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Indiana denies Vectren bid to replace coal capacity with 850-MW natural gas plant

Highlights

'Bias' for surplus generation rejected

More thorough analysis ordered

Houston — The Indiana Utility Regulatory Commission has rejected a Vectren subsidiary's proposal to build an 850-MW combined-cycle natural gas-fired facility in Posey County to replace generation capacity from three coal-fired power plants.

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In an order issued Wednesday, the IURC denied a request by Vectren Energy Delivery of Indiana-South, known legally as Southern Indiana Gas and Electric, for a certificate of public convenience and necessity for the $900 million facility, finding that the company failed to adequately consider alternatives such as building multiple smaller-scale renewable generation resources.

Moreover, citing an environment of "rapid technological innovation," the IURC said the proposal failed to reasonably minimize "the potential risk that customers could sometime in the future be saddled with an uneconomic investment."

The rejection comes less than two weeks after the Indiana House of Representatives voted down a proposed moratorium that would have prevented the commission from approving projects larger than 250 MW for the next 20 months. The order also was issued less than a week after former US Environmental Protection Agency Administrator Scott Pruitt registered as a lobbyist in the state as policymakers there continue to study the implications of Indiana's shift away from coal-fired electricity.

CONCERN ABOUT EXCESS SUPPLY

Vectren South filed its request with the IURC in February 2018, citing the age and operating characteristics of its baseload generators and deadlines related to two major EPA regulations targeting coal plants. The proposed gas-fired generator was expected to replace about 865 MW of capacity, including the 490-MW A.B. Brown coal plant, where it would be sited; unit 2 at the company's 360-MW F.B. Culley coal plant; and the utility's portion of the Warrick coal plant.

The proposal was challenged by environmental groups, consumer advocacy groups and a coalition of Indiana-based coal interests.

During an October 2018 evidentiary hearing, Vectren South representatives said the growth of renewable energy sources and low natural gas prices have forced the company's coal-fired units to cycle up and down throughout the day, or shut down altogether, decreasing efficiency while increasing wear and tear. The utility also pointed to a pair of EPA rules related to coal ash storage that would require Vectren South to make "significant" further investments to continue operating the A.B. Brown and Culley generating facilities.

Meanwhile, representatives for the Indiana Coal Council, Alliance Resource Partners subsidiary Alliance Coal LLC, and Hallador Energy subsidiary Sunrise Coal LLC argued that Vectren South should wait to shift its baseload generation from coal to natural gas because the Trump administration is in the process of relaxing the EPA rules driving the transition.

In Wednesday's order, the IURC said it agreed with several of the environmental intervenors' criticisms, specifically faulting Vectren South for a plan to build an 850-MW gas-fired plant that would represent approximately 77% of its 2019 peak load and just under 71% of its projected summer peak load for 2036. "We are hard pressed to see how reliance on one facility for so much of the Vectren South system requirements is consistent with maintaining flexibility to respond to changing market conditions and technological change," the IURC said.

The commission also accepted environmental intervenors' argument that Vectren South's risk analysis "took a one-sided view of capacity purchase and market purchase risks" by assuming that surplus capacity and generation "offers only benefits to ratepayers." A proposal "biased in favor of portfolios with surplus generation is speculation we decline to embrace," the IURC said.

INTEGRATED RESOURCE PLAN

In denying Vectren South's proposal, the IURC instructed the utility to present "a more thorough analysis that fully evaluates all possible options for continuing to provide reliable, efficient, and economical electric service" in its forthcoming integrated resources plan due later in 2019. In the same order, the IURC also granted Vectren South's request to recover deferred costs related to compliance with the EPA's Mercury and Air Toxics Standards.

Hallador Energy in an April 20 statement said the company hired Pruitt to lobby on behalf of subsidiary Rail Point Solutions LLC to protect Indiana consumers from Vectren and NiSourcea subsidiary Northern Indiana Public Service Co. rate increases.

In October 2018, NIPSCO announced plans to retire all of its coal capacity within the next 10 years and reduce carbon emissions by 90% as part of the company's transition to cleaner energy resources.

Earthjustice attorney Thomas Cmar on Wednesday suggested the IURC's decision was a win for ratepayers.

"We are pleased with the commission's decision to protect Indiana energy customers," he said in an email.

-- Zack Hale, S&P Global Market Intelligence, newsdesk@spglobal.com

-- Edited by Mark Watson, newsdesk@spglobal.com