citizens-action-coalition-of-indiana-inc-sierra-club-inc-and-valley ( 2015 )

Oct 29 2015, 8:31 am
ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEE
Thomas Cmar VECTREN ENERGY
Earthjustice Robert E. Heidorn
Oak Park, Illinois P. Jason Stephenson
Matthew Gerhart Vectren Corporation
Earthjustice Evansville, Indiana
Seattle, Washington Wayne C. Turner
Jennifer A. Washburn Patrick A. Ziepolt
Citizens Action Coalition of Indiana Hoover Hull Turner LLP
Indianapolis, Indiana Indianapolis, Indiana
ATTORNEYS FOR APPELLEE
INDIANA UTILITY
REGULATORY COMMISSION
Gregory Zoeller
Attorney General of Indiana
David Lee Steiner
Deputy Attorney General
Indianapolis, Indiana
Beth Krogel Roads
General Counsel
Jeremy R. Comeau
Assistant General Counsel
Indiana Utility Regulatory
Commission
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 1 of 34
Citizens Action Coalition of October 29, 2015
Indiana, Inc., Sierra Club, Inc., Court of Appeals Case No.
and Valley Watch, Inc., 93A02-1502-EX-110
Appellants-Intervenors, Appeal from the Indiana Utility
Regulatory Commission
v. The Honorable Angela Weber,
David E. Ziegner, and James
Southern Indiana Gas and Huston, Commissioners
Electric Co. d/b/a Vectren The Honorable Jeffery A. Earl,
Energy Delivery of Indiana, Inc., Administrative Law Judge
Administrative Cause No. 44446
Appellee-Petitioner,
Indiana Utility Regulatory
Commission,
Appellee.
Bradford, Judge.
Case Summary
[1] On January 17, 2014, Appellee-Petitioner Southern Indiana Gas and Electric
Company d/b/a Vectren Energy Delivery of Indiana (“Vectren”), a public
utility company which provides electricity to southern Indiana residents, filed a
petition with Appellee the Indiana Utility Regulatory Commission (“the
Commission” or “IURC”) for approval of projects to modify their current coal-
powered generating stations so as to meet new EPA standards. The petition
also requested financial incentives and reimbursement from ratepayers for costs
associated with the projects. Appellants-Intervenors Citizens Action Coalition
of Indiana, Inc., (“CAC”) Sierra Club, Inc., and Valley Watch, Inc.
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 2 of 34
(collectively “Appellants”) intervened in the action and, in addition to the
Indiana Office of Utility Consumer Counselor1 (“OUCC”), opposed Vectren’s
petition. Appellants argued that retiring some or all of Vectren’s current coal-
powered generators and replacing them with new natural gas-powered
generators was a more cost-effective plan than Vectren’s proposal to install
emission controls on its current generators. Ultimately, the OUCC ceased its
opposition to Vectren’s proposal prior to the Commission’s decision.
[2] The Commission found that Vectren’s proposal was reasonable and necessary,
approved the proposal, and granted Vectren’s request for reimbursement of
project costs. On appeal, Appellants argue that the Commission failed to make
necessary findings on (1) facts material to its determination of the issues and (2)
statutory factors required to be addressed prior to authorizing the use of clean
coal technology. In response, Vectren claims that Appellants’ appeal is moot
and that the Commission made all necessary findings. We find that the
Commission erred in failing to make findings on the factors listed in Indiana
Code section 8-1-8.7-3 and, accordingly, we remand with instructions.
Facts and Procedural History
1
The OUCC is the state agency representing ratepayer interests in cases before state and federal utility
regulatory commissions. Indiana Office of Utility Consumer Counselor, www.in.gov/oucc/ (last visited
October 10, 2015).
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 3 of 34
i. EPA Action
[3] Vectren is a public utility company which provides electricity to southern
Indiana residents. Vectren’s baseload electricity generating units include Brown
unit 1, Brown unit 2, Culley unit 2, Culley unit 3, and Warrick, all of which are
coal-powered generators. In 2012, Vectren received a Notice of Violation
(“NOV”) issued by the EPA alleging that Vectren’s emissions control
technology at its Brown units was noncompliant with EPA rules governing
sulfuric acid emissions. The EPA also served Vectren with a Clean Air Act
(“CAA”) Information Request that highlighted concerns with the sulfur
emissions at Culley unit 3. Vectren disputed the allegations raised in the NOV.
At some point after Vectren’s filing of the instant petition and prior to the
Commission’s ultimate decision, Vectren and the EPA reached a settlement in
principle to resolve the outstanding allegations raised in the NOV and the
information request. Vectren is also subject to additional recent federal
mandates regarding emissions standards, specifically, the Mercury and Air
Toxics Standards rule (“MATS”) and the Water Pollution Control Act which
limit mercury emissions in the air and water, respectively.
ii. Vectren’s Petition
[4] On January 17, 2014, Vectren filed a petition with the Commission for approval
of modifications to four of its coal-powered electricity generating facilities––
Brown units 1 and 2, Culley unit 3, and Warrick––in order to comply with the
MATS rule, the NOV, and the CAA information request.
