The Indiana Utility Regulatory Commission shouldn’t have approved Duke Energy’s request to recover costs related to a federal environmental mandate for coal-ash cleanup that were incurred before the energy company received approval, the Court of Appeals of Indiana has ruled.
Duke filed its petition with the IURC in 2019 requesting a rate increase to recover $212 million for coal-ash site closures, remediation and financing costs as part of its compliance with Environmental Protection Agency rules issued four years earlier. The money accounted for costs incurred from 2010-2018 and costs it expected to incur from 2019 forward.
Duke, which has about 840,000 customers in Indiana, proposed spreading the recovery over an 18-year period.
The Indiana Office of Utility Consumer Counselor intervened in the IURC proceeding on behalf of ratepayers.
The issue is split into two categories: Duke’s traditional base rate case that included costs incurred through 2018, and its requested relief based on the Federal Mandate Statute for costs incurred from 2019-2028.
The Federal Mandate Statute is a tracker authorized by the General Assembly to allow for the recovery of certain approved categories of costs without the need for a general rate case proceeding.
The IURC found in 2021 that Duke’s proposed coal-ash costs were appropriate to recover through the statute, granting the energy company a certificate of public convenience and necessity.
The IOUCC appealed, but the appeal was held in abeyance pending the Indiana Supreme Court’s decision in the separate traditional rate case. In March 2022, the Supreme Court concluded the regulatory commission violated a ban against retroactive ratemaking by allowing rate recovery for costs incurred in the past.
Back in the Court of Appeals case, related to costs incurred from 2019-2028, the IOUCC argued the commission’s decision to allow Duke to recover some costs related to federal mandates — specifically those in 2019 through the commission’s approval in November 2021 — violated the Federal Mandate Statute. The IOUCC argued the statute is prospective, meaning it anticipates approval of a project before the utility company can recover costs.
The Court of Appeals agreed in a Tuesday opinion, reversing the IURC’s order that allowed Duke to recover costs incurred before the commission’s approval.
“The logical and plain reading of the Federal Mandate Statute results in a prospective nature of cost recovery,” Judge Patricia Riley wrote in the opinion.
The Court of Appeals cited the Supreme Court’s 2022 decision, which Riley wrote was “grounded in the principle that ratemaking is prospective in nature, not retroactive.”
Duke argued the Supreme Court’s decision was neither binding nor dispositive. While the Court of Appeals agreed that it must consider the question presented, it also viewed dicta from the March 2022 decision as an indication that the high court believes a utility can’t recoup certain expenses under the statute until getting authorization from the commission.
“Absent preapproval, the risk of loss remains on the utility during the period between rate orders,” Riley wrote.
Duke also argued a utility is entitled to recover not only costs incurred while the certificate of public convenience and necessity is pending, but also pre-petition costs associated with preparing the application. The Court of Appeals disagreed. Though some federal mandates found in the statute include those applicable to utility companies, Riley wrote litigation expenses and pre-petition costs aren’t federally mandated costs under the statute.
“Nothing in the statute indicates that all costs must be recoverable; to the contrary, only the ‘projected’ costs of a ‘proposed compliance’ project are subject to the Commission’s approval and are recoverable,” she wrote.
Chief Judge Robert Altice and Judge Rudolph Pyle concurred.
The case is Indiana Office of Utility Consumer Counselor, et al. v. Duke Energy Indiana, LLC, and Indiana Utility Regulatory Commission, 21A-EX-2702.