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Duke can charge ratepayers for time construction delayed on Edwardsport plant

August 21, 2014

The Indiana Court of Appeals has affirmed grant of Duke Energy Indiana’s request to include the amount spent during an 80-day delay in construction of the coal gasification plant in Edwardsport in a rate adjustment rider. Several parties intervened, claiming construction delays attributable to Duke should not be chargeable to ratepayers.

Citizens Action Coalition of Indiana, Save the Valley Inc., Sierra Club Inc. and Valley Watch Inc. appealed the Indiana Utility Regulatory Commission’s order approving Duke’s request to include power plant construction costs incurred April 1, 2012 – Sept. 30, 2012. The costs are included in a rate adjustment rider through implementation of a settlement agreement between Duke, the Office of the Utility Consumer Counselor and other entities over the total cost of the Edwardsport plant.

It was first estimated to cost $1.985 billion – in which construction and operating costs are recoverable from ratepayers – but the costs soared to $2.35 billion. The settlement agreement put a hard cap of $2.595 billion for construction costs to be included in rates over a 30-year period.

The plant, which began commercial operations in 2013, ultimately had an approved cost of $2.88 billion.

The interveners argued in Citizens Action Coalition of Indiana, Inc., Save the Valley, Inc., Sierra Club, and Valley Watch, Inc. v. Duke Energy Indiana, Inc., Indiana Office of Utility Consumer Counselor, et al., 93A02-1310-EX-835, that the commission applied an incorrect statutory standard that placed an undue burden on them when it approved the total of requested construction-related financing costs, despite the 80-day delay in construction.

“Our examination of the plain language leads us to agree with Duke that 8-1-8.8-12 concerns the initial application for financial incentives. We are not persuaded that, once a utility has demonstrated its eligibility for clean energy financial incentives, the Commission is obliged to go beyond a reasonableness or prudence review to conduct a line item review to ascertain ‘substantial documentation,’” Judge L. Mark Bailey wrote.  

“Interveners insist that this Court need not afford the Commission a high level of deference as to this matter. In other words, Interveners ask that we reweigh the evidence, find credible the testimony that Duke simply should not have let the delay happen, and order a reduction in the amount of construction costs allowed. This we cannot do. The allowance of costs is inherent in the ratemaking process and we accord deference to the Commission. The Commission did not act contrary to law when it found the ‘technical problems associated with human errors, equipment failures, or a combination of the two ... within the control of the Company or its contractors” did not preclude Duke’s recovery of its costs,’” he wrote.

The interveners also claimed the commission disregarded relevant caselaw by approving capitalized financing costs that allowed a return on capital contributed from ratepayers attributable to deferred taxes. But the Court of Appeals again affirmed the commission’s decision, pointing out that this issue has already been litigated.

“Ultimately, the Commission is charged with the independent oversight of ratemaking decisions. The Commission is in the best position to determine a proper rate of return on capital from utility investors, and we defer to their expertise where appropriate. Interveners were given a full and fair opportunity, in the context of the settlement proceedings and appeal, to demonstrate that deference would not be warranted in these circumstances because an improper mathematical computation allowed a return on customer investment. Having fully litigated the propriety of the AFUDC calculation in the prior appeal, Interveners are not entitled to a second bite at the apple,” Bailey wrote.

 

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