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Citizens Action Coalition of Indiana, Inc. v. Duke Energy Indiana, Inc.

Court of Appeals of Indiana

September 8, 2014

CITIZENS ACTION COALITION OF INDIANA, INC., SAVE THE VALLEY, INC., SIERRA CLUB, and VALLEY WATCH, INC., Appellants-Intervenors,
v.
DUKE ENERGY INDIANA, INC., Appellee-Petitioner, INDIANA OFFICE OF UTILITY CONSUMER COUNSELOR, Appellee-Statutory Party

APPEAL FROM THE INDIANA UTILITY REGULATORY COMMISSION. James D. Atterholt, Chairman. Kari A.E. Bennett,[1] Larry S. Landis, Carolene R. Mays, and David E. Ziegner, Commissioners David E. Veleta, Administrative Law Judge. Cause No. 43114 IGCC-9.

ATTORNEYS FOR APPELLANTS: JEROME E. POLK, Polk & Associates, Davie, Florida; JENNIFER A. WASHBURN, Citizens Action Coalition of Indiana, Inc., Indianapolis, Indiana.

ATTORNEYS FOR APPELLEES: Duke Energy Indiana, Inc.: JON B. LARAMORE, JANE DALL WILSON, Faegre Baker Daniels LLP, Indianapolis, Indiana; KELLEY A. KARN, ELIZABETH A. HERRIMAN, Duke Energy Indiana, Inc., Plainfield, Indiana; Office of Utility Consumer Counselor: A. DAVID STIPPLER, RANDALL C. HELMEN, LORRAINE HITZ-BRADLEY, Office of Utility Consumer Counselor, Indianapolis, Indiana.

KIRSCH, Judge. BAILEY, J., and MAY, J., concur.

Page 450

OPINION

KIRSCH, Judge.

Citizens Action Coalition of Indiana, Inc., Save the Valley, Inc., Sierra Club, and Valley Watch, Inc. (collectively, " Intervenors" ) appeal the order of the Indiana Utility Regulatory Commission (" the Commission" ) approving Duke Energy Indiana, Inc.'s (" Duke" ) request to include power plant construction costs incurred from October 1, 2011 through March 31, 2012 in a rate adjustment rider.

On appeal, Intervenors raise the following restated issues:

I. Whether the Commission erred when it authorized Duke to pass on to ratepayers 100% of Duke's requested financing costs for the period under review when the Commission's authorization was made in the absence of findings of fact and conclusions thereon regarding costs incurred during a three-month delay; and
II. Whether the Commission erred by allowing Duke to consider 50% of the power plant to be " in-service," and thereby increase customer rates, despite Duke's admission that the plant had not reached its " In-Service Operational Date" as that term was defined in a Commission-approved settlement agreement to which Duke was a party, when such determination was made in the absence of Commission findings of fact and conclusions thereon.

We remand for additional findings.

FACTS AND PROCEDURAL HISTORY[2]

In 2006, Duke operated a coal and oil-fired generating station at its Edwardsport facility in Knox County, Indiana. The facility, which had a capacity of 160 megawatts, had been placed " in-service" between 1944 and 1951, and was nearing the

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end of its useful economic life. On September 7, 2006, Duke and Southern Indiana Gas and Electric Company, d/b/a Vectren Energy Delivery of Indiana, Inc.[3] filed a Verified Petition with the Commission, pursuant to Indiana Code chapters 8-1-8.5, 8-1-8.7, and 8-1-8.8, requesting the issuance of applicable certificates of public convenience and necessity (" CPCN" ) and applicable certificates of clean coal technology for the construction of a 630-megawatt capacity, integrated gasification combined cycle (" IGCC" ) power plant at the Edwardsport location. An IGCC generating facility converts coal into synthesis gas, which is used to fuel highly efficient combustion turbines.

In the Verified Petition, Duke requested: approval of the estimated costs and construction schedule of the IGCC Project (" the Project" ); authority pursuant to Indiana Code section 8-1-8.8-12 to recover construction and operating costs associated with the Project on a timely basis via applicable rate adjustment mechanisms; [4] authority to use accelerated depreciation for the Project; approval of certain additional financial incentives associated with the Project; authority to defer its property tax expense, post-in-service carrying costs, depreciation costs, and operation and maintenance costs associated with the Project on an interim basis until the applicable costs are reflected in Duke's retail electric rates; and authority to recover other related costs associated with the Project. In re Duke Energy Ind., Inc., 43114, 2007 WL 4150583 (Nov. 20, 2007). Duke also asked the Commission to conduct an ongoing review of the construction of the Project. Id.

Pursuant to Indiana Code section 8-1-1.1-5.1, the Indiana Office of the Utility Consumer Counselor (" OUCC" ) participated in the proceedings before the Commission on behalf of consumers and ratepayers. Intervenors, Duke Energy Indiana Industrial Group (" Industrial Group" ), and Nucor Steel, a Division of Nucor Corporation (" Nucor" ), among others, were additional parties to this proceeding.

