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Citizens Action Coalition of Indiana, Inc. v. Southern Indiana Gas And Electricity Co.

Court of Appeals of Indiana

February 14, 2017

Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Valley Watch, Inc., Appellants-Intervenors,
v.
Southern Indiana Gas and Electricity Company d/b/a Vectren Energy Delivery of Indiana, Inc., Indiana Office of Utility Consumer Counselor, Appellees-Petitioners

         Appeal 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, Commissioner

          Attorneys for Appellants Thomas Cmar Oak Park, Illinois Matthew Gerhart Denver, Colorado Jennifer A. Washburn Indianapolis, Indiana

          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

          Altice, Judge.

         Case Summary

         [¶1] 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.

         [¶2] 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.

         [¶3] 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.

         [¶4] We affirm.[1]

         Facts[2] & Procedural History

         [¶5] 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.

         [¶6] 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).[3]Among other projects, [4] 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.

         [¶7] In April 2014, Intervenors intervened in the IURC proceedings and opposed Vectren's petition.[5] 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.

         [¶8] 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 noncompliant units.

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).

         [¶9] 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.

         [¶10] 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 stranded costs.

         [¶11] 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.

         [¶12] 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.

         [¶13] 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 regulations....
***
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 ...

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