Ind. Office of Util. Consumer Counselor v. Duke Energy Ind., LLC

• Court: Court of Appeals of Indiana
• Citation: 169 N.E.3d 417
• Docket Number: Court of Appeals Case No. 20A-EX-1404
• Parties: INDIANA OFFICE OF UTILITY CONSUMER COUNSELOR, Duke Industrial Group, Citizens Action Coalition of Indiana, Inc., Environmental Working Group, Indiana Community Action Association, Sierra Club, and Nucor Steel-Indiana, Appellants, v. DUKE ENERGY INDIANA, LLC, Indiana Utility Regulatory Commission, and Indiana Coal Council, Inc., Appellees.
• Decision Date: 13 May 2021

169 N.E.3d 417

INDIANA OFFICE OF UTILITY CONSUMER COUNSELOR, Duke Industrial Group, Citizens Action Coalition of Indiana, Inc., Environmental Working Group, Indiana Community Action Association, Sierra Club, and Nucor Steel-Indiana, Appellants,

v.DUKE ENERGY INDIANA, LLC, Indiana Utility Regulatory Commission, and Indiana Coal Council, Inc., Appellees.

Court of Appeals Case No. 20A-EX-1404

Court of Appeals of Indiana.

FILED May 13, 2021

Attorneys for Appellant Indiana Office of Utility Consumer Counselor: William I. Fine, Indiana Utility Consumer Counselor, Randall C. Helmen, Chief Deputy Consumer Counselor, Lorraine Hitz-Bradley, Deputy Consumer Counselor, Scott C. Franson, Deputy Consumer Counselor, Indianapolis, Indiana

Attorneys for Appellant Duke Industrial Group: Todd A. Richardson, Joseph P. Rompala, Tabitha L. Balzer, Aaron A. Schmoll, Lewis & Kappes, P.C., Indianapolis, Indiana

Attorney for Appellants Citizens Action Coalition of Indiana, Inc., Environmental Working Group, and Indiana Community Action Association: Jennifer A. Washburn, Indianapolis, Indiana

Attorneys for Appellee Duke Energy Indiana, LLC: Kelley A. Karn, Melanie D. Price, Elizabeth A. Heneghan, Andrew J. Wells, Duke Energy Business Services LLC, Plainfield, Indiana, Derek R. Molter, Jenny R. Buchheit, Kay E. Pashos, Mark R. Alson, Ice Miller LLP, Indianapolis, Indiana

Attorneys for Appellee Indiana Utility Regulatory Commission: Beth E. Heline, General Counsel, Jeremy Comeau, Assistant General Counsel, Indiana Utility Regulatory Commission, Indianapolis, Indiana, Aaron T. Craft, Section Chief, Civil Appeals, Office of the Attorney General, Indianapolis, Indiana

Attorney for Appellee Indiana Coal Council, Inc.: Jeffery A. Earl, Bose McKinney & Evans LLP, Indianapolis, Indiana

Attorney for Appellant Sierra Club: Kathryn A. Watson, Katz Korin Cunningham, Indianapolis, Indiana

Attorney for Appellant Nucor Steel-Indiana: Anne E. Becker, Lewis & Kappes, P.C., Indianapolis, Indiana

Baker, Senior Judge.

Statement of the Case

[1] Duke Energy Indiana, LLC ("Duke"), a utility company, filed with the Indiana Utility Regulatory Commission ("the IURC") a petition to increase the rates it charges for electricity. After extensive proceedings, the IURC issued an order granting in part and denying in part Duke's petition. The Indiana Office of Utility Consumer Counselor ("the OUCC"), along with a group of Duke's industrial electricity customers ("the Group"), appeal the IURC's order. We affirm.

Issues

[2] The OUCC and the Group claim that the IURC erred in allowing Duke to recover from ratepayers money that Duke has spent to dispose of coal ash. The Group raises two additional issues: (1) whether the IURC erred in accepting Duke's jurisdictional separation study allocating costs between Duke's retail and wholesale electricity customers; and (2) whether the IURC erred in granting in full Duke's request to recover operating and maintenance costs ("O&M costs") at its Edwardsport, Indiana power plant.

Facts and Procedural History

[3] Duke is a public utility that provides retail electric service to approximately 840,000 customers, including businesses and residences, across Indiana. It also sells electric energy to other utilities in a wholesale market. Duke owns a number of electricity generating plants, which run on fuels including coal, natural gas, and natural gas synthesized from coal ("syngas").

[4] On July 2, 2019, Duke filed with the IURC a petition for authorization to increase its retail rates and charges (also known as base rates) for electric utility service. In the petition, Duke asked the IURC to investigate all aspects of its operations and to approve its suggested rate increases. The OUCC responded to Duke's petition as the representative of "ratepayers, consumers, and the public." See Ind. Code § 8-1-1.1-4.1 (1990). In addition, the IURC permitted numerous other parties to intervene in the case, including the Group,¹ Citizens Action Coalition of Indiana, Inc., the Environmental Working Group, Indiana Community Action Association, Sierra Club, Nucor Steel-Indiana, and the Indiana Coal Council, Inc.

