Indiana Utility Regulatory Commission and Legislature and Energy & Environment and Utility rates and Government & Economic Development

Bills seek utility rate flexibility to comply with EPA mandates

February 19, 2011

Indiana’s utilities have energetically sought legislation this session that would allow them to quickly charge ratepayers for the cost of new federal mandates to reduce pollution.

Ratepayer groups contend measures such as Senate Bills 102 and 251 in the Indiana General Assembly could effectively rubber-stamp rate increases without sufficient oversight of the Indiana Utility Regulatory Commission.

Whatever the pros and cons of such bills, it’s clear federal mandates are driving them.

One, known as the Transport Rule, is expected to be finalized by the Environmental Protection Agency by midyear and imposed next January.

It will require that Indiana and 30 other states make big reductions in sulfur dioxide and nitrogen oxide emissions from their mostly coal-fired power plants.

The EPA says their emissions waft across state lines and make it harder for downwind states to comply with federal air quality standards.

Under the new Transport Rule, the EPA estimates that sulfur emissions by 2014 would fall 71 percent from 2005 levels; nitrogen emissions, 52 percent.

The chemicals react in the atmosphere to form fine particles and ground-level ozone. That can cause respiratory and environmental harm.

Just how the state’s electric utilities will comply and how much it will cost ratepayers is unclear. Nationwide, the EPA estimates the annual costs of compliance at $2.8 billion.

Some utilities will install additional pollution-control devices or run existing equipment longer. Others will convert from coal to natural gas, which is a more expensive fuel. Or it might be more cost-effective to retire some coal units. About 35 gigawatts of the existing 314-gigawatt U.S. coal plant capacity could be retired due to forthcoming EPA air rules, according to a study by Boston-based Charles River Associates.

“It’s safe to say there will be an impact on the energy produced in Indiana,” said Scott Deloney, branch chief of air programs at the Indiana Department of Environmental Management.

Indiana utilities have argued they need flexibility to adapt to what remains a short time frame in which to comply with the Transport Rule, which is still fuzzy in some respects. For example, the EPA has yet to settle on to what extent the rule would permit trading of pollution credits.

“The companies are trying to plan. They’re not really sure what’s to be expected,” said Stan Pinegar, president of the Indiana Energy Association.

“We have not quantified cost impacts yet,” said Angeline Protogere, spokeswoman for Duke Energy, which has 780,000 customers in Indiana and is the state’s largest electric utility.

“There are several alternatives the EPA has proposed, and it’s not clear yet what direction they will go,” she added.

She said Duke over the last 10 years has spent $1.75 billion to reduce sulfur and nitrogen emissions 74 percent and 63 percent, respectively.

Indiana was one of a handful of states that proposed its own implementation plan to the EPA regarding interstate transport. The federal agency recently rejected IDEM’s plan, noting it was crafting its own due to a U.S. Court of Appeals decision to vacate and remand the federal Clean Air Interstate Rule. CAIR was the basis of several state plans.

States can come back with their own proposals in two years. In the meantime, IDEM officials say the federal rule will reduce flexibility a state may have had to help ease compliance. State agencies often have more information about particular plants’ existing pollution controls and other characteristics than the feds, Deloney said. Might, for example, the EPA allot one plant more credits than it needs and vice versa?

“Now, whether that glove fits or not, you’re going to have to wear it,” Deloney said of the EPA’s plan.

Ratepayer groups see that as an opportunity for investor-owned utilities to cram additional costs down customers’ throats for the enrichment of their shareholders.

Bills such as SB 102 and 251 should at least be amended to specify that utilities comply in the most reasonable, “least-cost manner possible,” said Jack Wickes, an attorney at Lewis & Kappes, who represents several of the state’s biggest industrial electric customers.

Helping fuel that concern are dramatic cost overruns at Duke Energy’s coal gasification plant being built in Edwardsport. It’s now estimated to cost $3 billion, compared with earlier estimates of $1.6 billion.

Duke insists the plant will generate more power with significantly less emissions than a conventional coal unit.•

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