State sends IPL $10 million 'message' for subpar work

August 15, 2013

Indiana utility regulators Wednesday approved $511 million in upgrades to two Indianapolis Power and Light Co. power plants, but they weren't entirely happy about it.

Displeased with the quality of work IPL put into its request for state approval, the Indiana Utility Regulatory Commission opted to send IPL a "message" in the form of a $10 million penalty.

Specifically, the state agency tacked on an extra $10 million to a credit that IPL must give its customers as part of its project. In all, IPL must credit $39 million—up from an originally expected $29 million—for what is known as an environmental cost recovery rate base credit.

The credits are a way to keep customer rates down while power companies pay for capital projects.

"IPL’s presentation of its case in this proceeding fell below our expectations given the size of the proposed capital investment, the timeframe in which this Commission was provided to make a decision, and the contested nature of the proceeding that should have been anticipated prior to filing this Cause,” commissioners wrote in Wednesday's order approving the plant upgrades.

In particular, the company did not provide cost production models, Wednesday’s order notes.

Commissioners referred to $10 million increase as a “direct message to IPL management concerning how this proceeding should have been conducted.”

“Merely chastising IPL in this Order would not, in our opinion, have a lasting impact on insuring [sic] the quality of the support in the regulatory process,” the order said. “Instead, this Commission should provide feedback to a utility in a manner that provides an incentive for improving quality, while moving the regulatory process forward.”

An IPL spokeswoman declined to comment Thursday morning on the commission’s statements.

Despite its criticisms, the IURC said the project was “in the best interest” of IPL customers.

IPL now can proceed with upgrades to coal-fired power plants on Harding Street and at an operation in the southern Indiana town of Petersburg. The utility company intends to use the work to meet federal mercury regulations that go into full swing in 2016.

Environmentalists, including the Sierra Club’s Beyond Coal Campaign, had challenged IPL’s plans, saying they weren’t sufficient.

It would be better, opponents said, to shut down the plants altogether and replace them with more modern technology, like IPL is doing with a $631 million natural gas plant that will replace coal-fired units in Martinsville.

Opponents argued in the case that IPL's research was too slipshod and did not back its claims that upgrading coal units would be better.

IPL says the work is supposed to reduce the two operations’ mercury pollution 80 percent.

“IPL is focused on continuing to provide safe, reliable and affordable energy by retiring older, less efficient units and investing in cleaner generation,” IPL President Kelly Huntington said in a prepared statement Thursday morning.

“As we prepare to meet the future needs of our customers, we are reducing emissions dramatically in our coal-fired units and working towards a balanced electricity generation portfolio that also includes natural gas, solar and wind," Huntington said.

Due to the cost of the work, the power company expects to raise rates, starting next year, by an average 2 percent to 3 percent a year through 2017.

IURC spokeswoman Danielle McGrath said IPL will have to seek the state’s approval each time the company plans to hike rates to pay for the project.

A prepared statement from the Sierra Club described its opposition against the Harding Street and Petersburg upgrades as “far from over.”

"Instead of locking families into a future of higher bills and more toxic pollution from coal-fired power plants, IPL should heed the calls of thousands of Indy residents by retiring the dirty, outdated Harding Street coal-fired power plant and moving Indy toward a renewable energy future,” said Jodi Perras, Indiana’s representative for the Beyond Coal campaign.

IPL expects the construction work in Petersburg to begin this fall, with Harding Street starting next spring.

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