Gov. Eric Holcomb signed into law Wednesday a controversial bill that could allow utilities to pass along certain costs to customers for federally mandated projects without having to get pre-approval for those projects from state regulators.
The bill comes one month after Duke Energy Indiana, the state’s largest electric utility, lost a legal fight in the state Court of Appeals to recover $212 million from customers for coal-ash site closures, remediation and financing costs.
Holcomb signed Senate Bill 9 without comment, a move hailed by utilities as necessary to quickly comply with federal mandates and criticized by a consumer group as giving utilities a free hand to pass along costs.
The move could allow utilities to pass along millions of dollars in early or unexpected costs on federally mandated projects as long as state regulators eventually approve them.
“Another blank check to utilities and more rate increases to consumers,” Ben Inskeep, program director of Citizens Action Coalition of Indiana, a utility consumer group, tweeted on Wednesday.
State Rep. Matt Pierce, D-Bloomington, said the bill would allow a utility to “choose whatever pathway it wants” to comply with a federal mandate, whether it’s the least expensive or most expensive.
But utilities say they need such a law to make sure they can comply swiftly with federal mandates, without long delays from state regulators.
Danielle McGrath, president of the Indiana Energy Association, a trade group representing large electrical and natural gas providers, said complying with federal mandates is not optional.
“Utilities incur significant costs, such as detailed design and engineering studies, to develop a compliance project and prepare an application for regulatory approval, and there are further compliance costs pending that approval,” she said to IBJ in an email Wednesday. “State regulators need that information in order to make a decision as to whether the utility has in fact complied with the requirements.”
She pointed out that state utility regulators must eventually review and approve all costs of compliance before they can be included in rates.
The legislation, Senate Bill 9, started out as much less controversial, simply requiring an electric or natural gas utility to notify the Indiana Utility Regulatory Commission in advance if it decided to close or sell a generating facility earlier than announced in its long-range plans.
“To open a new generation facility, IURC has to approve it,” the bill’s author, Sen. Jean Leising, R-Oldenburg, said last week in the House utilities committee. “But to close one, currently, there’s no regulation or requirement. So. I thought that perhaps we really did need something in that regard.”
In recent years, utilities around the state have announced a series of sweeping plans to close coal-fired generating units years earlier than previously announced in favor of cleaner forms of energy, such as wind, solar and natural gas.
The bill also prohibited utilities that retire coal plants earlier than planned from increasing customer rates to pay off those plants in a shorter time frame unless state regulators find a rate adjustment is necessary to provide reliable service.
The issue came to the fore last month when the Indiana Court of Appeals ruled that state regulators 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.
In response, Rep. Ed Soliday, R-Valparaiso, the committee chairman, introduced an amendment that would allow utilities to book expenses on federally mandated projects and recover them from customers without pre-approval.
He said utilities need to move quickly to respond to federal mandates, and don’t have time to wait for hearings before state regulators before beginning engineering studies. Such procedures can delay work, and push the utility beyond certain time limits prescribed by law.
“We have five cases before the IURC right now,” he said during last week’s committee hearing. “They’re all on time clocks.”
Duke Energy Indiana said the costs in question involved work to close coal ash basins at power plants to meet state and federal standards. In November 2021, the IURC issued an order allowing the utility to recover from customers these federally mandated costs.
Coal ash is a toxic byproduct of burning of coal in power plants to create electricity. Over time, utilities have dumped tons of ash into unlined, industrial waste ponds, but the federal government has begun ordering them to clean up the ponds, which can sometimes grow into small lakes, and leak toxic metals into underground streams or nearby rivers.
Consumer groups appealed the IURC order, and the Court of Appeals ruled that costs should have been pre-approved by state regulators before they were incurred by the utility.
Duke Energy spokeswoman Angeline Protogere said Wednesday in an email to IBJ that the court ruling “is contrary, however, to the intent of the Federal Mandates Statute—which encourages utilities to comply in a timely manner with state and federal regulations, such as environmental rules, and seek to recover those costs through an application with state utility regulators, which can be at a later date. No costs can be passed on to customers, though, without regulatory review first.”
She said in order for state utility regulators to make an informed decision about whether a utility can recover costs through rates, they need data – including such things as detailed design and engineering studies.
“The court’s decision essentially disallows utilities to recoup the expense of those costly, detailed plans,” Protogere said. “The result is that utilities aren’t incentivized to carefully prepare and plan before bringing a regulatory application before state regulators.”