Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Valley Watch, Inc., Appellants-Intervenors,
Southern Indiana Gas and Electricity Company d/b/a Vectren Energy Delivery of Indiana, Inc., Indiana Office of Utility Consumer Counselor, Appellees-Petitioners
from the Indiana Utility Regulatory Commission Trial Court
Cause No. 44446 The Honorable Jeffery A. Earl, Administrative
Law Judge The Honorable Carol A. Stephan, Commissioner Chair
The Honorable Angela Weber, Commissioner The Honorable David
Ziegner, Commissioner The Honorable James Huston,
Attorneys for Appellants Thomas Cmar Oak Park, Illinois
Matthew Gerhart Denver, Colorado Jennifer A. Washburn
Attorneys for Appellees Curtis T. Hill, Jr. Attorney General
of Indiana David Lee Steiner Deputy Attorney General
Indianapolis, Indiana Beth Krogel Roads Jeremy R. Comeau
Indiana Utility Regulatory Commission Indianapolis, Indiana
Robert E. Heidorn P. Jason Stephenson Evansville, Indiana
Wayne C. Turner Patrick A. Ziepolt Indianapolis, Indiana
Over three years ago, Southern Indiana Gas and Electric
Company d/b/a Vectren Energy Delivery of Indiana, Inc.
(Vectren) petitioned the Indiana Utility Regulatory
Commission (IURC) for approval of projects to modify four of
Vectren's coal-powered generating stations to bring them
into compliance with EPA emissions standards. Citizens Action
Coalition of Indiana, Inc., Sierra Club, Inc., and Valley
Watch, Inc. (collectively, Intervenors) intervened in the
action and opposed the petition.
The IURC ultimately approved the petition, determining that
Vectren's proposed projects were reasonable and necessary
under Ind. Code § 8-1-8.8-11. Upon Intervenors'
appeal in Citizens Action Coal. of Ind., Inc. v. S. Ind.
Gas & Elec. Co. (Vectren I), 45 N.E.3d 483
(Ind.Ct.App. 2015), another panel of this court remanded with
respect to two of the proposed projects, finding that I.C.
§ 8-1-8.7-3 rather than I.C. § 8-1-8.8-11 applied.
This court instructed the IURC to make findings regarding the
statutory factors listed in I.C. § 8-1-8.7-3 and then
issue or deny a certificate of public convenience and
necessity (CPCN) for the two projects.
On remand, the IURC refused a request by Intervenors to
reopen the record to consider new evidence. It also issued an
order analyzing the nine statutory factors, concluding that
public convenience and necessity will be served by the
proposed clean coal technology projects, and issuing a CPCN
to Vectren for the remaining projects. Intervenors appeal
once again. They argue that the IURC's findings are not
adequately explained, are arbitrary and capricious, and are
not supported by substantial evidence. Additionally,
Intervenors argue that the IURC unlawfully denied the
petition to reopen the record.
Facts & Procedural History
Vectren is a public utility company that provides electricity
to southern Indiana residents. Eighty-five percent of
Vectren's baseload electricity is generated at Brown unit
1, Brown unit 2, Culley unit 2, Culley unit 3, and Warrick,
all of which are coal-powered generators. In 2012, the EPA
issued a Notice of Violation (NOV) alleging that
Vectren's emissions control technology at its Brown units
was noncompliant with EPA rules governing sulfuric acid
emissions. The EPA also served Vectren with a Clean Air Act
Information Request that highlighted concerns with the sulfur
emissions at Culley unit 3. Vectren and the EPA eventually
reached a settlement in principle to resolve the outstanding
allegations raised in the NOV and the information request.
Vectren also became subject to new federal mandates regarding
mercury emissions standards.
On January 17, 2014, as a result of the compliance issues,
Vectren filed a petition with the IURC for approval of
modifications to four of its coal-powered electricity
generating facilities - Brown units 1 and 2, Culley unit 3,
and Warrick. The petition sought approval of several clean
energy projects and issuance of a CPCN to construct, install,
and use clean coal technology (CCT).Among other projects,
Vectren requested approval for a soda ash injection system
for sulfur trioxide (SO3) mitigation at Brown units 1 and 2
and a hydrated lime injection system for SO3 mitigation at
Culley unit 3.
In April 2014, Intervenors intervened in the IURC proceedings
and opposed Vectren's petition. Intervenors contended that
Vectren should replace all or some of the units with new
electricity-generating sources (such as, natural gas, wind,
or solar) instead of retrofitting the existing coal units.
According to Intervenors, this would be more cost-effective
for Vectren's customers over the long run.
