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Consumer groups balk at bills to speed utility cost recovery

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Indiana lawmakers have a long record of giving utility companies mechanisms to raise rates without having to litigate full rate cases.

Trackers, as they are called, became popular 30 years ago when volatile fuel prices put a strain on utilities and a timely solution was needed to help them recover rising costs. Trackers have grown to cover everything from pollution-control costs to customer energy-conservation programs.

Ratepayer groups worry new legislation coursing through the Indiana General Assembly amounts to trackers gone wild. They warn measures would effectively rubber-stamp rate increases without sufficient oversight of the Indiana Utility Regulatory Commission or input from ratepayer groups.

One measure is Senate Bill 102, which would require that the IURC allow an energy utility to bill customers for the costs of new federal mandates involving environmental issues, renewable energy, energy efficiency and transmission systems. The measure would apply to enacted mandates and those in which there is "reasonable certainty” to be enacted.

Trackers already amount to a significant portion of a customer’s bill. For example, trackers are involved in nearly 23 percent of the bill paid by an average Indianapolis Power & Light customer, versus 13 percent in 2007, according to IURC data. The utility hasn’t had a full-blown rate case for nearly 20 years

“We have all the trackers you could ever need,” said Tim Stewart, an attorney at Lewis & Kappes representing industrial ratepayers.

But the Indiana Energy Association, which supports SB 102, said the industry faces a number of potential new federal mandates. Among those that could affect electric utilities are rules under consideration for coal ash waste and ozone, said Stan Pinegar, president of the IEA.  

“We find ourselves here in Indiana in a bit of a bull's-eye,” he said of the state’s predominately coal-fired electric-generating industry.

As with trackers already established for sulfur and nitrogen pollution-control costs, the bill would allow electric utilities to recover in real-time costs associated with federal mandates rather than defer them to a full-blown rate case years later, when rates could jump by double digits.

 “We’re in a bit of a rising-cost scenario, Pinegar said. “We believe it will help us provide a more gradual increase in those rates.”

Ratepayer groups say the SB 102 would allow the commission to OK trackers without necessarily providing them as much opportunity to intervene. If the commission finds after a notice and a hearing that the utility’s proposed federal compliance plan is “reasonable and necessary,” the bill states, the commission must approve the rate adjustment.

“I would say it emasculates the commission,” said Stewart.

Pinegar said the bill would provide substantial opportunity for review and input from ratepayer groups.

The bill would require a utility to file a description of the federal mandate, an estimate of costs and the utility’s plan to comply.

Citizens Action Coalition says the measure could minimize considerations of what’s best in the public interest. “They want the IURC to rubber-stamp” a compliance proposal, said Kerwin Olson, CAC’s program director.

In response to ratepayer concerns over SB 102, Sen Jean Breaux, D-Indianapolis, has sought an amendment that would require the commission to select a compliance plan to federal mandates that  is “at the lowest cost to ratepayers.”

Pinegar, however, said what appears to be least-cost method in the short-term—such as upgrading an aging power plant that instead should be retired—may not be cost effective in the long run. “In our view this bill will help us to go through this [kind of] analysis.”

The bill comes as the credibility of the IURC has plummeted. While ratepayer groups for years have cited a revolving door of employment between utility companies and the state agency charged with regulating them, the matter came to a head last year when Gov. Mitch Daniels fired agency head David Hardy.

Daniels said Hardy failed to remove IURC law judge Scott Storms from presiding over Duke Energy Corp. cases even as Storms jockeyed for and eventually accepted a job at Duke.

Hardy also coached Storms to clear a state ethics review panel and appeared to mock the process. E-mails obtained by CAC also showed Hardy enjoyed a cozy relationship with Duke executives even as the agency was seeking commission approval to pass on additional cost overruns to ratepayers for the utility’s $3 billion coal-gasification plant under construction downstate in Edwardsport.

SB 102 isn’t the only measure that could give utilities broader power to pass on costs more on their terms.

Last month, Sen James Merritt, R-Indianapolis, filed SB 512, which would allow utilities to file for an annual rate review two years after their last rate case.

A traditional rate case involves extensive evidentiary hearings and can take two years to complete. SB 512 would essentially guarantee a rate of return. If income then falls short, a utility could more quickly raise rates.

Supporters say the net effect is the potential to mitigate big rate jumps. They also say the bill would require utilities that seek an annual review to file a full rate case within six years.

Critics say the proposal is more about protecting utility-shareholder returns, diminishes the incentive for utilities to control costs and reduces ratepayer groups’ ability to intervene. Utilities filing an annual review could also elect to suspend certain trackers already in place. Ratepayer groups said it’s likely they’d suspend a tracker trending downward that would’ve required the utility to provide a credit to ratepayers. The bill “would truly be a dream come true for the monopoly utilities,” said CAC.

IEA’s Pinegar said the annual rate reviews are already being conducted in seven states—some for decades.

The state’s Office of Utility Consumer Counselor has yet to weigh in formally on the bills. Recent amendments to SB 102 have brought some improved consumer protections, said OUCC spokesman Anthony Swinger.

The agency is proposing ways to improve SB 512 to “ensure a more appropriate balance between utility and ratepayer concerns, he said.

“Among other issues, it’s critical to us that the IURC continue to make the final decisions on utility requests,” Swinger added, “and that the OUCC have the resources necessary to properly review the requests on behalf of consumers.”?

 

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