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 4 of 34
3. Relief requested. Vectren requests approval of clean energy
projects and issuance of a CPCN [certificate of public
convenience and necessity] to construct, install, and use CCT
[clean coal technology] to allow Vectren to comply with the
United State Environmental Protection Agency (“EPA”)
Mercury and Air Toxics Standards (“MATS”) rule, the Notice of
Violation (“NOV”) received for Brown, and a Clean Air Act
(“CAA”) §114 Information Request received for Culley related to
a 2003 federal consent decree.
Specifically, Vectren requests approval to construct, install, and
operate the following projects on the Brown Units: an organo-
sulfide injection system to inject an organo-sulfide solution into
each scrubber at Brown units 1 and 2 to address mercury (“Hg”)
re-emission…; a soda ash injection system for sulfur trioxide
(“SO3”) mitigation at Brown units 1 and 2; and a hydrogen
bromide injection system on Brown unit 2 to aid the conversion
of elementary mercury to oxidized form (collectively, the “Brown
Air Projects”).
Vectren requests approval to construct, install and operate the
following projects on the Culley Units: an organo-sulfide
injection system…at the combined scrubber at Culley units 2 and
3 to address Hg re-emission…; and a hydrated lime injection
system for SO3 mitigation at Culley unit 3 (collectively, the
“Culley Air Projects”)….
Vectren requests approval for recovery of its portion of the costs
for Alcoa[2] to install an organo-sulfide system at Warrick unit 4
(“Warrick Project”).
In addition, Vectren requests approval to construct, install, and
operate equipment necessary to control wastewater discharges
from the plants at both Brown and Culley as required to comply
2
Vectren owns 50% of Warrick unit 4 along with Alcoa Inc., which owns the other 50%.
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 5 of 34
with National Pollution Discharge Elimination System
(“NPDES”) Hg limitations. [“Brown Water Project” and “Culley
Water Project”]…. In this Order, we refer to the Brown and
Culley Air Projects, the Warrick Project, and the Brown and
Culley Water Projects, collectively, as the “Mandated
Projects”.[3]
Vectren also requests approval of certain financial incentives and
approval to defer project costs, including depreciation and
operations and maintenance (“O&M”) expenses related to the
Mandated Projects (“Mandated Project Costs”), for a period up
to December 31, 2020, by which time Vectren will propose a
recovery mechanism for such costs. In the alternative and to the
extent deferral of the Mandated Projects Costs is not permitted,
Vectren requests authority to recover the reasonably incurred
O&M expenses, including consumables, and depreciation
expenses relating to the Mandated Projects through a rate
adjustment mechanism. Finally, Vectren requests ongoing
review for the Mandated Projects and specific accounting
treatment of under/over recovery of the Mandated Projects
Costs.
Appellants’ App. pp. 10-11, Order of the Commission pp. 3-4.
[5] In April of 2014, CAC, Valley Watch, and Sierra Club intervened in the
proceedings and opposed Vectren’s proposal.
3
Hereafter, we will refer to the Brown and Culley Air Projects and the Warrick Project collectively as the
“Air Projects.”
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 6 of 34
iii. Evidence Presented to the Commission
[6] In order to comply with EPA requirements, Vectren could either install
additional pollution controls on its existing units or replace its existing units
with new electricity-generating sources (e.g., natural gas, wind, solar, etc.) that
would be in compliance with the emissions requirements. Vectren hired
engineering firm Black & Veatch (“B&V”) to compare the total ratepayer cost
and relative risk of its proposal to modify existing units (as described above)
versus the cost and risks associated with retiring and replacing the non-
compliant units. Alcoa engaged the engineering firm Burns & McDonnell for
the same purpose with regards to the Warrick unit.
[7] B&V’s report found that the only feasible plans to meet environmental
regulations were (1) replacing one or more of Vectren’s current units with new
natural gas-powered facilities and retiring the remaining facilities, or (2)
upgrading the current coal-powered facilities. B&V evaluated twenty-one
potential scenarios involving various gas-powered replacement options and a
range of potential market and environmental scenarios. B&V concluded that of
the twenty-one scenarios, only one offered a small savings over the Mandated
Projects proposal. B&V found that the cost savings under this one scenario
were “marginal” and conditional on a future market scenario with low natural
gas prices and high carbon prices. Tr. Vol. 4, p. 460. Accordingly, B&V
concluded that Vectren’s plan to modify the existing facilities was the best
option in terms of cost to ratepayers.
