General Motors Corp. v. Indianapolis Power & Light Co.

Decision Date30 June 1995
Docket NumberNo. 93A02-9309-EX-489,93A02-9309-EX-489
Citation654 N.E.2d 752
PartiesGENERAL MOTORS CORPORATION, Central Soya Company, Inc., Office of Utility Consumer Counselor and Citizens Action Coalition of Indiana, Inc., Appellants, v. INDIANAPOLIS POWER & LIGHT COMPANY, Appellee.
CourtIndiana Appellate Court

SHARPNACK, Chief Judge.

General Motors Corporation and Central Soya Company, Inc. (collectively, "IPL-Industrial Group" or "IIG"), the Office of Utility Consumer Counselor ("UCC"), on behalf of all ratepayers of the Indianapolis Power and Light Company ("IPL"), and Citizens Action Coalition of Indiana, Inc. ("CAC") appeal the Order of the Indiana Utility Regulatory Commission ("Commission") approving IPL's environmental compliance plan submitted in fulfillment of the requirements of the Environmental Compliance Plans Act (the "Act"), Ind.Code § 8-1-27-1 et seq. We reverse and remand.

The Appellants raise several issues for our review, which we consolidate and restate as the following:

1. whether the Commission erred in interpreting the statutory prerequisites for pre-approval of environmental compliance plans found in the Act;

2. whether the Commission improperly shifted the burden of proof to the intervenors;

3. whether the Commission erred in finding that the plan constitutes "a reasonable and least cost strategy" as required by I.C. § 8-1-27-8(1)(B);

4. whether the Commission erred in finding that the plan is "in the public interest" as required by I.C. § 8-1-27-8(1)(C);

5. whether the Commission failed to determine the manner and timing of the applicable regulatory treatment of emission credits; and

6. whether the "Indiana coal" provisions of the Act are unconstitutional.


In 1990, Congress amended the Clean Air Act in an effort to combat acid rain through significant reductions in industrial emissions of sulfur dioxide (SO sub2 ) and nitrogen oxides (NO subx ). See 42 U.S.C. § 7651 et seq. (hereinafter, the "CAAA"). Public utilities like IPL are subject to and must comply with the emission reduction provisions of the CAAA. Emission requirements for SO sub2 take effect in two phases: in Phase I, effective January 1, 1995, certain listed units must meet defined limitations (42 U.S.C. § 7651c); in Phase II, effective January 1, 2000, all affected units must meet defined limitations (§ 7651d). Emission requirements for NO subx are effective at the time a given unit becomes subject to SO sub2 reduction requirements. Six of IPL's generating stations (E.W. Stout Units 5, 6, and 7, H.T. Pritchard Unit 6, and Petersburg Units 1 and 2) are subject to Phase I requirements.

Under the CAAA, utilities are permitted to choose from a variety of compliance options, including precombustion techniques (such as fuel-switching to oil, natural gas, or low-sulphur coal), new combustion technologies, and post-combustion processes, including flue gas desulfurization units called "scrubbers." The CAAA also created a system of marketable emission "allowances," by which each source is allotted a number of allowances equal to the number of tons of SO sub2 it is permitted to emit. 42 U.S.C. §§ 7651a(3), 7651b. If the source emits fewer tons, it has excess allowances that may be sold; if it emits more tons, it may achieve compliance in whole or in part by purchasing more allowances.

In response to the CAAA, the Indiana General Assembly enacted the Act in 1991. I.C. § 8-1-27-1 et seq. The Act provides a mechanism by which a public utility may voluntarily submit to the Commission for the Commission's review and approval a verified environmental compliance plan, which sets forth the manner in which the public utility intends to comply with the requirements of the CAAA. The pre-approval process is entirely voluntary, and failure to obtain pre-approval does not create any presumption of imprudence or nonrecoverability of compliance expenses. I.C. § 8-1-27-23. If the compliance plan is pre-approved, however, the utility is authorized, absent fraud, concealment, gross mismanagement or inadequate quality control, in its next general rate proceeding, to recover expenses incurred in accordance with the plan and to add to the rate base on which it earns a return through rates the value of completed capital projects or parts thereof. I.C. § 8-1-27-12.

