Author Archives Laura Arnold

Betting on Indiana coal: Duke wants ratepayers to fund retrofits, environmentalists cry foul

Posted by Laura Arnold / January 23, 2013 / Posted in Uncategorized / No Comments

Original article: http://www.midwestenergynews.com/2013/01/23/betting-on-indiana-coal-duke-wants-ratepayers-to-fund-retrofits-environmentalists-cry-foul/

The Gibson Generating Station in southwest Indiana. (Photo by Duke Energy via Creative Commons)

Posted on 01/23/2013 by Kari Lydersen

Coal-fired power plants around the country are closing due to environmental regulations and competition from cheap natural gas, but during hearings before the Indiana Utility Regulatory Commission earlier this month, officials from one of the state’s largest utilities sought to buck the trend.

Duke Energy Indiana is seeking permission from the state regulatory commission to bill ratepayers for making retrofits to three of its Indiana coal-fired power plants in order to comply with looming federal environmental regulations, most importantly the Mercury and Air Toxics Standard (MATS) with a 2015 deadline.

Environmental groups that submitted testimony at the hearing argued that investing in the aging coal plants is a bad deal for ratepayers, who will pick up the cost since Indiana is a regulated energy market. And, they say, it unwisely continues a dependence on electricity sources that emit high levels of carbon dioxide, further contributing to climate change.

Instead, they told the commission, Duke should invest in natural gas, energy efficiency and other options. The Indiana Citizens Action Coalition, Valley Watch, Save the Valley and the Sierra Club intervened in the regulatory proceedings (the Sierra Club is a member of RE-AMP, which also publishes Midwest Energy News).

The commission is currently considering Duke’s request to pass on about $400 million worth of pollution control investments to ratepayers for its Cayuga, Gibson and Gallagher coal plants, as phase two of an ongoing retrofit program. Duke told the commission it plans to close a fourth coal plant, the Wabash River station, though there is a possibility one of its units would be retrofitted as a natural gas plant. The average age of the four coal plants is 45 years.

A Duke fact sheet says the requested phase two investments would mean less than a one percent rate increase in 2013-2014, scaling up to a 6.3 percent rate increase by 2017. In filings the company also indicated it would seek about $945 million for phase three of the retrofit project, possibly in coming months.

Weighing the options

In making its request to the commission, Duke was required to consider various ways it could meet its power obligations.

The coal plants would have to close in coming years if they don’t make the expensive pollution control upgrades, including installing 200-foot-tall SCRs (selective catalytic reduction equipment) that remove nitrogen oxides; and activated carbon injection to control mercury.

Duke indicated to the regulators that after evaluating different scenarios, it decided retrofitting and continuing to run the coal plants through at least 2034 is its best option.

On November 29, the environmental groups filed testimony they had commissioned from Frank Ackerman, a senior economist at Synapse Energy Economics. Ackerman charged that the range of options explored by Duke was too narrow.

“The Company should have examined the possibilities of increasing their use of energy efficiency and demand response measures, expanding their portfolio of renewable energy, and increasing purchases of energy from other generators within MISO,” wrote Ackerman in his testimony.

“In making this statement, I am not suggesting that any one of these alternatives alone could replace any of the Company’s coal units. Rather, combinations of these alternatives may contribute to the least-cost alternatives to continued operation of some existing coal plants.”

(Enter case number 44217 at this link to see Ackerman’s testimony and other filings in the docket.)

Energy efficiency

Indiana’s electric demand could be reduced considerably in coming years with improvements in the energy efficiency of buildings and appliances and improvements on the grid to better move electricity where it’s needed. Duke is required to invest a certain amount in energy efficiency through 2020 under a state program.

Speaking at the Midwest Energy Efficiency Alliance’s annual conference in Chicago last week, Duke official Tim Duff said, “Energy efficiency has been a longstanding priority for the company” and cited awards Duke has won for energy efficiency projects. “Duke also believes you can’t just look at the customer side of the meter, you have to look at the utility side to deliver the power as efficiently as possible.”

However, Ackerman said Duke failed to adequately consider the possibility of continually escalating gains in energy efficiency beyond 2020, and his testimony also said the company did not consider the possibility of lower-than-expected demand in general.

Clean-energy advocates say that even without state mandates, Duke should plan to make greater investments in energy efficiency in the future.

The American Council for an Energy-Efficient Economy’s 2012 State Energy Efficiency Scorecard listed Indiana as 33^rd in the nation in energy efficiency, ranking below all Midwestern states except North Dakota and Kansas. In efficiency savings as a percentage of retail sales, Indiana ranked 42^nd in the nation.

Relatively low electricity rates in the Midwest mean energy efficiency efforts have a lower rate of financial return, but Ackerman noted that other Midwestern states ranked high in efficiency savings as a percent of retail sales – Minnesota was number four – even though they also have relatively low energy prices.

