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Citizens Action Coalition of Indiana, Inc. v. Southern Indiana Gas & Electric Co.

Court of Appeals of Indiana

February 19, 2019

Citizens Action Coalition of Indiana, Inc., Appellant-Intervenor,
v.
Southern Indiana Gas & Electric Company d/b/a Vectren Energy Delivery of Indiana, Inc., Appellee-Petitioner.

          Appeal from the Indiana Utility Regulatory Commission The Honorable David E. Ziegner, Commissioner The Honorable Loraine L. Seyfried, Chief Administrative Law Judge IURC Cause No. 44927

          ATTORNEYS FOR APPELLANT Jennifer A. Washburn Margo Tucker Citizens Action Coalition of Indiana, Inc. Indianapolis, Indiana

          ATTORNEYS FOR APPELLEE Robert E. Heidorn P. Jason Stephenson Vectren Corporation Evansville, Indiana Wayne C. Turner Patrick A. Ziepolt Hoover Hull Turner LLP Indianapolis, Indiana

          Brown, Judge.

         [¶1] Southern Indiana Gas & Electric Company d/b/a Vectren Energy Delivery of Indiana, Inc. ("Vectren South" or "Petitioner") filed a petition with the Indiana Utility Regulatory Commission ("Commission") seeking approval of its energy-efficiency Electric Demand Side Management[1] ("DSM") Plan for 2018-2020 ("Plan"). Citizens Action Coalition of Indiana, Inc. ("CAC") intervened in the proceeding. Following an evidentiary hearing, the Commission issued its decision ("Order") that approved the Plan in its entirety, including a revised lost revenue recovery proposal that Vectren South had presented. CAC now appeals from the Commission's Order, raising the following issues which we restate as follows:

I. Whether the Commission's Order is contrary to law;
II. Whether the Commission's Order impermissibly deviates from precedent;
III. Whether the Commission's Order is supported by substantial evidence; and
IV. Whether the Commission's approval of Vectren South's energy efficiency goals is improper.

         We affirm.

         Facts and Procedural History

         [¶2] Vectren South is a public utility based in Evansville that provides electric utility service to approximately 140, 000 customers in six counties in southwestern Indiana. In 2015, the General Assembly passed a statute, Indiana Code § 8-1-8.5-10 (2015) ("Section 10"), requiring electricity suppliers[2] to (among other things) periodically present to the Commission energy efficiency ("EE") plans, goals, and programs[3] for approval by the Commission beginning no later than 2017. See Ind. Code § 8-1-8.5-10(h). The statute specifically provides as follows:

(h) Beginning not later than calendar year 2017, and not less than one (1) time every three (3) years, an electricity supplier shall petition the commission for approval of a plan that includes:
(1) energy efficiency goals;
(2) energy efficiency programs to achieve the energy efficiency goals;
(3) program budgets and program costs; and
(4) evaluation, measurement, and verification [("EM&V")[4] procedures that must include independent evaluation, measurement, and verification.
An electricity supplier may submit a plan required under this subsection to the commission for a determination of the overall reasonableness of the plan[5] either as part of a general basic rate proceeding or as an independent proceeding. . . .

Id.

         [¶3] As an incentive for participation, the General Assembly included provisions within the statute allowing electricity suppliers, such as Vectren South, to recover certain costs associated with their EE plans, including lost revenues.[6] See Ind. Code § 8-1-8.5-10(o) ("If the commission finds a plan submitted by an electricity supplier under subsection (h) to be reasonable, the commission shall allow the electricity supplier to recover or receive the following: . . . (2) Reasonable lost revenues."). As explained by Vectren South: "When ratepayers use less electricity, because of energy efficiency programs, they are saving money. The utility is similarly losing revenue due to decreased sales of electricity." Appellee's Brief at 11. The instant case stems from the Commission's approval of Vectren South's Plan in its entirety, including Vectren South's revised proposal to recover lost revenue.

         [¶4] On April 10, 2017, Vectren South filed a petition with the Commission seeking approval of its Plan, which outlined Vectren South's EE programs and their budgets and costs. The Plan had an estimated cost of $28.6 million, with $9.5 million in 2018, $9.6 million in 2019, and $9.5 million in 2020. The Plan included a portfolio of programs designed to achieve 111 million kilowatt hours ("kWh") in energy savings and 26 thousand kilowatts ("kW") in demand reduction during the three-year period. The Plan also included a request for approval to recover, over the life of the measure, [7] lost revenues resulting from reduced demand for electricity ("Original Lost Revenue Proposal"). On April 10, 2017, CAC filed a petition to intervene, which was granted on May 2, 2017.