Section 8 of the Act defines the criteria that must be satisfied in order for a compliance plan to be approved.

"The commission shall issue an order approving an environmental compliance plan if the commission:

(1) Finds that the environmental compliance plan:

(A) Is reasonably designed to meet or exceed the applicable requirements of the Clean Air Act Amendments of 1990;

(B) Constitutes a reasonable and least cost strategy over the life of the investment consistent with providing reliable, efficient, and economical electrical service;

(C) Is in the public interest; and

(D) Either:

(i) Provides for continued or increased use of Indiana coal in the coal-consuming electric generating units owned or operated by the public utility and affected by the Clean Air Act Amendments of 1990; or

(ii) If the plan does not provide for continued or increased use of Indiana coal, such nonprovision is justified by economic considerations including the effects in the regions of Indiana in which the mining of coal provides employment and in the service territory of the public utility; and

(2) Approves the cost and schedule estimate for developing and implementing the environmental compliance plan.

I.C. § 8-1-27-8.

The Act further provides that construction projects under approved plans may be eligible for the special rate treatment provided by I.C. § 8-1-2-6.6, under which the Commission may add to a utility's rate base the value of defined "qualified pollution control property" while that property is still under construction. In addition, a proposed environmental compliance plan must include certain information, including the schedule of implementation of the plan, an estimate of the cost of implementing the plan, an analysis of the comparative estimated costs of the proposed plan and alternative plans considered by the utility, and an analysis of the economic and employment effects of a proposed change of fuel type that would result in the displacement or diminished use of Indiana coal. I.C. § 8-1-27-6(b).

On April 15, 1992, IPL filed its verified petition with the Commission seeking approval of its environmental compliance plan. IPL also sought approval to treat costs expended for the development and implementation of its plan as qualified pollution control property. The plan submitted by IPL provided for reduction of SO sub2 emissions through installation of scrubbers at its Petersburg Units 1 and 2 (with interim compliance through allowances, emissions dispatching, and/or use of low sulfur coal) and through use of lower sulfur Indiana coal at its other affected units. The plan also contemplated installation of low NO subx burners at the six Phase I-affected units prior to 1995, and at five other affected units by 2000. The plan did not provide for any displacement or diminished use of Indiana coal. Because the plan would result in early and over-compliance with the CAAA, IPL would be entitled to receive allowances pursuant to 42 U.S.C. § 7651b and to sell such allowances on the market as it develops.

The UCC appeared and participated in its statutory capacity on behalf of IPL's ratepayers. See I.C. §§ 8-1-1.1-4.1, 8-1-1.1-5.1. The IIG intervened and participated as industrial ratepayers. CAC also intervened, as did Smith Cogeneration of Indiana, Inc.

The Commission held eighteen days of evidentiary hearings in October, 1992, and March and April, 1993. The Commission issued its order on August 18, 1993, approving IPL's plan and granting related regulatory relief.

The Order

The Commission approved IPL's cost estimate of $249.5 million, $189.6 million of which was for scrubbing the Petersburg units. The Order also approved IPL's deferred recovery of the costs associated with developing and presenting its plan as "qualified pollution control property."

Additional facts will be supplied as necessary.

Standard of Review

When a statute is challenged as unconstitutional, we must first determine whether the matter may be disposed of upon nonconstitutional grounds. State of Indiana, Indiana State Police, and Indiana Department of Highways v. Rendleman (1992), Ind., 603 N.E.2d 1333, 1334. Thus, we address first the nonconstitutional issues raised by the appellants.

Our standard of review of Commission orders was stated recently as follows:

"Ind.Code 8-1-3-1 provides statutory authority for this court to review Commission orders, stating, in pertinent part:

An assignment of errors that the decision, ruling or order of the commission is contrary to law shall be sufficient to present both the sufficiency of the facts found to sustain the decision, ruling, or order, and the sufficiency of the evidence to sustain the finding of facts upon which it was rendered.

Under the two-tier level of review mandated by the statute, this court first determines whether the Commission included in its decision specific findings on all factual determinations material to the ultimate conclusions. Citizens Action Coalition of Indiana, Inc. v. Nipsco (1990), Ind.App., 555 N.E.2d 162, 165. Our supreme court has stated that '[the] findings of basic fact must...

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