Duke based predictions on the assumption that energy efficiency gains would continue after 2020 at proportionally the same levels mandated under the existing state program. Thomas Cmar, an Earthjustice attorney representing the environmental groups, said Duke should aim to do better (Earthjustice is also a member of RE-AMP).

“Duke can do more on efficiency than the bare minimum, and it should do more if the money spent on efficiency gives more bang for the buck for ratepayers than spending it on generating the same amount of electricity,” Cmar said.

A carbon price and other factors

Duke senior engineer Michael Geers told the commission that while the company doesn’t expect Congress to enact climate change legislation in the near term, they based their predictions on Congress passing a price on carbon that would take effect in 2020 at $17 a ton and escalate to $44 a ton by 2032.

In answers to questions posed by the commission, Duke said that a 2020 starting carbon price of $21 per ton would render un-economic the biggest portion of its retrofits: SCRs at the Cayuga plant.

Synapse came up with its own “mid-case” prediction for the impacts of a carbon dioxide price, “based on a review of dozens of utility and other forecasts” as Ackerman’s testimony said.

Ackerman concluded that even Duke’s modeling promised only small benefits to retrofitting the coal plants versus other options, and he said these benefits could quickly evaporate with a carbon price or other conditions different than Duke had predicted.

Cmar noted that even lower carbon prices than Synapse’s “mid-case” scenario would make the Cayuga SCRs un-economic.

“In other words, a carbon price lower than Dr. Ackerman predicts would, by itself, completely wipe out the value of Duke’s largest coal retrofits even if Duke is correct on every other assumption,” Cmar said.

Both Duke and the environmental groups have also brought up the possible future costs of new federal regulations on coal ash, which are currently being debated but still have not been finalized; and expected new federal regulations regarding the disposal of waste water from coal plants. The environmental groups say that these regulations could mean significant new costs that will have to be passed on to ratepayers, if the coal plants stay open.

“Some of these plants have old coal ash landfills that would need to be cleaned up,” said Cmar. “And with scrubbers a lot of waste ends up in the wastewater; the EPA is in the process of requiring additional wastewater treatment.”

A bias toward coal?

In 2011, 93 percent of Duke Energy Indiana’s generation came from its coal plants, with just two percent of its generation from natural gas and three percent from renewables, according to testimony filed before the regulatory commission in June 2012 by Duke Energy Indiana president Douglas Esamann.

Last year, Duke’s Indiana generating capacity was 64 percent coal and 24 percent natural gas. Since many natural gas units are only run as needed, actual generation is usually skewed toward reliance on coal plants. Esamann testified that Duke does expect to increase its overall reliance on gas in coming years, though the change he predicted by 2016 wasn’t overly striking: a shift to 88 percent coal and 4 percent gas generation; and 58 percent coal and 27 percent gas capacity.

Meanwhile coal accounts for 85 percent of Indiana’s total power generation, according to Duke, and the company is the largest coal buyer at about 12.5 million tons a year. Duke has already invested $2.8 billion in pollution controls since 1990 to keep its four coal plants going, and it is completing a new “clean coal” plant in Edwardsport, Indiana that is not part of the request before the commission.

Duke noted that the phase two investments it is seeking would create 285 construction jobs and contribute to the continued existence of mining and transportation jobs.

Indiana Citizens Action Coalition executive director Kerwin Olson thinks state officials and Duke executives are biased toward the coal industry in part because of its political clout among Indiana lawmakers.

“Duke is the largest consumer and purchaser of Indiana coal so they get a lot of political support because of their use of Indiana coal,” said Olson. “We have adopted so many (state) statutes that incentivize the continued use of coal, particularly Indiana coal, so they’ve gamed the system politically to favor this option.”

Indianapolis Power & Light has also sought to bill ratepayers for the cost of adding pollution controls to coal plants to keep them running, even as environmentalists including Indiana Citizens Action Coalition say the money would be better spent on wind energy and energy efficiency.

If Duke built new natural gas plants and retired its four archaic coal plants, it could still pass the costs of the gas plants on to ratepayers. But Cmar thinks Duke stands to gain more from investments in capital improvements on the coal plants than it could on natural gas plants. That’s partly because it can continue billing ratepayers for the depreciated value of its coal plants in addition to billing for the value of new investments.

Cmar said the retrofits might also qualify for an incentive for “clean coal” development under a state statute that allows regulated utilities to collect an extra three percent return on their clean energy investments. He cited June 2012 testimony by Joseph Miller, general manager of analytical and investment engineering for Duke Energy Business Services LLC. Miller’s testimony focused largely on how the retrofits would qualify as “clean coal” and “clean energy” projects.

Duke spokesperson Angeline Protogere said the clean energy incentive did not figure in to Duke’s calculations. “We’re not aware if the Indiana Commission has ever authorized the extra three percent incentive provided for under Indiana code, but we have not asked them to do so in this proceeding,” she said. “It had no impact on our decision making.”

