a new "time of use" program that encourages residents to shift electric consumption to evening hours, when rates are cheaper, during the summer.

Also new is a proposed Web-based energy analysis in which customers could determine how they're using energy and figure out ways to curb use. IPL also proposes free on-site energy audits for homes. Small commercial and industrial customers would pay for half their audits.

Perhaps most useful to business customers would be an expanded version of Elect Plan's fixed-rate program, which allows customers to lock in rates--typically for a year. IPL proposes expanding the fixed-rate billing plan to large-volume industrial users as an economic development tool.

Large-volume electric users also would now be eligible to purchase from IPL all or a portion of their electricity in the form of green power. IPL buys it from a Minnesota wind turbine farm.

IPL may soon own some of that generation capacity. Under Empower, it would explore investing in renewable generation, such as in a wind turbine.

On Aug. 15, Duke Energy, formerly known as Cinergy/PSI Energy, filed a plan with the IURC to recover the cost of buying 100 megawatts to be generated by wind turbines being erected in Benton County.

IPL also could look at burning farm wastes alongside coal in its power plants as another renewable energy source.

Green power is something a number of environmentally conscious firms might be willing to pay for, Murtlow said. "We think there actually will be a branding value" for business.

Some companies that already buy green power do just that. WhiteWave Foods, the Broomfield, Colo., dairy that makes Silk soy milk, states on its milk cartons that all the electricity it buys is from renewable energy sources and how it's equivalent to taking thousands of pollution-spewing cars off the highway.

The U.S. Environmental Protection Agency has formed a partnership among green power buyers and has been recognizing them on its Web site and through an awards program.

Jack Wickes, a Lewis & Kappes attorney representing many of IPL's largest industrial customers, said he doesn't know whether there will be any takers for green power, but "it at least opens the door."

One concern is how much of a premium would be paid for green power, Wickes said, noting Duke's recent IURC filing to recover costs from the Benton County wind turbine project.

In and of itself, "green power is a positive," said Jerry Polk, a partner at Mullett Polk & Associates, a law firm that represents groups such as Citizens Action Coalition. "Residential customers could benefit from a number of these programs," he said.

"At the same time, it shouldn't be a blatant profit-mongering scheme," Polk said.

IPL's new alternative regulation plan may get more than the usual scrutiny from consumer advocates, given previous issues involving Elect Plan.

In a confidential business plan IPL prepared in 2003, executives stressed the importance of boosting Elect Plan revenue because it does not contribute to the company's earnings cap. If IPL exceeds the cap, customers and regulators can request that rates be lowered.

Executives were concerned then because IPL "is currently earning and is projected to earn among the highest returns in the country for an electric utility and the preservation of a such a return should be top priority," the plan stated.

The plan recommended IPL "continue to provide mechanisms like Elect Plan ... and operate in a manner that does not attract the negative attention of the IURC."

IPL, through IPALCO, is under pressure to generate millions of dollars a year in dividends to parent AES Corp., a Virginia-based utility holding company that bought the local utility four years ago.

So-called non-jurisdictional revenue--the type generated by Elect Plan--was projected by IPL to double in 2003 over 2002--to $60 million--and continue to grow. Total revenue that year was $832 million.

In 1998, IPL was able to convince regulators to exclude Elect Plan revenue from the IURC-imposed earnings cap because of the risks inherent in the plan. If costs for coal or other expenses fall during the life of the plan, IPL gets to profit from the decline. But if they rise, IPL must shoulder the higher costs rather than passing them on to customers.

Last fall, IPL was suspected by the state Office of Utility Consumer Counselor of passing on to standard customers Elect Plan expenses as part of a quarterly rate adjustment case. The adjustments allow utilities to pass on to customers paying regulated rates the cost of coal to generate electricity.

IPL countered that it has correctly and consistently accounted for Elect Plan revenue over the years. But at the same time, it agreed to a $10 million refund for customers, ostensibly as a way to help them with high winter heating costs.

With Empower, "it really gets down to how certain costs and revenues get allocated," Polk said. "The devil is in the details and in the accounting."

Duke Energy, the largest electric provider in the state, also offers a green power option and at-home energy audits. It recently asked the IURC for permission to launch a "personal energy report" program.

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