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[8] CAC and the OUCC submitted testimony of experts who felt that the 10-year
period used in B&V’s analysis was too short to capture accurate long term costs
and risks associated with the proposal and that using a 20-year model would be
more appropriate. CAC’s expert further maintained that, under a 20-year
analysis, natural gas-powered generators would be more cost efficient. Vectren
responded that it did not perform a 20-year analysis because (1) it did not intend
to keep the coal-powered generators in use for that long, (2) that it would be in
a better position to determine the best replacement option for those generators
in ten years, (3) risks that occur later in the 20-year model are less reliable, and
(4) that replacing the current generators immediately would forfeit the money
previously invested in those plants for which its customers are currently still
paying and which would not be fully depreciated for at least nine years (the
Commission referred to such potential forfeitures as “stranded costs”). After
reviewing the additional information provided by Vectren, the OUCC ceased its
opposition of Vectren’s proposal.
iv. Commission’s Findings and Conclusions
[9] The Commission found as follows:
5. Commission Discussion and Findings
A. CCT, Clean Energy Projcets, and Federally Mandated
Compliance Projects. As an initial matter, we must determine:
(1) whether the Culley Air Projects, Brown Air Projects, and
Warrick Project constitute CCT under Ind. Code § 8-1-8.8-3 and
“clean energy projects” under Ind. Code § 8-1-8.8-2 and (2)
whether all of the Mandated Projects are “federally mandated
compliance projects” under Ind. Code § 8-1-8.4-2.
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 8 of 34
1. CCT and Clean Energy Projects. Ind. Code § 8-1-8.8-3
defines CCT as: a technology (including precombustion
treatment of coal):
(1) that is used in a new or existing energy production or
generating facility and directly or indirectly reduces or avoids
airborne emissions of sulfur, mercury, or nitrogen oxides or other
regulated air emissions associated with the combustion or use of
coal; and
(2) that either:
(A) was not in general commercial use at the same or greater
scale in new or existing facilities in the United States at the time
of enactment of the federal Clean Air Act Amendments of 1990
(P.L.101-549)1; or
(B) has been selected by the United States Department of Energy
for funding or loan guaranty under an Innovative Clean Coal
Technology or loan guaranty program under the Energy Policy
Act of 20052, or any successor program, and is finally approved
for such funding or loan guaranty on or after the date of
enactment of the federal Clean Air Act Amendments of 1990
(P.L.101-549).
Appellants’ App. p. 10. Based on undisputed testimony that the Brown and
Culley Air projects, and the Warrick project would all reduce emissions of
pollutants including mercury and sulfur, and that the Mandated Projects were
not in general commercial use as of January 1, 1989, the Commission found
that the Air Projects all constitute CCT as defined in Indiana Code section 8-1-
8.8-3. The Commission also found that all of the Mandated Projects
constituted federally mandated “compliance projects” under Indiana Code
section 8-1-8.4-2 because they are designed to achieve compliance with
federally mandated requirements.
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[10] In regards to Vectren’s request for financial incentives, the Commission found
as follows:
B. Ratemaking and Accounting Treatment. Vectren requests the
creation of a regulatory asset beginning January 1, 2014, to
reflect the deferral of the Mandated Projects Costs, including: (1)
allowance for funds used during construction using the FERC
Uniform System of Accounts requirements; (2) post-in-service
carrying costs using vectren’s overall cost of capital approved in
its last base rate case, Cause No. 43839, on a pretax basis; (3)
project-related costs including operating, testing, maintenance,
and depreciation; and (4) property taxes associated with the
Mandated Projects. Under Ind. Code § 8-1-8.8-11(a), the
Commission shall encourage clean energy projects through
financial incentives, if the projects are found to be reasonable and
necessary.
Alternitvely, Vectren requests to recover the Mandated Projects
Costs under Ind. Code ch. 8-1-8.4. Under this proposal, Vectren
would recover 80% of eligible revenue requirement amounts
through a Federal Mandated Compliance Adjustment
(“FMCA”), including financing costs on projects under
construction, post-in-service construction costs, deferred O&M,
projected incremental depreciation, and property tax expenses.
The remaining 20% of the Mandated Projects Costs would be
deferred for subsequent recovery in a base rate case.
****
Based on the evidence presented, we find that Vectren’s proposal
to defer the Mandated Project Costs is reasonable. Mr.
Chapman testified that Vectren proposed this alternative to
minimize the immediate rate impact on customers. Vectren is
currently recovering fuel costs that had been previously deferred
and will continue doing so until 2020. Mr. Chapman said that
the proposal in this case to defer the Mandated Projects Costs
until 2020 is timed to allow recovery of the previously deferred
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 10 of 34
fuel costs to end before recovery of the deferred Mandated-
Projects-Related costs….
Based on the evidence presented, we approve Vectren’s proposal
to create a regulatory asset to reflect the deferral of the Mandated
Project Costs….Vectren has not specified the particular method
or therms [sic] by which it will ultimately recover the deferred
Mandated Projects Costs in rates; therefore, before beginning
recovery of the deferred costs, it must file a case setting forth the
specific recovery mechanism and terms or seek recovery of the
deferred costs in its next base rates case.
C. Deferred Recovery under Ind. Code ch. 8-1-8.8. Under Ind.
Code § 8-1-8.8-11(a)(5), the Commission can authorize other
financial incentives that it considers appropriate for clean energy
projects only if the projects are found to be reasonable and
necessary.