Predicting the future

The environmental advocates also believe Duke’s predictions of future fuel prices unrealistically favor coal, without adequately considering what would happen if coal became relatively more expensive compared to gas than they had forecast.

Protogere said that Duke evaluated its options based on a range “developed using statistical analysis of a portfolio of future gas and coal prices.” She said she couldn’t elaborate on how they reached those prices because of proprietary information.

Protogere added that while Duke believes retrofitting its three Indiana plants makes economic sense right now, in general “our integrated resource planning model does favor natural gas-fired generation over the next 20 years.”

“If we switched immediately to more new gas plants and renewable energy sources, customers would have the burden of paying for new facilities years before they would have otherwise been needed,” said Protogere. “We take seriously the job of planning to supply our customers with safe and reliable electricity. When we make electricity greener, we do so with customers’ costs in mind.”

“While Duke Energy Indiana cannot predict the future, neither can others,” she added. ”What we can do is to make the best decisions for the future based on what we know today.”

Cmar and Olson said the company is taking a short-term view.

Olson said the company has an “inability to think outside the box and move into the 21^st century. They’re stuck in the 20^th century belief in baseload power plants that bring them a lot of money and political support.”

Cmar decried the fact that Duke’s analysis only goes through 2034:

“Even if everything that Duke is predicting comes true, when 2034 rolls around Duke could either have decades-old coal plants at or near the end of their useful lives, or relatively new natural gas plants that will continue to operate for decades after that.”

New State Study Demonstrates Net Metering Benefit for Ratepayers; What is the impact in your state?

Posted by Laura Arnold / January 23, 2013 / Posted in Uncategorized / No Comments

Original article: http://www.renewableenergyworld.com/rea/blog/post/2013/01/new-state-study-demonstrates-benefit-to-ratepayers-of-net-metering??cmpid=WNL-Wednesday-January23-2013

By Andrew Savage, January 21, 2013

The body of evidence that demonstrates the benefits of solar net metering to retail electric customers continues to grow.

From California and Texas to New York and now Vermont, there is a growing stack of reports that make the financial case for greater deployment of distributed solar generation and net metering.

On the same day that a Vote Solar Initiative report was released, which found that in California solar net metering provides over $92 million in annual benefits to ratepayers, a newly published Vermont report echoed the same growing body of evidence that documents the benefits of solar net metering.

A recent report on New York found that solar PV delivers between a 15-cent and 40-cent benefit to ratepayers and taxpayers. Another report from Texas by the analysts at the The Brattle Group found that the total customer benefits of adding solar capacity in the Lone Star State was valued at more than $520 million.

The Vermont legislature charged the report author, the Vermont Department of Public Service, with determining if there is a cross-subsidization with net metering and other retail customers and to examine any benefits or cost of net metering systems to the distribution and transmission system. The report found that solar net metering is a net-positive for the state — a 4-kW PV fixed system provides a 4.3-cent net societal benefit per kWh generated, and a 4-kW 2-axis PV system provides a net 3.3-cent benefit. A similar conclusion was made for 100kW net metered PV systems. The report addresses the specific ratepayer benefit as well as the statewide, societal benefit.

This conclusion comes even with Vermont’s statewide solar incentive program factored in, which provides an average 20-cent per kilowatt hour value of solar, or an average solar incentive across the state of 5.3 cents above residential retail electric rates.

The report outlines the calculable benefits of solar net metering, primarily:

Avoided energy costs, including costs of line loses, capacity costs, and avoided internalized greenhouse gas emission costs
Avoided regional transmission costs
Avoided in-state transmission and distribution costs
Solar’s coincidence with times of peak demand and market price suppression

An additional benefit explicitly not covered in the study is the economic multiplier associated with the local investment and job creation created from the local manufacturing and installation of net metering systems. The report also didn’t cover the statewide benefit of retaining more dollars locally.

Net metering in Vermont has grown by a factor of four since 2008, with solar accounting for 88 percent of all net metering systems. According to the report, most of these systems, or 59 percent, are less than 5kW, and 85 percent are under 10kW. (Vermont recently passed a efficient, first-in-the-nation solar registration program for permitting solar systems 10kW and below.) Even with the growth of net metering in the state, net metering systems still produce less than 1 percent of the 35 GWh of power Vermont uses each year.

Andrew Savage is on the management team of AllEarth Renewables, the Vermont manufacturer of the dual-axis AllSun Tracker.

NYT v. WSJ Take on ‘Climate Change’ in President Obama’s Second Inaugural Address

Posted by Laura Arnold / January 22, 2013 / Posted in Uncategorized / No Comments

I guess what I am the most curious about is what Indiana Governor Mike Pence says in his first State of the State address this evening. The speech will be carried live on most TV stations in Indiana and also some radio stations. You can also watch it on your computer, as the state will live stream it at http://www.IN.gov/gov.

