Utilities Notch Legislative Wins
By Leslie Bonilla Muñiz
Indiana Capital Chronicle
INDIANAPOLIS — Indiana’s powerful electric utility companies exited the state’s recent legislative session wielding key legislative victories though it might take years to know the ultimate ramifications.
New laws are set to let the state’s existing utilities get first dibs on a billion-dollar slate of new transmission projects, put natural gas plant costs into rates before construction ends, and more easily recoup other costs. Regulators, meanwhile, will examine new ways of setting rates.
Lawmakers noted that there’s plenty that goes into the rates Hoosiers see reflected in bills, like international trading on fuel, federal regulation on wholesale rates and state regulation on retail rates.
But there’s agreement on what the future holds for ratepayers: higher bills.
Residential customers in Indiana paid $152 for electricity on average in February — 34th in the nation — according to a Save On Energy analysis of U.S. Energy Administration data.
“Utility bills are going to go up. And if somebody says they’re not, they’re smoking something,” said Rep. Ed. Soliday, R-Valparaiso. He chairs the House’s utilities committee.
“At some point, we’re going to reach a breaking point. When that is, I’m not entirely sure,” said Kerwin Olson, who leads utility consumer advocate group Citizens Action Coalition.
Who Gets To Take On New Transmissions
There’s money at stake in a new building spree, and a new law puts Indiana’s electric utility companies first in line to benefit.
A regional grid operator approved a $10.3 billion transmission plan last summer to connect more renewable energy capacity to the grid — and it’s working on a second tranche of funding that could bring the total up to $30 billion.
That means big incentives to build, own and operate the infrastructure.
“That is what that is all about: billions and billions and billions of dollars. And, control of that power,” Olson said.
Utilities currently have rights of first refusal for transmission projects within their own territory, but the Federal Energy Regulatory Commission, or FERC, passed a rule a decade ago eliminating that right for cross-border projects. Soliday’s House Enrolled Act 1420 would return that right of first refusal to Indiana’s major, “incumbent” utilities when it comes to inter-regional transmission projects.
The proposal generated an uproar, uniting traditional liberal-leaning opponents and conservative groups like Americans for Prosperity.
They argued “right of first refusal” legislation was anti-competitive and would lead to higher project costs and electricity rates.
A 2021 study from economic consultant Brattle found that expanding competitive bidding could cut costs 20%-30%. But others feared open processes could invite low-ball bids and costly change-orders.
But the legislation and the process behind it enraged consumer advocates, who argued the state tried to enable a bail-out.
“That is (Duke’s) stranglehold on the legislative process in full display,” Olson said.
“Duke Energy owns that building (the Statehouse), and they get what they want,” he added.
The Legislature’s utility heads pushed back.
“(House Enrolled Act) 1417 was a result of a court case that really undid about four decades of commission process and procedure,” Koch said. He said lawmakers wanted to pass the law this session for similar pending petitions.
“None of these utilities were telling us how they’re going to react to an off-nominal event under the Supreme Court decision,” Soliday said, adding that he wanted clear guidance to avoid “utilities making it up as they go along.”
“This myth, this thing, that we were doing it to save Duke — I think they’re gonna pay,” Soliday said.
Under an April settlement on the case involving past costs, Duke is set to refund customers $70 million and provide an additional $23 million in credits. The case involving future costs is marked as pending in the state’s case search, despite the failed petition for rehearing.
Regulators To Weigh New Rate Designs
Lawmakers this session also codified a five-pillar priority framework for electric utility service which balances reliability, resilience, stability, affordability and environmental sustainability — which they repeatedly heralded as the session’s most important related proposal.
Tucked in that bill is language directing regulators to study up on alternative forms of setting rates, especially what a performance-based ratemaking system might look like for Indiana.
Regulators traditionally set rates according to what utilities have spent on capital expenditures, among other elements. But the new system would tie utility revenues and profits to specific performance goals.
Disagreement On Pay-As-You-Go Approach
Utilities can already charge ratepayers for coal, solar and windmill power before the infrastructure goes online — and after this legislative session, they’ll be able to do it with natural gas.
Soliday’s House Enrolled Act 1421 expands the use of a financing option known as construction work in progress, in which customers begin paying at the beginning of a project instead of waiting until it comes online. Otherwise, they’d pay through depreciation expenses on the assets, usually over a couple of decades.
Opponents maintain that making utilities take on the upfront financial risks for projects before asking regulators for recoupment encourages cost efficiencies. And they argue the measure makes customers liable for projects so ambitious they spook private investors.
Sen. Eric Koch, R-Bedford, sponsored the bill and countered that the law could lower costs for customers. In an example he acknowledged as “on the fly,” he compared the mechanism to making extra payments on a mortgage.
“You’re paying earlier but you’re paying less,” Koch said. He and other supporters have additionally said the mechanism promotes state oversight.
“That’s good for consumers, because if something during the course of construction is going the wrong direction, it will be recognized earlier rather than later,” Koch said. “And there’s an earlier opportunity for corrective measures.”
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