Vectren submitted evidence showing that failure to comply with
the federally mandated requirements would require Vectren to
retire Brown, Culley, and Warrick, which make up
approximately 85% of its baseload generation, in 2015. The
Mandated Projects will enable the continued operation of the
facilities for at least the next ten years and continued service to
Vectren’s customers.
Vectren evaluated several alternative compliance technologies
that would allow the Brown, Culley, and Warrick units to
comply with pollution limits established in the MATS rule,
NOV, and NPDES….
Vectren hired Black & Veatch to further evaluate the most
promising technologies and consider alternatives for bringing its
generation fleet in compliance with federal regulations….
Vectren jointly owns Warrick unit 4 with Alcoa….Alcoa engaged
Burns & McDonnell to evaluate technologies. Burns &
McDonnell ranked the technologies in order of cost estimate
related to capital investment and ongoing O&M. Alcoa selected
the option with the lowest cost that was able to achieve MATS
compliance.
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Vectren also considered whether the continued operation of
Brown units 1 and 2, Culley unit 3, and Warrick unit 4 was the
best option. Vectren submitted production cost modeling
supporting its plan to continue investing in, rather than retire,
Brown, Culley, and Warrick. Specifically, Vectren presented a
ten-year production cost model using PROMOD IV prepared by
Black & Veatch. Vectren also engaged Burns & McDonnell to
conduct an analysis over a 20-year period to respond to concerns
by the Joint Intervenors and OUCC.
The evidence presented by Vectren shows that failure to complete
the Mandated Projects could require the premature retirement of
the related generation facilities, which would result in significant
reliability, market, and regulatory risk. MISO is projecting
capacity shortfalls as early as 2016 and constructing a new gas
generation facility would take at least four years. Without the
ability to obtain voltage support from distant generators to serve
its territory, Vectren would be forced to purchase capacity in an
already constrained market. All of these factors point to
concerns that retirement of Brown and Culley would expose
Vectren’s customers to significant reliability risks. Based on the
evidence presented, we find that the Mandated Projects are
reasonable and necessary.
D. Cost Estimate. Vectren estimated the Mandated Projects
Costs to be in the range of $75-$95 million. Black & Veatch
estimated the cost of the EPCM contract using techniques that
rendered it a Class 2 estimated pursuant to the Association for
the Advancement of Cost Engineering. A Class 2 Estimate has
an accuracy of -5% to -15% on the low end and +5% to +20% on
the high end. No party disputed the estimated costs.
The evidence presented sufficiently describes the Mandated
Project Costs and demonstrates that the components of the
Mandated Projects offer substantial potential to cost-effectively
reduce pollutants. Based on our review of the evidence, we
approve Vectren’s cost estimates for the Mandated Projects.
****
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 12 of 34
It is therefore ordered by the Indiana Utility Regulatory
Commission that:
1. The Mandated Projects are “clean energy projects” and
“clean coal technology” under Ind. Code 8-1-8.8.
2. The MATS rule, NOV, and NPDES limits are federally
mandated requirements as defined by Ind. Code § 8-1-8.4-5.
3. The Mandated Projects are federally mandated “compliance
projects” under Ind. Code § 8-1-8.4-2 and the costs incurred in
connection with the “Mandated Projects are “federally
mandated costs” under Ind. Code § 8-1-8.4-4.
4. The cost estimate provided by Vectren in this Cause for the
Mandated Projects is approved….
5. Vectren is authorized to record the deferred Mandated
Projects Costs as a regulatory asset until the date of a
Commission order authorizing recovery of the deferred
Mandated Projects Costs in Petitioner’s recoverable operating
expenses.
Appellants’ App. pp. 19-23.
Discussion and Decision
[11] On appeal, Appellants argue that the Commission erred by failing to make
findings of fact on issues which Appellants believe were material to the
Commission’s ultimate determination; specifically, whether upgrading Culley
unit 2 is needed in light of future electricity load estimates and whether
Vectren’s delay in filing its petition was unreasonable. Appellants also argue
that the Commission was statutorily required to make findings on the specific
factors listed in Indiana Code section 8-1-8.7-3. Vectren argues that the
Appellants’ claims are moot because Appellants failed to obtain a stay pending
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appeal and Vectren have since completed and began using many of the
Mandated Projects.
I. Standard of Review
[12] “The General Assembly created the Indiana Utility Regulatory Commission
primarily as a fact-finding body with the technical expertise to administer the
regulatory scheme devised by the legislature.” N. Ind. Pub. Serv. Co. v. United
States Steel Corp., 907 N.E.2d 1012, 1015 (Ind. 2009). The Commission’s goal is
to ensure that public utilities provide constant, reliable, and efficient service to
the citizens of Indiana. Id. An order from the Commission is presumed valid
unless the contrary is clearly apparent. Citizens Action Coal. of Ind., Inc. v. N. Ind.
Pub. Serv. Co., 485 N.E.2d 610, 612 (Ind. 1985).
[13] The standard for our review of decisions of the Commission is governed by
Indiana Code section 8-1-3-1:
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.
[14] The Indiana Supreme Court has interpreted this statute to provide a tiered
standard of review.