I am still the most interested if Governor Pence will address his Executive order 13-06 creating the Indiana Office of Energy Development as a distinct executive office within the Office of the Governor. See

Executive Order 13-06
Creation of the Indiana Office of Energy Development

By the way, state legislation will be needed to make this change. I didn't catch it the first few times but the Executive Order states: "This Executive Order shall expire at such time as the General Assembly enacts legislation to codify OED."

So I guess we will see action on SB 529 to establish the Indiana Office of Energy Development within the Office of the Governor introduced by Sen. Ed Charbonneau (R-Valparaiso) who chairs the Senate Committee on Environmental Affairs. SB 529 has been referred to the Senate Environmental Affairs Committee.

Perhaps we will learn more about this in the State of the State tonight. Keep reading this blog!

Laura Ann Arnold

Permalink NYT: Speech Gives Climate Goals Center Stage

By RICHARD W. STEVENSON and JOHN M. BRODER, Published: January 21, 2013

WASHINGTON — President Obama made addressing climate change the most prominent policy vow of his second Inaugural Address, setting in motion what Democrats say will be a deliberately paced but aggressive campaign built around the use of his executive powers to sidestep Congressional opposition.

“We will respond to the threat of climate change, knowing that failure to do so would betray our children and future generations,” Mr. Obama said on Monday at the start of eight sentences on the subject, more than he devoted to any other specific area. “Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms.”

The central place he gave to the subject seemed to answer the question of whether he considered it a realistic second-term priority. He devoted scant attention to it in the campaign and has delivered a mixed message about its importance since the election.

Mr. Obama is heading into the effort having extensively studied the lessons from his first term, when he failed to win passage of comprehensive legislation to reduce emissions of the gases that cause global warming. This time, the White House plans to avoid such a fight and instead focus on what it can do administratively to reduce emissions from power plants, increase the efficiency of home appliances and have the federal government itself produce less carbon pollution.

Mr. Obama’s path on global warming is a case study in his evolving sense of the limits of his power and his increased willingness to work around intense conservative opposition rather than seek compromise. After coming to office four years ago on a pledge to heal the planet and turn back the rise of the seas, he is proceeding cautiously this time, Democrats said, intent on making sure his approach is vetted politically, economically and technologically so as not to risk missing what many environmental advocates say could be the last best chance for years to address the problem.

The centerpiece will be action by the Environmental Protection Agency to clamp down further on emissions from coal-burning power plants under regulations still being drafted — and likely to draw legal challenges.

The administration plans to supplement that step by adopting new energy efficiency standards for home appliances and buildings, a seemingly small advance that can have a substantial impact by reducing demand for electricity. Those standards would echo the sharp increase in fuel economy that the administration required from automakers in the first term.

The Pentagon, one of the country’s largest energy users, is also taking strides toward cutting use and converting to renewable fuels.

Mr. Obama’s aides are planning those steps in conjunction with a campaign to build public support and head off political opposition in a way the administration did not the last time around. But the White House has cautioned activists not to expect full-scale engagement while Congress remains occupied by guns, immigration and the budget.

The president’s emphasis on climate change drew fire from conservatives. Tim Phillips, president of Americans for Prosperity, a group financed by the Koch brothers, who made a fortune in refining and other oil interests, criticized the speech in a statement. “His address read like a liberal laundry list with global warming at the top,” Mr. Phillips said. “Americans have rejected environmental extremism in the past and they will again.”

Still, Mr. Obama has signaled that he intends to expand his own role in making a public case for why action is necessary and why, despite the conservative argument that such changes would cost jobs and leave the United States less competitive with rising powers like China, they could have economic benefits by promoting a clean-energy industry. In addition to the prominent mention on Monday, Mr. Obama also used strong language inhis speech on election night, referring to “the destructive power of a warming planet.”

Those remarks stood in contrast to Mr. Obama’s comments at his first postelection news conference, when he said he planned to convene “a wide-ranging conversation” about climate change and was vague about action. He is also expected to highlight his plans in his State of the Union address next month and in his budget plan soon afterward.

Beyond new policies, the administration is seeking to capitalize on the surge of natural gasproduction over the past few years. As a cheaper and cleaner alternative to coal, natural gas gives it a chance to argue that coal is less economically attractive.

After the defeat in 2010 of legislation that would have capped carbon emissions and issued tradable permits for emissions, Mr. Obama turned to regulation and financing for alternative energy. Despite the lack of comprehensive legislation, emissions have declined roughly 10 percent since he took office, a result both of the economic slowdown and of energy efficiency moves by government and industry.

The administration is discussing with Congressional Democrats, some of whom are leery of the issue because their states are home to coal businesses, how to head off a Republican counterattack on the new regulations. Democrats are paying particular attention to the likelihood of Republicans employing a little-used procedure to block new regulations with a simple majority vote.

Senate Democrats are also girding for a battle when Mr. Obama nominates a new head of the E.P.A. The agency, excoriated by Republicans as a job-killing bureaucracy, would take the lead in setting the new regulations.