[5] The OUCC and many of the intervening parties opposed Duke's rate petition in whole or in part. For example, the OUCC and the Group argued that Duke's revenue requirements should be reduced rather than increased, resulting in lower electricity rates for Duke's retail customers.

[6] The IURC presided over eleven days of evidentiary hearings, during which the parties filed extensive evidence addressing every aspect of Duke's operations, but only three topics are pertinent to this appeal. The facts relevant to each topic are as follows:

A. Coal Ash Remediation

[7] Duke has operated coal-fueled electricity generating plants for decades. Coal combustion residuals ("CCR"), also known as coal ash, are solid wastes generated during the combustion process. Duke has historically disposed of its coal ash in surface impoundments, also known as ash ponds, on its properties.

[8] In 2014, the Environmental Protection Agency promulgated a CCR Rule, which took effect in 2015. The CCR Rule set new standards for permanent disposal of coal ash in both active and inactive impoundments. Duke subsequently planned and began to implement remediation projects at four of its current or former generating plants to ensure that it complied with the new federal rule. The projects, which are still ongoing, involve either removal of coal ash from Duke's properties or leaving the coal ash in place, covered by an impermeable cap and monitored for up to thirty years.

[9] In December 2016, Duke submitted closure plans to the Indiana Department of Environmental Management ("IDEM"), requesting approval of its proposed remediation projects under the CCR Rule. IDEM had not yet approved any of the plans as of the date of the evidentiary hearings in this case. As a result, the remediation work Duke has done to this point has been preliminary in nature, pending IDEM's approval of the closure plans.

[10] In addition, beginning in 2010, IDEM notified Duke that some of its ash ponds violated Indiana's solid waste management rules. Duke incurred costs addressing the issues IDEM has identified.

[11] In this case, Duke asked the IURC to allow it to recover from ratepayers $211 million in coal ash-related remediation costs it had incurred to comply with the federal CCR rule and the State of Indiana's solid waste management rules. It further proposed to recover those costs, which Duke described as a "regulatory asset," amortized over the next eighteen years. Tr. Ex. Vol. 39, p. 6. Duke presented evidence that it had tracked the remediation projects’ costs using an accounting practice known as Asset Retirement Obligation Accounting ("ARO Accounting"), Tr. Ex. Vol. 38, pp. 144, 237, and asked the IURC to allow it to recover these deferred costs.

[12] Duke further requested reimbursement of coal ash remediation costs related to ongoing projects. The IURC determined that the recovery of future remediation costs would be addressed under a separate IURC cause number to allow "undivided consideration" of the nature and magnitude of those costs. Appellants’ App. Vol. IV, pp. 1-2. As a result, this appeal concerns only coal ash costs Duke incurred in the past.

[13] The OUCC and several of the intervenors opposed Duke's request to recover coal ash remediation costs. Among other arguments, they claimed it was inappropriate to allow recovery of past costs. They further argued Duke had generated sufficient income over the past decade to absorb the remediation costs itself, rather than pass them on to ratepayers.

B. Allocation of Assets, Revenues, and Expenses Between Retail and Wholesale Customers

[14] As noted, Duke has both retail electric customers, including businesses and residences, and wholesale electric customers, which are other utilities. The IURC has regulatory jurisdiction over Duke's relationships with its retail customers, but not Duke's relationships with its wholesale customers.

[15] Duke contracts with its wholesale customers for the sale of electrical power. Previously, Duke's wholesale customers entered into fifteen- or twenty-year sales contracts. In the last decade, changes in the wholesale electricity market have resulted in customers being less interested in long-term contracts. As a result, Duke has incorporated "short-term bundled sales of market-priced capacity and energy" into its wholesale sales strategy. Tr. Ex. Vol. 36, p. 86.

[16] While preparing to file this petition, Duke performed a "jurisdictional separation study," ("the study") based on a forecasted test period of the year 2020, to determine how to allocate assets, revenues, and expenses between jurisdictional customers (that is, retail customers, which are protected by IURC regulations) and non-jurisdictional customers (wholesale purchasers). Tr. Ex. Vol. 17, p. 183.

[17] In the study, Duke apportioned production costs and peak demand and usage of its system between wholesale and retail customers. The study demonstrated that Duke's wholesale customers account for eight percent of the total demand and usage of Duke's electrical system. This percentage is approximately the same as in Duke's last base rate case, which the IURC adjudicated in 2004.

[18] The Group objected to the study, claiming that Duke had failed to account for the decrease of its long-term wholesale business since 2013. The Group further argued that the loss of long-term wholesale contracts has resulted in excess wholesale electricity production capacity, and Duke's study was faulty because it allocated to retail customers financial responsibility for production capacity that they did not need.

C. The Edwardsport Generating Plant

[19] Duke's Edwardsport generating plant, which went into service in 2013, is an integrated gasification combined cycle ("IGCC") facility. It is designed to produce electricity using either natural gas or coal-derived syngas, but it has operated primarily...