On November 20, 2007, the Commission issued its final order in consolidated Cause Numbers 43114 and 43114-S1 and made several determinations, including: (1) approval of CPCNs for the Project under IC 8-1-8.5[5] and 8-1-8.7; [6] (2) approval of

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Duke's estimated costs of $1.985 billion as reasonable to complete the Project; and (3) agreement that ongoing review of the construction of and cost recovery for the Project would be conducted in semi-annual proceedings. Id. The semi-annual proceedings included a rate adjustment mechanism, the IGCC Rider. In each IGCC Rider, the Commission would review the progress of the Project's construction and consider Duke's request to immediately recover construction costs, financing costs, and other operating costs that Duke had incurred during the previous six-month period. Once approved, these costs were immediately added to customers' rates. Each six-month period was numbered, with the first being IGCC-1, the second IGCC-2, and so forth. In the instant action, Intervenors appeal from the Commission's order (" Order" ) in the ninth semi-annual review, IGCC-9.[7]

In May 2008, Duke filed its petition in IGCC-1, which included a request by Duke to revise the projected cost estimate of the Project from $1.985 billion to $2.35 billion and a request for approval to undertake studies related to carbon capture at the Project and for cost recovery for such studies. On January 7, 2009, the Commission issued its order in IGCC-1 approving: (1) Duke's increase in cost estimate to $2.35 billion and its ongoing review progress report; (2) timely recovery from ratepayers of construction and operating costs, including financing, through the IGCC Rider for the six months under review; and (3) studies related to carbon capture at the Project and cost recovery for such studies. In re Duke Energy Ind., Inc., 43114 IGCC-1, 2009 WL 214580 (Jan. 7, 2009). In the subsequent two reviews, the Commission also approved Duke's cost recovery requests in IGCC-2 and IGCC-3.

On November 24, 2009, in connection with IGCC-4, Duke requested approval from the Commission to recover from ratepayers the costs it had incurred during the six-month period ending September 30, 2009. Duke also requested a subdocket, referred to as IGCC-4S1, asking the Commission to approve an increase to the cost estimate for the entire project. In re Duke Energy Ind., Inc., 2012 WL 6759528 (Ind. U.R.C., Dec. 27, 2012). Under IGCC-4S1, Duke initially requested an increase in the Project's cost from $2.35 billion to $2.88 billion including allowance for funds used during construction (" AFUDC" ). Id. Subsequently, Duke proposed to voluntarily cap the costs that it would seek from customers and sought approval of a Project cost estimate of $2.72 billion in direct construction costs, plus all

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associated AFUDC costs on the $2.72 billion for a total of approximately $3 billion. Id.

On July 28, 2010, the Commission issued its interim order in IGCC-4, approving Duke's six-month costs and the IGCC Rider on an interim basis, pending the outcome of IGCC-4S1. On September 17, 2010, Duke, Industrial Group, and the OUCC submitted a settlement agreement to the Commission in IGCC-4S1, which set a hard cap cost of $2.975 billion on the construction costs of the Project. Subsequently, amidst an ethics scandal involving Duke and the Commission, the settlement agreement was withdrawn.

About two years later, on April 30, 2012, Duke filed a modified settlement agreement in IGCC-4S1 (" Agreement" ) to which Duke, Industrial Group, OUCC, and Nucor were all parties. Appellants' App. at 321-32. This Agreement included a $2.595 billion hard cost cap for construction costs and provided a partial cap on capital costs up through the Plant's in-service date. Id. at 322. The Agreement included conditions that Duke had to meet before the Plant would be declared in-service and also stated that the " In-Service Operational Date shall not be prior to September 24, 2012." Id. at 323. Intervenors were not signatories to the Agreement in IGCC-4S1 and actively opposed it being approved by the Commission.

On December 27, 2012, the Commission issued its final order approving the Agreement in IGCC-4S1, again over Intervenors' objections. The Commission simultaneously issued final orders in several other IGCC Rider proceedings that were then pending, but were essentially concluded: Cause Nos. 43114 IGCC-5, IGCC-6, IGCC-7, and IGCC-8. In these Orders, the Commission began implementation of the IGCC-4S1 settlement. In re Duke Energy Ind., Inc., 2012 WL 6759529, (Ind. U.R.C., Dec. 27, 2012); In re Duke Energy Ind., Inc., 2012 WL 6759530 (Ind. U.R.C., Dec. 27, 2012); In re Duke Energy Ind., Inc., 2012 WL 6759531 (Ind. U.R.C., Dec. 27, 2012); and In re Duke Energy Ind., Inc., 2012 WL 6759532 (Ind. U.R.C., Dec. 27, 2012).

On June 8, 2012, Duke filed its Verified Petition in the instant action, IGCC-9, requesting:

[T]hat the Commission, for ratemaking purposes, authorize the addition of the actual expenditures for its IGCC Project made through March 31, 2012, to the value of Petitioner's property. Petitioner further requests that the Commission approve and authorize the requested rate adjustment allowing Petitioner to earn a return on said amount, in addition to the return on value of its used and useful utility property and on its construction work in progress investment previously approved by the Commission. Petitioner also requests recovery of certain other applicable costs and credits via the IGCC Rider, including . . . depreciation, and Indiana ...

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