The approach is a turnabout from the first term, when Mr. Obama’s guiding principle in trying to pass the cap-and-trade bill was that a negotiated legislative solution was likely to be more politically palatable than regulation by executive fiat. Now there is a broad expectation that he will follow up his first big use of the E.P.A.’s powers to rein in emissions — proposed rules last year for new power plants — with a plan to crack down on emissions from existing power plants.

According to estimates from the Natural Resources Defense Council, emissions from current coal-fired plants could be reduced by more than 25 percent by 2020, yielding large health and environmental benefits at relatively low cost. Such an approach would allow Mr. Obama to fulfill his 2009 pledge to reduce domestic greenhouse gas emissions by about 17 percent from 2005 levels by 2020, the group says.

“There’s a really big opportunity, perhaps bigger than most people realize,” said Dan Lashof, director of the defense council’s climate and clean air program.

The regulatory push will be particularly important because Mr. Obama has little prospect of winning as much money for clean energy as he did in his first term, with Republicans now in control of the House. Despite the renewed attention to climate change following Hurricane Sandy and record-high temperatures in the continental United States last year, there is little sign that the politics of the issue will get any easier for Mr. Obama.

WSJ: Rhetoric Heats Up on Climate Change/ Climate Change Climbs Up Agenda

By SIOBHAN HUGHES and KEITH JOHNSON, POLITICS, January 21, 2013, 7:42 p.m. ET

WASHINGTON—President Barack Obama used some of his most impassioned language to date on climate change in his speech Monday, but his policy options are limited after Republicans blocked his approach to the issue in his first term.

"We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations," Mr. Obama said in his inaugural address.

"Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires and crippling drought and more powerful storms," he said.

Environmentalists cheered the remarks, hoping that Mr. Obama would press harder to control greenhouse-gas emissions. Republicans, some of whom are skeptical about the extent of global warming or see the cost of tackling it as too high, described his address as lacking in gestures of bipartisanship.

Mr. Obama began to stress climate change in the later stages of the presidential campaign. He said at the Democratic National Convention that global warming was "not a hoax" and called recent droughts and floods "a threat to our children's future." Since then, he has repeatedly pledged to make the climate a second-term priority.

Despite Monday's forceful rhetoric, he has few policy options. In 2009, the House, then controlled by Democrats, passed a bill to cap carbon-dioxide and other greenhouse-gas emissions and to introduce an emissions trading system. The bill died in the Democratic-controlled Senate the next year. It has no chance of passing the current House with the GOP in the majority. Likewise, the House GOP is opposed to a tax on carbon.

That leaves further regulatory action by the Environmental Protection Agency as the likeliest way the president could take steps to curb emissions.

As early as this spring, the EPA could make final greenhouse-gas emissions rules for new power plants that would effectively rule out new coal-fired plants using the current standard in technology. The EPA is also weighing rules for existing power plants. Mr. Obama's inaugural address left environmentalists who want a strict standard encouraged.

A surge in natural-gas production has already reduced demand for coal to power electric-generating plants and helped reduce U.S. greenhouse-gas emissions from energy.

The president also reiterated his support for the American renewable energy industry. "America cannot resist this transition. We must lead it," he said. "We cannot cede to other nations the technology that will power new jobs and new industries. We must claim its promise."

Mr. Obama's first-term support for solar energy, wind farms and electric-battery technologies came under attack from Republicans. The failure of solar-panel manufacturer Solyndra LLC gave the GOP ammunition to argue that the administration was wasting money on uneconomic technology.

Write to Siobhan Hughes at siobhan.hughes@dowjones.com and Keith Johnson at keith.johnson@wsj.com

A version of this article appeared January 22, 2013, on page A7 in the U.S. edition of The Wall Street Journal, with the headline: Rhetoric Heats Up On Climate Change.

By the way, the print edition of the WSJ delivered to me this morning ran this same article with the headline, 'Climate Change Climbs Up Agenda', which I believe is a slightly more neutral headline. Curious. LAA

Courier-Press: Official with Rockport coal-to-gas plant says contract changes would kill the deal

Posted by Laura Arnold / January 22, 2013 / Posted in Uncategorized / No Comments

Dear IndianaDG Readers:

The Leucadia Indiana Gasification plant proposed for Rockport, IN is likely to be a "hot potato" this session of the Indiana General Assembly. Sen. Eckerty has introduced SB 510. The digest for SB 510 is as follows:

Substitute natural gas contracts. Defines "guarantee of savings" with respect to retail end use customers of substitute natural gas (SNG). Amends the definition of "purchase contract". Defines "savings shortfall". Requires the Indiana finance authority (IFA) to submit a final purchase contract, including amendments, and any other agreements with a producer of SNG to the utility regulatory commission (IURC). Requires the IFA to determine on a three year cycle if retail end use customers are provided a guarantee of savings or a savings shortfall under a purchase contract. Requires the IFA to electronically submit its findings to the IURC. Requires the IURC to verify and approve the findings and, if there is a savings shortfall, order a producer of SNG to provide a refund.