A multiple-tier standard of review is applicable to the IURC’s
orders. A court on review must inquire whether specific findings
exist as to all factual determinations material to the ultimate
conclusions; whether substantial evidence within the record as a
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whole supports the findings of fact; and whether the decision,
ruling, or order is contrary to law.
Citizens Action Coal. of Ind., Inc. v. Pub. Serv. Co. of Ind., 612 N.E.2d 199, 201 (Ind.
Ct. App. 1993) (citations omitted). “On matters within its jurisdiction, the
Commission enjoys wide discretion. The Commission’s findings and decision
will not be lightly overridden just because we might reach a contrary opinion on
the same evidence.” NIPSCO Indus. Grp. v. N. Ind. Pub. Serv. Co., 31 N.E.3d 1,
5-6 (Ind. Ct. App. 2015).
II. Mootness
[15] As a threshold issue, Vectren argues that the Appellants’ contentions on appeal
are moot. “An appeal is moot when it is no longer live and the parties lack a
legally cognizable interest in the outcome or when no effective relief can be
rendered to the parties.” Union Twp. Sch. Corp. v. State ex rel. Joyce, 706 N.E.2d
183, 187 (Ind. Ct. App. 1998) (citing City of Huntingburg v. Phoenix Natural
Resources, Inc., 625 N.E.2d 472, 474 (Ind. Ct. App. 1993)). Specifically, Vectren
claims that the projects “have been substantially completed and in use since the
start of 2015” and that because Appellants did not seek a stay preventing
Vectren’s use of its new environmental controls, this court is unable to grant
effective relief without forcing Vectren to shut down its power plants, which
Vectren claims would run counter to public policy of maintaining reliable
energy security. Vectren’s Br. p. 17.
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[16] Vectren attempts to analogize this case to two annexation cases in which this
court held that unless a trial court’s approval of an annexation is stayed, the
appellant-remonstrators have no recourse on appeal. Annexation Ordinance F-
2008-15 v. City of Evansville, 955 N.E.2d 769, 777 (Ind. Ct. App. 2011); Certain
Martinsville Annexation Territory Landowners v. City of Martinsville, 18 N.E.3d
1030, 1034 (Ind. Ct. App. 2014) trans. denied. As we explained in those cases,
the Indiana legislature has provided “the exclusive means to
disannex…municipal boundaries in Indiana Code sections 36-4-3-16 through
36-4-3-20,” and that, under those sections, Indiana courts are only permitted to
order disannexation under one circumstance: when the municipality has failed
to implement planned services according to statute. Annexation Ordinance F-
2008-15, 955 N.E.2d at 777-78. Accordingly, barring the single statutory
exception, our courts cannot grant effective relief to appellants who do not seek
a stay of annexation because we lack the authority to do so.
[17] Appellants analogize this case to Columbus Board of Zoning Appeals v. Wetherald,
which dealt with Wetherald’s petition for zoning variances. 605 N.E.2d 208
(Ind. Ct. App. 1992). Wetherald was the owner of a lot on which he planned to
construct a drive-through restaurant. Id. at 209. In 1991, Wetherald applied for
developmental variances with the Columbus Board of Zoning Appeals (“BZA”)
in order to qualify for a building permit to make improvements to his lot
necessary for his restaurant. Id. at 210. The BZA denied the application and
Wetherhald appealed to the trial court which reversed the BZA and granted the
variances. The BZA appealed but failed to obtain a stay pending appeal and,
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while the appeal was pending, Wetherhald obtained a building permit based on
the trial court’s ruling, constructed the restaurant, and opened for business. Id.
On appeal, this court found as follows:
Here, contrary to Wetherald’s contention, the appeal is not moot.
If relief were granted to the BZA reversing the trial court’s grant
of the Variances, then the BZA’s decision denying the Variances
would be reinstated. Wetherald would then be required to bring
the Restaurant into compliance with the regular developmental
standards, including removing structures already completed. We
cannot sanction Wetherald’s construction pending appeal as
creating mootness; otherwise, those seeking variances for
construction purposes could circumvent zoning requirements by
simply constructing in accordance with permits issued, although
final resolution of the propriety of such variances was still
pending on appeal. Wetherald proceeded to build at his own peril
prior to a final resolution of the variance issues.
Id.
[18] The facts of the instant case are more akin to the Wetherhald. As in Wetherhald,
Vectren began work on the Mandated Projects while the appeal was pending at
its own risk. If we adopt Vectren’s logic on this issue, then many appellants
would be required to request a stay of judgment in order to preserve their right
to appeal. The purpose of a stay is to preserve the status quo while an appeal is
pending, it is not intended to be a prerequisite to an appeal. Flynn v. Sandahl, 58
F.3d 283, 287 (7th Cir. 1995). Vectren cannot singlehandedly prevent
Appellants’ ability to pursue an appeal by building the environmental controls
at issue while the appeal is pending and then claim that the appeal is moot
because they have already built those controls.