The dispute between Vectren and Intervenors became a battle
of experts. Vectren hired the engineering firm Black &
Veatch (B & V) to compare the total ratepayer cost and
relative risk of the proposed modifications versus the cost
and risks associated with retiring and replacing the
B & V's report found that the only feasible plans to
meet environmental regulations were (1) replacing one or more
of Vectren's current units with new natural gas-powered
facilities and retiring the remaining facilities, or (2)
upgrading the current coal-powered facilities. B & V
evaluated twenty-one potential scenarios involving various
gas-powered replacement options and a range of potential
market and environmental scenarios. B & V concluded that
of the twenty-one scenarios, only one offered a small savings
over the Mandated Projects proposal. B & V found that the
cost savings under this one scenario were
"marginal" and conditional on a future market
scenario with low natural gas prices and high carbon prices.
Accordingly, B & V concluded that Vectren's plan to
modify the existing facilities was the best option in terms
of cost to ratepayers.
Id. at 487 (record cite omitted).
Intervenors submitted testimony of their expert, Dr. Jeremy
I. Fisher, who felt that the 10-year period used in B &
V's analysis was too short to capture accurate long-term
costs and risks associated with the proposal and that using a
20-year model would be more appropriate. Dr. Fisher
maintained that, under a 20-year analysis, natural
gas-powered generators would be more cost efficient. He also
noted other errors he believed B & V committed in its
economic modeling, including the exclusion of wholesale
capacity and energy sales.
Vectren's President and CEO, Carl L. Chapman, disagreed
that Vectren should retire 85% of its generation facilities
and opined that this was a riskier approach. He testified
that capacity constraints, market conditions, and economic
growth would create tremendous risk. He also noted that there
would be significant costs left undepreciated from prior
investments in the units (stranded costs). On the other hand,
according to Chapman, Vectren's proposed projects
afforded flexibility to respond to changing market
conditions, reliable capacity, and full depreciation of
Wayne D. Games, Vice President of Power Supply at Vectren,
testified that a 20-year analysis skews the economic
modeling. He also indicated that it would take 4 years to
construct replacement generation and, in the meantime,
customers would be exposed to market and reliability risks.
Despite the criticisms of Dr. Fisher, J. Neil Copeland of B
& V continued to maintain that a 10-year model was
prudent. He also disputed Dr. Fisher's contentions of
analytical errors in B & V's model and noted problems
with Dr. Fisher's 20-year analysis. Further, Copeland
indicated that the cost differences between the alternatives
were fairly small and opined that decisions about future
generations should not be made solely on these small
differences. He noted the importance of management judgment
and consideration of risks of capacity shortages.
On January 28, 2015, the IURC issued an order (the First
Order) approving Vectren's petition in total. The order
is lengthy but only a portion of it is relevant to this
appeal. After setting out in detail the evidence presented by
the parties, the IURC issued the following relevant
discussion and findings:
C. Deferred Recovery under Ind. Code ch. 8-1-8.8.
Under Ind. Code § 8-1-8.8-11(a)(5), the Commission can
authorize other financial incentives that it considers
appropriate for clean energy projects only if the projects
are found to be reasonable and necessary.
Vectren submitted evidence showing that failure to comply
with the federally mandated requirements would require
Vectren to retire Brown, Culley, and Warrick, which make up
approximately 85% of its baseload generation, in 2015. The
Mandated Projects will enable the continued operation of the
facilities for at least the next ten years and continued
service to Vectren's customers.
Vectren evaluated several alternative compliance technologies
that would allow the Brown, Culley, and Warrick units to
comply with pollution limits....
Vectren hired Black & Veatch to further evaluate the most
promising technologies and consider alternatives for bringing
its generation fleet in compliance with federal
Vectren also considered whether the continued operation of
Brown units 1 and 2, Culley unit 3, and Warrick unit 4 was
the best option. Vectren submitted production cost modeling
supporting its plan to continue investing in, rather than
retire, Brown, Culley, and Warrick. Specifically, Vectren
presented a ten-year production cost model using PROMOD IV
prepared by Black & Veatch. Vectren also engaged Burns
& McDonnell to conduct an analysis over a 20-year period
to respond to concerns by the Joint Intervenors and OUCC.
The evidence presented by Vectren shows that failure to
complete the Mandated Projects could require the premature
retirement of the related generation facilities, which would
result in significant reliability, market, and regulatory
risk. MISO is projecting capacity shortfalls as early as 2016
and constructing a new gas generation facility would take at
least four years. Without the ability to obtain voltage
support from distant generators to serve its territory,
Vectren would be forced to purchase capacity in an already
constrained market. All of these factors point to concerns
that retirement of Brown and Culley would expose