There appears to be a delay still in House Bills appearing in the system, therefore, Rep. Crouch's bill is still not available from the Indiana General Assembly website. Eventually, you should be able to find the bill she has introduced HERE.

Also be sure to read the second article from the IBJ for more background on this issue.

When there is more information about this issue you will be able to read it here.

Laura Ann Arnold

Lawmakers questioning wisdom of 30-year deal to buy plant's gas at fixed price

By Eric Bradner, Evansville Courier & Press, Posted January 18, 2013 at 5:57 p.m., updated January 18, 2013 at 10:06 p.m.

INDIANAPOLIS —State lawmakers’ attempts to rework the deal Indiana struck with developers of the proposed Rockport coal-to-gas plant would kill the nearly $3 billion project, one of its top officials said Friday.

As a shale gas boom drives down natural gas prices, two Republican lawmakers say they question the wisdom of the Indiana Finance Authority’s 30-year contract to buy and then resell the plant’s synthetic gas at a fixed rate.

Both have filed bills that would drastically alter its terms. The bills would trigger the ratepayer protection mechanisms included in the contract every three years, rather than waiting until the end of the deal.

That would stop the plant in its tracks, said Mark Lubbers, a former

Gov. Mitch Daniels aide who is helming the Rockport effort for Leucadia National Corp.

“Any ‘true-up’ of savings before the end of the contract term makes the project unfinanceable,” he said.

The House and Senate utility committees could consider the two measures at a rare joint meeting, the chairmen of those committees told the Courier & Press on Friday.

“We can tell you that we have had many conversations regarding the Rockport coal gasification plant with our Senate and House colleagues. We’re currently considering holding a joint hearing on the issue, although no final plans have been set,” Sen. Jim Merritt, R-Indianapolis, and Rep. Eric Koch, R-Bedford, said in a joint statement.

Lubbers meanwhile doubled down on what he said is a rock-solid deal for Hoosier gas customers over the long term, saying Indiana needs a second plant — this one in Lake County — that would convert petroleum coke, rather than coal.

“Two plants would provide better consumer protection and keep even more Hoosier energy spending in Indiana,” Lubbers said.

His stance sets the stage for what could emerge as a critical battle in the opening weeks of the first term of new Gov. Mike Pence, who has not taken a stance on the project.

In 2009 lawmakers gave the Indiana Finance Authority the green light to hammer out a 30-year contract with Leucadia’s Indiana Gasification LLC to buy its synthetic natural gas and then resell it through the state’s utilities.

That deal, signed by Gov. Mitch Daniels, set a rate of between $6 and $7 per MMBtu for the life of the contract. It would have utilities tie 17 percent of ratepayers’ bills to that Rockport price, rather than their open market rate.

It appeared to be a steal when natural gas prices topped $13 per unit as recently as 2008. Since then, though, a nationwide shale gas boom has sent prices plummeting to near $3 per unit now.

And now that Daniels is gone, some lawmakers are looking for ways out of the deal.

“The market has changed, conditions have changed, and so we need to take a fresh look at this situation and there needs to be some changes that will protect the ratepayer,” said Rep. Suzanne Crouch, R-Evansville.

Crouch and Sen. Doug Eckerty, R-Yorktown, filed the bills that the utility committee chairmen are considering granting a joint hearing.

The Indiana Finance Authority’s deal required Leucadia’s Indiana Gasification LLC to set $150 million aside in an escrow account to reimburse ratepayers for any losses at the end of the 30-year deal.

The measures Crouch and Eckerty are pushing would shorten that window, requiring Indiana Gasification to pay ratepayers back for any losses every three years — a move that would harm Indiana Gasification’s bid for a federal loan guarantee.

Opponents of the Rockport plant include Evansville-based

Vectren Corp., which estimates the deal could cost Indiana ratepayers $1 billion in extra gas prices over its first eight years, and a host of environmental groups.

“When this thing was conceived, it was a good idea. Natural gas was volatile, there was an unknown long-term supply, and we were just coming off three or four years of the most volatile natural gas prices we’d seen in 25 years,” said Mike Roeder, Vectren’s vice president of government affairs and communications.

“The concept made a ton of sense, and so no legislator should feel any guilt about a vote from back then because it was a reasonable idea. But what has changed is shale gas.”

Lubbers, who has argued that recent years’ volatility in natural gas prices make the case for a project with fixed rates, said he will continue defending the project if state lawmakers consider the two bills this year.

“On the one hand, we are always grateful for a platform to talk about the plant and the contract. It is extraordinary public policy — the first time consumers have ever been guaranteed savings for any energy product; the first time consumers have ever had a lien on energy utility assets; a huge step forward in clean coal technology. It is a big idea and makes Indiana a real leader,” he said.