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[19] Furthermore, it is within this court’s power to grant the relief sought by
Appellants; that is, remand with instructions that the Commission make
additional findings. “In the event a stay is not sought, the prevailing party is
free to take advantage of the district court’s judgment. And as long as the
prevailing party’s actions pending the appeal do not render it impossible to
fashion some form of relief to the appellant, then there remains a case or
controversy within the scope of Article III.” Id. With the forgoing in mind, we
find that Appellants’ claims are not moot.
III. Overview of the Relevant Indiana Utility and Clean
Coal Technology Statutes
[20] Vectren petitioned the Commission for a CPCN approving of the Mandated
Projects under Indiana Code chapters 8-1-8.4 (“Chapter 8.4”) and 8-1-8.7
(“Chapter 8.7”). Vectren also applied for financial incentives under Indiana
Code chapter 8-1-8.8 (“Chapter 8.8”) and, alternatively, to recover federally
mandated costs under Indiana Code section 8-1-8.4-7.
A. Indiana Code Chapter 8.7
[21] Indiana Code section 8-1-8.7-3 provides as follows:
(a) Except as provided in subsection (c), a public utility may not
use clean coal technology at a new or existing electric generating
facility without first applying for and obtaining from the
commission a certificate that states that public convenience and
necessity will be served by the use of clean coal technology.
(b) The commission shall issue a certificate of public convenience
and necessity under subsection (a) if the commission finds that a
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 18 of 34
clean coal technology project offers substantial potential of
reducing sulfur or nitrogen based pollutants in a more efficient
manner than conventional technologies in general use as of
January 1, 1989….
When determining whether to grant a certificate under this section, the
commission shall make findings on nine factors: (1) the costs of constructing,
implementing, and using the CCT project compared to the costs of
conventional emission reduction facilities, (2) whether a CCT project will
extend the useful life of an existing electric generating facility and the value of
that extension, (3) the potential reduction of sulfur and nitrogen based
pollutants achieved by the proposal, (4) the reduction of pollutants that can be
achieved by conventional pollution control equipment, (5) federal sulfur and
nitrogen emission standards, (6) the likelihood of success of the project, (7) the
cost and feasibility of the retirement of an existing electric generating facility,
(8) the dispatching priority for the facility utilizing CCT, and (9) any other
factors the commission considers relevant, including whether the construction,
implementation, and use of clean coal technology is in the public’s interest.
Ind. Code § 8-1-8.7-3(b).
[22] Indiana Code section 8-1-8.7-4 provides that
(a) As a condition for receiving the certificate required under
[Section 8-1-8.7-3], an applicant must file an estimate of the cost
of constructing, implementing, and using clean coal technology
and supportive technical information in as much detail as the
commission requires.
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(b) The commission shall hold a public hearing on each
application. A certificate shall be granted only if the commission
has:
(1) made a finding that the public convenience and necessity
will be served by the construction, implementation, and use
of clean coal technology;
(2) approved the estimated costs;
(3) made a finding that the facility where the clean coal
technology is employed:
(A) utilizes and will continue to utilize Indiana coal
as its primary fuel source; or
(B) is justified, because of economic considerations or
governmental requirements, in utilizing non-Indiana
coal;
(4) made a finding on each of the factors described in section 3(b) of
this chapter, including the dispatching priority of the facility
to the utility.
(emphasis added).
B. Indiana Code Chapter 8.4
[23] Indiana Code section 8-1-8.4-6 provides, in relevant part, as follows:
(a) Except as provided in subsection (c), or unless an energy
utility has elected to file for:
(1) a certificate of public convenience and necessity; or
(2) the recovery of costs;
under another statute, an energy utility that seeks to recover
federally mandated costs under section 7(c) of this chapter must
obtain from the commission a certificate that states that public
convenience and necessity will be served by a compliance project
proposed by the energy utility.
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 20 of 34
(b) The commission shall issue a certificate of public convenience
and necessity under section 7(b) of this chapter if the commission
finds that the proposed compliance project will allow the energy
utility to comply directly or indirectly with one (1) or more
federally mandated requirements.
In determining whether to grant a certificate under Section 8-1-8.4-6, the
Commission must examine several statutory factors, including the federally
mandated requirements sought to be complied with, project costs, how the
proposed projects will meet federal requirements, “alternative plans that
demonstrate that the proposed compliance project is reasonable and necessary,”
whether the project will extend the useful life of an existing energy facility and
the value of such extension, and any other factors the Commission considers
relevant. Ind. Code § 8-1-8.4-6(b).
[24] Indiana Code section 8-1-8.4-7 provides that
(b) The commission shall hold a properly noticed public hearing
on each application and grant a certificate only if the commission
has:
(1) made a finding that the public convenience and necessity will
be served by the proposed compliance project;
(2) approved the projected federally mandated costs associated
with the proposed compliance project; and
(3) made a finding on each of the factors set forth in section 6(b)
of this chapter.