         [¶5] At some point during the proceedings, Vectren South withdrew its Original Lost Revenue Proposal and submitted a revised proposal for the recovery of lost revenue ("Revised Lost Revenue Proposal") that would allow recovery of lost revenues over twelve years. The Revised Lost Revenue Proposal was described as follows in the Commission's Order through testimony provided by Rina H. Harris ("Ms. Harris"), Director of Energy Efficiency for Vectren Utility Holdings, Inc., at an evidentiary hearing held by the Commission on September 6, 2017:[8]

Petitioner seeks authority to implement lost revenue recovery based upon the WAML[, the weighted averaged measure life, ] of all programs included in the 2018-2020 Plan, with a 10% reduction in annual savings. Under this method, Vectren South would recover the amount of lost revenues associated with the WAML of its EE programs or the measure life, whichever is less. The WAML is the average life, weighted by savings in years, of all the various measures installed or actions taken in a portfolio of programs. [Ms. Harris] said that capping recovery of lost revenues based upon WAML is reasonable because it limits lost revenue recovery based on the average equipment life and measure persistence of the entire Plan. In addition, only 90% of annual savings would be recovered, reflecting the statistical certainty EM&V providers can obtain for lost revenues. She said that . . . the EM&V process utilizes at minimum a 90% confidence interval (an industry accepted standard). She testified that all inputs in the WAML (less 10% for statistical certainty) are grounded on evaluation and Technical Re[source] Manuals[9]and provide a methodical cap to lost revenue recovery.
* * * * *
Ms. Harris testified that for the Plan, the WAML approach would reduce lost revenue recovery by approximately $18.8 million over the life of the programs included in the Plan as compared to recovery using full measure life [under the Original Lost Revenue Proposal]. [Under the Revised Lost Revenue Proposal, l]ost revenues would be reduced by 26% with a 12-year weighted average cap plus 10% savings reduction.

Appellant's Appendix Volume 2 at 13. Vectren South predicted that "its lost revenue due to measures implemented in the 2018-2020 energy efficiency plan will be $73.6 million." Appellee's Brief at 21. However, it maintained that, under the Revised Lost Revenue Proposal, it was not seeking to recover its estimate of $73.6 million, but rather "only about $54.8 million, or $18.8 [million] less . . . ." Id. at 22.

         [¶6] CAC argued for Vectren South's lost revenue collection to be capped at the lesser of four years or the Plan's measure life. A witness for CAC, Karl R. Rábago ("Mr. Rábago"), the principal of Rábago Energy, LLC, testified that "[b]y capping the lost revenue recovery at the lesser of [four] years or the life of the measure, this mitigates the Pancake Effect [(the cumulative effect of lost revenues over time on rates)]." Exhibits Volume 8 at 128. He explained that "the problems of 'pancaking' and 'piece-meal' or 'single-issue' ratemaking create serious problems of fairness and reasonableness if a [lost rate adjustment mechanism ("LRAM")[10] is used for the entire useful life of the energy efficiency measures." Id. at 132. He further explained that "although pancaking and piece-meal rate making problems can arise over any term between rate cases, the amount of pancaking that will occur with a four-year cap is reasonable because: A term greater than four years will create unreasonable difficulty in tracking the pancake effect over time." Id. at 130. He urged the Commission to find that four years is the maximum reasonable term for an LRAM "before the utility must present any remaining claimed lost revenues in a base rate case . . . ." Id. He maintained that beyond four years, the LRAM "would be subject to some volatility, as measures exited due to end of useful life, and as new lost revenue collections were added due to subsequent [p]lan approvals." Id. at 132. He disagreed with Vectren South's claim that a four-year cap would create a perverse incentive for the utility to favor programs with shorter-term useful lives to avoid the risk of under-recovery of lost revenues.

         [¶7] Mr. Rábago maintained that Vectren South's WAML approach to the recovery of lost revenues comes with its own set of problems. He explained:

The weighted average measure life is a mathematical solution to the rate volatility that results from long-term pancaking of an [LRAM], but potentially creates greater problems in terms of rate fairness. That is, the method would "smooth out" year to year volatility in the later years of the portfolio useful life by use of an averaging calculation. But without much more analysis and modeling, there is no way ...

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