“On the other hand, after an 18-month negotiation that produced more consumer protection than the legislature or we ever envisioned, and an 11-month (Indiana Utility Regulatory Commission) consideration resulting in unanimous approval of the contract, to have it politically challenged by a self-interested utility is disappointing.”

The state’s contract with Indiana Gasification is also the subject of a court battle.

The Indiana Court of Appeals reversed the state’s utility regulatory commission’s approval of the deal last year, pointing to a problem that the Indiana Finance Authority and Indiana Gasification said would be easily fixed.

But Vectren has sought to use that opening to force the deal back onto the starting blocks, requiring it to be vetted and approved by the Indiana Utility Regulatory Commission all over again.

Bill could be hurdle for proposed $2.8B synthetic gas plant

Chris O'Malley, January 15, 2013, Indianapolis Business Journal

The company that plans to build a $2.8 billion synthetic gas plant in Indiana could face another hurdle if a bill introduced by a state senator is successful at the Statehouse.
Under the legislation, state utility regulators could order Indiana Gasification LLC to make refunds to gas customers every three years if the price of synthetic gas it produces from coal is greater than the market price of natural gas over the period.

Senate Bill 510, by Sen. Doug Eckerty, R-Yorktown, is aimed at alleviating concerns raised by consumer groups and some lawmakers about legislation passed in 2010 that helped enable the plant proposed for Rockport, near the Ohio River.

That legislation allowed the Indiana Finance Authority to act as a purchasing intermediary for synthetic gas produced at the plant. The authority would sell the gas on the open market. Whether gas customers would receive discounts, or see their bills increase, would depend on whether the authority made or lost money on its sales.

It’s estimated that Indiana Gasification could produce gas between at a cost of $6 and $7 per MMBtu, a common measurement used by the energy industry.

When the Rockport plant was proposed, natural gas was selling for around $13 per MMBtu, Eckerty said in a prepared statement Tuesday. Butwith an abundant supply of natural gas now available, the fuel recently was selling at $3.10.

“With these changes in mind, many state officials – including myself – believe it is not in Hoosiers’ best interests for the state to put taxpayers at risk by subsidizing substitute natural gas,” Eckerty said.

Natural gas prices have plummeted in recent years, with mass extraction of natural gas from shale deposits. Evansville-based gas and electric utility Vectren projects the synthetic gas made at the proposed plant would cost customers $1 billion in the first eight years, or up to $375 for an average retail customer.

Critics say under the current contract with the state, natural gas customers may not see Indiana Gasification’s promised $100 million in savings until the end of the 30-year contract.

Legislators who passed the original measure did not intend for such savings to be realized so late, said Kerwin Olson, executive director of Citizens Action Coalition.

“This is a good proposal. It clarifies the Legislature’s original intent,” Olson said of the new bill. “It helps to erase the generational discrimination.”

Indiana Gasification has found fault with opponents’ insistence that natural gas prices will remain low over the long-haul, noting that natural gas prices historically have been volatile.

That volatility is a certainty was citied by the Indiana Utility Regulatory Commission in its approval of the deal.

Indiana Gasification also insists that the proposed plant will diversify the state’s supply of gas and help lessen volatility.

Currently, the gas supply contract between Indiana Gasification and the Indiana Finance Authority is mired in litigation.

Last October, the Indiana Court of Appeals reversed regulator approval of the gas-purchasing contract deal, but on narrow grounds. It found the legislation authorizing the purchases never was intended to result in certain industrial customers’ sharing in the costs or benefits of the purchases, as would residential customers.

Indiana Gasification said a simple, 37-word deletion of language in the contract would satisfy the court. But Vectren has filed an objection, arguing that the contract was essentially made null and void by the court last October and that the regulatory process should start over again.

The proposed plant operator counters that Vectren already lost on many of its arguments and that the tactic is meant to cause delays that could jeopardize financing of the project.

Eckerty’s bill could potentially void the disputed contract between Indiana Gasification and the state finance authority “because it makes retroactive changes to current statute that would modify the terms of that contract,” said a bill analysis by Indiana Legislative Services Agency.

Indiana Gasification officials did not immediately offer comment on the bill.

In Indiana, debate over how ‘trackers’ shape future energy system | Midwest Energy News

Posted by Laura Arnold / January 21, 2013 / Posted in Uncategorized / 1 Comments

This article from Midwestern Energy News discusses SB 560 on utility transmission introduced by Sen. Brandt Hershman. There is no official word yet about when this bill will be scheduled for a hearing before the Senate Utility Committee. Continue to watch this blog for details!

In Indiana, debate over how ‘trackers’ shape future energy system | Midwest Energy News.

Transmission lines near Walnut, Indiana. (Photo by Patrick Finnegan via Creative Commons)

Posted on 01/17/2013 by Dan Ferber

New legislation in the Indiana Senate would ensure a healthy, guaranteed profit in perpetuity on utility investments in wires, telephone poles, substations, and other parts of the transmission and distribution infrastructure, and ratepayer advocates and environmentalists are crying foul.