(c) If the commission approves under subsection (b) a proposed
compliance project and the projected federally mandated costs
associated with the proposed compliance project, the following
apply:
(1) Eighty percent (80%) of the approved federally mandated
costs shall be recovered by the energy utility through a periodic
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 21 of 34
retail rate adjustment mechanism that allows the timely recovery
of the approved federally mandated costs….
(2) Twenty percent (20%) of the approved federally mandated
costs, including depreciation, allowance for funds used during
construction, and post in service carrying costs, based on the
overall cost of capital most recently approved by the commission,
shall be deferred and recovered by the energy utility as part of the
next general rate case filed by the energy utility with the
commission.
(3) Actual costs that exceed the projected federally mandated
costs of the approved compliance project by more than twenty-
five percent (25%) shall require specific justification by the energy
utility and specific approval by the commission before being
authorized in the next general rate case filed by the energy utility
with the commission.
C. Indiana Code Chapter 8.8
[25] Indiana Code section 8-1-8.8-11(a) provides that “[t]he commission shall
encourage clean energy projects by creating…financial incentives for clean
energy projects, if the projects are found to be reasonable and necessary,”
including “recovery of costs and expenses incurred during construction and
operation of [CCT] projects….”
IV. Whether the Commission Complied with
Requirements of Indiana Code Section 8-1-8.7-3
[26] According to Indiana Code section 8-1-8.7-3, “a public utility may not use clean
coal technology…without first applying for and obtaining from the commission
a certificate that states that public convenience and necessity will be served by
the use of clean coal technology.” In order to grant a CPCN under Section 8-1-
8.7-3, the Commission must make findings on nine factors listed in the Section
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 22 of 34
8-1-8.7-3(b). Appellants claim that the Commission erred by failing to make
findings on those factors. Appellees do not dispute that the Commission did
not make specific findings on the statutory factors, however, Appellees claim
that the Commission based its decision only on Chapters 8.4 and 8.8, and so
was not subject to the requirements of Chapter 8.7, as the Appellants claim.
[27] We first note that basing its decision off of Chapter 8.8 would not relieve the
Commission or Vectren of the requirements of Chapter 8.7. Indiana Code
section 8-1-8.8-11(b) provides as follows:
An eligible business must file an application to the commission
for approval of a clean energy project under this section. This
chapter does not relieve an eligible business of the duty to obtain any
certificate required under…IC 8-1-8.7. An eligible business seeking a
certificate under…IC 8-1-8.7 and this chapter for one (1) project
may file a single application for all necessary certificates. If a
single application is filed, the commission shall consider all
necessary certificates at the same time.
(Emphasis added). Therefore, a finding that the projects were reasonable and
necessary under Chapter 8.8 does not change the fact that Vectren was required
to obtain a CPCN before using new CCT and that the Commission was
required to make findings under Chapter 8.7 before granting a CPCN
thereunder. Accordingly, the questions we address here are (1) whether
Vectren’s projects qualified as CCT sufficient to require a CPCN under Chapter
8.7, and (2) if so, whether the Commission effectively issued a CPCN to
Vectren.
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 23 of 34
A. Defining Clean Coal Technology
[28] Appellees argue that Chapter 8.7 applies to CCT that reduces only “airborne
emissions of sulfur or nitrogen based pollutants” and so does not apply to their
projects, which are designed to reduce sulfur, nitrogen, and mercury. Ind. Code
§ 8-1-8.7-1. Appellants cite to a previous decision by the Commission for
support of this interpretation of the statute. The Commission found that
“[c]lean coal technology under Ind. Code § 8-1-8.7-1 is limited technology that
reduces only sulfur or nitrogen based pollutants.” In re Indpls. Power & Light Co.,
307 P.U.R.4th 311 (Ind. U.R.C. Aug. 14, 2013). For their part, Appellants
argue that because Vectren’s proposal distinguishes which emission controls
address sulfur and which address mercury, Vectren was required to obtain a
CPCN under Chapter 8.7 for those controls addressing sulfur emissions.
[29] The Commission found that “the Brown and Culley Air Projects and Warrick
Project all constitute CCT as defined by Ind. Code § 8-1-8.8-3.” Appellants’
App. p. 17. Section 8-1-8.8-3 defines CCT as “a technology…that…reduces
airborne emissions of sulfur, mercury, or nitrogen oxides or other regulated air
emissions associated with the combustion of coal….” (emphasis added). This
definition applies only to Chapter 8.8. The definition of CCT in Section 8-1-
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 24 of 34
8.7-1 applies only to technologies which reduce emissions of sulfur or nitrogen
based pollutants. This definition applies only to Chapter 8.7.4
[30] As outlined in Vectren’s proposal, the organo-sulfide and hydrogen bromide
injection systems are designed to mitigate mercury emissions, while the soda
ash and hydrated lime injection systems address only sulfur emissions. As
such, the latter undoubtedly falls under Chapter 8.7’s definition of CCT.5
Therefore, Vectren requires a CPCN to use the two injection systems designed
to mitigate sulfur emissions. However, the systems concerning mercury
emissions are not considered CCT projects for purposes of Chapter 8.7 because
they do not “reduce airborne emissions of sulfur or nitrogen based pollutants.”
