Regulation and Indiana Utility Regulatory Commission and Citizens Action Coalition and Electric and Renewable Energy and Utility rates and Energy & Environment and Utilities

Bill would let utilities pass on more costs without rate hearings

February 26, 2007

A bill that would require Indiana's coal-reliant electric utilities to generate at least 10 percent of their power from renewable energy sources like wind and landfill gas appears stuck on the back burner.

Ratepayer groups say that might be just as well. They say House Bill 1496, which is stuck in committee, is typical of what they see as a disturbing trend: allowing utilities to pass the cost of mandates directly to consumers.>
Customer groups point to a list of bills in the Indiana General Assembly that would give monopoly utilities the ability to pass along even more costs, in lieu of a traditional rate case that balances costs against a utility's expense reductions and overall financial situation. For example:

Senate Bill 206. Electric utilities could petition regulators to pass on costs of virtually any pollution-control project, not just the sulfur dioxide and nitrogen oxide scrubbers that now qualify for recovery.

SB 410. Ratepayers could be hit up for costs of "load management programs" such as metering devices that would help utilities bill different rates during certain times of the day.

HB 1722. Gas or electric utilities that buy gas from coal gasification plants as a subsitute for natural gas could recover costs through rate adjustments. The bill would be a cherry for Citizens Gas & Coke Utility, Vectren Corp. and Northern Indiana Public Service Co., which are partners in Indiana Gasification's plant to be built in southern Indiana.

"If all this stuff passes, utilities won't have to file another rate case. It will be pillage time at Indiana's utility companies," said Grant Smith, utility and environmental coordinator at Citizens Action Coalition.

Recovering costs from ratepayers through so-called trackers, rather than through a full-blown rate case, isn't anything new. The procedure stemmed from the energy crisis over 30 years ago when volatile fuel prices put a strain on utilities.

Utilities argue that trackers are a more efficient and timely way to recover certain costs and less expensive than litigating a rate case. They also note that the Indiana Utility Regulatory Commission must still weigh whether the request is reasonable and fair to ratepayers.

But ratepayer groups are complaining of tracker fatigue. Over the years, the list of trackers has grown beyond fuel adjustment costs, to such expenses as pollution-control scrubbers and customer energy conservation programs.

Shareholders vs. ratepayers

Ratepayer groups contend that trackers are more about shielding utility shareholders from risk and to-heck-with-ratepayers. They point to language in HB 1496 that would allow utilities to recover the cost of providing electric and gas hookups to ethanol and biodiesel refineries.

The utility industry argues that the emerging biofuels industry is risky, noting the soaring price of corn used to make ethanol and the possibility that some of the two dozen plants planned in Indiana may fail.

"The whole thing down there is about sacrificing ratepayers," scoffed CAC's Smith.

The Indiana Industrial Energy Consumers Inc. calls trackers a "surrogate for regulation.

"INDIEC is genuinely concerned about the prolilferation of utilities tracking cost increases instead of pursuing rate cases at the IURC," Jewell DeBonis, of Indianapolis law firm Lewis & Kappes, said in testimony last month before the Senate Utility and Regulatory Affairs Committee.

Industrials consume about 30 percent of the energy used in the state, according to the group. Energy costs account for 19 percent to 24 percent of the industrials' operating budgets.

DeBonis said the problem with trackers "is that no consideration is given to offsetting cost reductions or increased revenues" of the utility.

Only in a rate case are expense reductions and other offsetting factors fully factored in. But many utilities have gone years without seeking a rate case, helped in part by new trackers approved by the Legislature, by low interest rates, and by a relatively docile regulatory climate in Indiana.

In some cases, a thorough regulatory review has paid off for consumers. The IURC launched a reverse rate case against Northern Indiana Public Service Co. five years ago. It resulted in a settlement in which the utility in 2002 agreed to return a staggering $225 million to ratepayers over four years.

"If we are going to have trackers," DeBonis testified, "They should not be one-way streets to higher rates. It should never be easy for a monopoly utility to reach into consumers' pockets and take their money."

Not so fast, says the Indiana Energy Association, the group representing 14 of the state's largest utilities, including Indianapolis Power & Light and Duke Energy.

Trackers have been used to return money to shareholders, as well, such as the merger savings between North Carolina-based Duke and Cincinnati-based Cinergy, said the IEA's Stan Pinegar.

"They leave you with the impression that trackers have taken over the utility bill. They've not," he said.

If they haven't yet, they will if current legislation is passed, say customer groups battling measures such as SB 206. That's the bill that would allow utilities to tap ratepayers for new types of pollution-control projects.

Tough new government regulations for mercury and carbon dioxide reduction are already percolating.

The IEA's Pinegar said other rules will require Indiana's sulfur and nitrogen emissions to be cut as much as 68 percent by 2015.

The association argues that SB 206 is good for ratepayers in the long run. Utilities could begin deploying new pollution-control equipment possibly two years before many of the anticipated government standards kick in. That head start means utilities can obtain equipment and labor before it becomes scarce and more expensive, said Pinegar.

He said the IURC still must consider during a tracking proceeding whether costs are reasonable.

"The commission is watching the expenses," he argued.

Renewable issue lives

While the battle rages over trackers, the issue of renewable energy hasn't gone away, despite the sidelining of HB 1496.

Some utilities are already diversifying their sources of energy.

Duke Energy, for example, has agreed to buy up to 100 megawatts of power from a wind turbine farm being built in Benton County.

Bloomington-based Hoosier Energy Rural Electric Cooperative Inc., which provides electricity to 17 electric cooperatives including Johnson County REMC, has sought IURC permission to generate up to 18 megawatts of power from landfill gas.

The first, set to go online later this year, is a 2 megawatt plant at a landfill used by Clark and Floyd counties, capable of powering 1,100 homes. That's a tiny fraction of Hoosier's overall power generated by coal and natural gas.

"We've always looked for diversity in our power supply. Also, our board of directors last year adopted a renewable energy policy that encourages us as a company to seek out renewable energy projects," said spokesman Chris Tryba.

But for many utilities, a percentage mandate, as called for in HB 1496, is probably necessary, said Brian Wright, utility issues coordinator at Hoosier Environmental Council.

That's because many utillities "just want to do clean coal and coal gasification" projects.

Wright said about 20 other states have already adopted a renewable energy standard.

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