If such a measure becomes law, they say, it will burden low-income ratepayers with unnecessarily high bills and further entrench centralized, coal- and gas-based electricity generation, placing distributed, renewable generation at a disadvantage.

At issue in the new legislation is an important but esoteric provision of utility law called a cost tracker. When states allow trackers, they bypass rate cases, a key step in which state utility regulators scrutinize the books of monopoly electric utilities on behalf of the customers who are forced to buy their electricity.

The state then allows a line item to be added to utility bills for a specified purpose—in this case, for costs incurred when utilities replace or maintain power poles, wires and the like. In Indiana, trackers typically guarantee utilities a profit of between 8.5 and 12 percent on costs of a particular type, and ratepayers supply the company with that guaranteed profit.

Tracking trackers

The electricity bills that Indiana residents pay are a sum of the utility’s rate and the various line items.

Over the years, the state’s five investor-owned utilities—Duke Energy, Indiana Power and Light, Vectren, Nipsco, and Indiana Michigan Power, have persuaded state legislators to let them recoup most of their costs through trackers, including the cost of coal, natural gas, uranium and other fuel, the cost of scrubbers and other pollution controls, the cost of energy-efficiency efforts, and now the cost of wires, poles, transformers and other parts of the transmission and distribution network.

Because the state’s utilities are allowed a variety of trackers, their rates are not an accurate reflection of what customers actually pay. So when an Indiana utility says that its rates are rising only 2-3 percent per year, that’s technically correct, said Kerwin Olson, executive director of Citizens Action Coalition, an Indianapolis-based ratepayer advocacy group. But it’s also misleading, Olson said, because “customers don’t pay rates, customers pay bills.”

What’s more, Olson said, “utilities don’t like rate cases” and try to avoid them because they’re expensive to litigate, and because they allow the public utility commission, and the interested public, to examine their books and question whether costs they’re trying to get reimbursed for are costs they actually incurred.

That’s nonsense, said Ed Simcox, president of Indiana Energy Association, a trade group that represents the state’s investor-owned utilities.

Trackers are routine in Indiana and other states, he said, and they’re legitimate ways to recoup costs. The tracker for transmission and distribution infrastructure, in particular, is a legitimate way for companies to recoup costs to repair and replace aging infrastructure, he added.

A benefit for whom?

The tracker for transmission and distribution is important for reliability, Simcox said.

There are some very basic needs that the system has, he said. “They include pipe in the ground for gas companies, half-century-old wooden poles to string power lines and aging transformers that need to be replaced,” Simcox said. A lot of this will be done in the foreseeable future—over the next 10 years.

Moreover, Simcox said, the expenses recouped by trackers “have to be approved by the commission. That’s something these advocates wouldn’t tell you. The commission has the ability to open the books of the company at any time.”

Having trackers even benefits ratepayers, Simcox maintained. By guaranteeing revenue, it “enhances the position of the company in the financial community.” That means that utilities can pay lower interest rates when they borrow money for capital improvements, which in turn saves money for ratepayers, who reimburse the companies for their costs, he said.

Olson maintains that utilities are simply feathering their nest at the expense of ratepayers.

“Utility rate increases are the most regressive taxes you can have on the general population. They hit the poor the hardest,” Olson added.

Moreover, trackers are simply a different way for utilities to get guaranteed revenue to maintain a reliable electrical system. Whether the companies open their books in rate cases or use trackers to pay for it, utilities still need to do their job and provide reliable electricity.

“They’re going to do that stuff anyway because they have to,” Olson said.

Charging ratepayers for coal’s costs

Guaranteeing cost recovery for transmission lines could perpetuate an electrical system that produces far more climate-warming greenhouse gases than it might, said Jesse Kharbanda, executive director of the Hoosier Environmental Council.

“If you replace the transmission and distribution infrastructure on a 1:1 basis or build in anticipation of new central power plants, you’re reinforcing the current system,” he said.

That current system in Indiana is one of the most coal-reliant in the nation. In 2010, the most recent year for which data was available, the state generated 90 percent of its electricity by burning coal, far more than the U.S. average of 48 percent, according to data from the Energy Information Administration.

And according to a report [PDF] from the Environmental Integrity Project, Indiana was the fourth-largest greenhouse gas emitter overall in the United States in 2010, emitting more than three times the carbon dioxide of New York and California, which are far more populous.

Trackers are one of several ways Indiana’s utilities perpetuate the current system, Olson said. Utilities have had such dominion over the Indiana legislature, he maintained, that if the current bill passes they will have guaranteed that ratepayers pay fully for the costs of coal to burn; pollution controls that keep coal plants in compliance with federal environmental rules, and the costs of wires and infrastructure to move electricity from central plants to the populace.

“Essentially they have a tracker from coalmine to light switch,” Olson said.