Dive Brief:

• Indiana regulators last week denied Sierra Club’s motion to open a subdocket on Indianapolis Power and Light’s (IPL) coal plant operations, despite opening a subdocket for Duke Energy’s coal plant commitments in March.

• Testimony from the Sierra Club did not adequately take into account non-economic factors a utility must consider when self-committing, the Indiana Utility Regulatory Commission (IURC) wrote in its order. "We find that price risk, reliability, and operational needs are also reasonably factored into the decision process."

• Sierra Club says an inability to provide rebuttal testimony because of a hastened proceeding under COVID-19 guidelines prevented the group from responding in full to the utility’s testimony. The environmental group and Citizens Action Coalition (CAC) of Indiana are now focused on the Duke subdocket, which regulators opened based on evidence the utility lost $6.9 million over three months last year due to its coal plant commitment practices.

Dive Insight:

State regulators have begun taking a closer look at self-committing coal practices over the past few years, particularly within the Midcontinent Independent System Operator’s market, based on growing evidence from Sierra Club, Union of Concerned Scientists and others that the practice may be costing ratepayers millions of dollars annually.

Indiana regulators opened a subdocket to investigate Duke’s coal practices after the issue was raised in the utility’s latest fuel adjustment cost (FAC) application.

"The unit commitment decision is clearly not a simple or non-consequential exercise," regulators determined. "The nuanced decision-making, especially for units 'at the money', described by the Applicant requires an understanding and appropriate valuing of the factors beyond the simple Profit and Loss analysis," according to the IURC. Time constraints on the FAC "presents challenges to such an effort."

Time constraints are an issue in this and other FAC proceedings, which is part of the reason why the state should have opened a subdocket on the IPL case as well, Jeremy Fisher, senior strategy and technical advisor at the Sierra Club’s environmental law program, told Utility Dive. 

IPL argued in the proceeding that Sierra Club’s estimates of imprudent coal commitments were backward-looking, meaning that the utility did not at the time have the information it needed to avoid losing money. The utility also found other errors in Sierra Club’s calculations that it estimates reduces overall losses from November to December down to just over $1 million, rather than the $1.55 million Sierra Club had originally calculated. 

Though the utility acknowledges its Petersburg plant, the facility in question, took losses during the time period of November 2019 through January 2020, it defends those losses as required operations to avoid potentially violating its environmental water permits.

"Multiple factors during January 2020 (unit cycling, significant rain events, and mechanical issues) led to the critically high water balance in the Flue Gas Desulfurization ... water treatment system ... that put the station at risk of shutdown," David Jackson, director of commercial operations at IPL parent company AES said in testimony. To mitigate this issue and reduce the amount of water in the system, two units needed to operate during that month, despite it being uneconomic to do so.

The Petersburg plant violated its water permit more than 120 times in the past three years, making it the worst offender in Indiana, Indy Star reported Monday.

"[I]t is unreasonable to expect the Petersburg units to operate perfectly ‘in the money’ at all times," IPL found, according to the IURC’s order. 

Sierra Club was unable to offer a response to the rebuttal testimony because of the limited timeframe of the proceeding — because of the novel coronavirus, the commission held a paper-only hearing on the issue, which limited the environmental group’s ability to cross-examine. 

The timing is "unfortunate," said Fisher, because the errors the utility criticizes are based on figures misrepresented in their testimony. But the utility still acknowledges it took losses on the plant.

"They disagree with the order of magnitude, and the reason that they incur those losses. But they don't disagree that, in fact, Petersburg has net losses during that time period. I think that's an important part the commission sort of skimmed over in the review of this," he said.

Further, Fisher notes utilities' defense over the economics of coal has devolved considerably over the years.

"When market prices dropped and coal prices went up, the narrative became, 'Well, yes, our coal plants are possibly more expensive on a capital cost basis and maybe even on a fixed cost basis, but at least we're covering ourselves on a variable cost basis. Our plants are cheaper to operate than anything else that we can otherwise find on the market,'" he said.

"And now we're coming in and saying every one of those rungs of your ladder has disappeared, your overall long term economics are gone, because you incur both fixed costs and capital costs that are way above your recovery."

Duke testimony

Meanwhile, the IURC is continuing to review the Duke case. Sierra Club is involved in both dockets and argued the IPL case also warranted a subdocket. 

Regulators disagreed in their order denying the IPL subdocket, saying that IPL "in its rebuttal provided a further testimonial explanation for its decisions," including refuting Sierra Club’s numbers and arguing that the losses they did take could not have been realized without hindsight. 

The main difference between Duke and IPL is that Duke tracks its position in the energy market more closely, "but the problem is they ignore their own calculation," Tony Mendoza, senior staff attorney at Sierra Club, told Utility Dive.

Sierra Club testimony filed in March on the Duke case found that the utility self-commits its Indiana coal units the majority of the time and kept or brought a unit online "even when its own internal commitment analysis projected that doing so would lose money." 

Duke cites environmental compliance as well as other operational limitations that make it necessary to operate at times when it isn’t economic to do so. 

CAC and other intervenors are filing their testimony July 15 and Duke’s testimony is due Aug. 12.