Ind. Code § 8-1-8.7-1. As such, those mercury mitigation systems do not
require a CPCN issued under Chapter 8.7 as a prerequisite to their use.
B. CPCN Under Chapter 8.4
[31] Vectren argues that even if a CPCN is required in order to use its CCT projects
under Chapter 8.7, Chapter 8.7 does not require that the CPCN approving of
the CCT project be granted under that section specifically. “[A] public utility
4
The definition of CCT used in Chapter 8.7 was adopted in 1989 while the definition used in Chapter 8.8
was enacted along with several 2002 amendments to the Indiana utilities code. It is unclear why the
legislature would draw a distinction between the definitions of CCT in these two chapters, however, the
definitions apply only to their respective chapters so there is no conflict which would necessitate a statutory
interpretation by this court.
5
We note that this finding is consistent with Vectren’s own position below. Vectren’s petition sought
“approval of clean coal technology” pursuant to Sections 8-1-8.7-1 et seq., 8-1-8.4-1 et seq., and 8-1-8.8-1 et seq.
In other words, it appears that, despite the position Vectren has taken on appeal, Vectren believed that at
least some of its projects qualified as CCT under Chapter 8.7.
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 25 of 34
may not use clean coal technology at a new or existing electric generating
facility without first applying for and obtaining from the commission a
certificate that states that public convenience and necessity will be served by the
use of clean coal technology.” Ind. Code § 8-1-8.7-3. Specifically, Vectren
claims that a CPCN granted under the following provision in Chapter 8.4
would be sufficient to satisfy the CPCN requirement of Chapter 8.7: “[A]n
energy utility that seeks to recover federally mandated costs under section 7(c)
of this chapter must obtain from the commission a certificate that states that
public convenience and necessity will be served by a compliance project
proposed by the energy utility.” Ind. Code § 8-1-8.4-6.
[32] Chapters 8.4 and 8.7 have different requirements in order to issue CPCNs
thereunder. Section 8-1-8.7-3(b) provides that
When determining whether to grant a certificate under this
section, the commission shall examine the following factors:
(1) The costs for constructing, implementing, and using clean
coal technology compared to the costs for conventional emission
reduction facilities.
(2) Whether a clean coal technology project will also extend the
useful life of an existing electric generating facility and the value
of that extension.
(3) The potential reduction of sulfur and nitrogen based
pollutants achieved by the proposed clean coal technology
system.
(4) The reduction of sulfur nitrogen based pollutants that can be
achieved by conventional pollution control equipment.
(5) Federal sulfur and nitrogen based pollutant emission
standards.
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(6) The likelihood of success of the proposed project.
(7) The cost and feasibility of the retirement of an existing electric
generating facility.
(8) The dispatching priority for the facility utilizing clean coal
technology, considering direct fuel costs, revenues and expenses
of the utility, and environmental factors associated with
byproducts resulting from the utilization of the clean coal
technology.
(9) Any other factors the commission considers relevant,
including whether the construction, implementation, and use of
clean coal technology is in the public’s interest.
[33] Section 8-1-8.4-6(b) provides as follows:
The commission shall issue a certificate of public convenience
and necessity under section 7(b) of this chapter if the commission
finds that the proposed compliance project will allow the energy
utility to comply directly or indirectly with one (1) or more
federally mandated requirements.
In determining whether to grant a certificate under Indiana Code section 8-1-
8.4-6, the Commission must make findings on several statutory factors,
including the federally mandated requirements sought to be complied with,
project costs, how the proposed projects will meet federal requirements,
“alternative plans that demonstrate that the proposed compliance project is
reasonable and necessary,” whether the project will extend the useful life of an
existing energy facility and the value of such extension, and any other factors
the Commission considers relevant. Ind. Code §§ 8-1-8.4-6(b), 8-1-8.4-7.
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 27 of 34
[34] We conclude that a CPCN granted under Chapter 8.4 would not be sufficient to
satisfy the CPCN requirement of Chapter 8.7. First, the two Chapters serve
different purposes: Chapter 8.4 requires the issuance of a CPCN in order to
recover costs of a federally-mandated compliance project, whereas Chapter 8.7
requires the issuance of a CPCN to approve of a CCT project. These two
chapters have different factor analyses, and presumably, these factors are
appropriate to their respective purposes. Additionally, Section 8-1-8.4-6(a)
states that an energy utility is not required to obtain a CPCN under Section 8-1-
8.4-6 if it obtains a CPCN under another statute, whereas Chapter 8.7 contains
no such provision.
[35] Furthermore, as Vectren notes in its brief, a certificate of public convenience
and necessity “is not an independent document; it is simply a phrase that may
appear in a Commission order…. The Commission was not required to use
those ‘magic words’ in its ordering language to provide such relief.” Vectren’s
Br. p. 21 fn. 13 (citing Jennings Water, Inc. v. Office of Envtl. Adjudication, 909
N.E.2d 1020, 1024 (Ind. Ct. App. 2009) (“This Court has held in many
different contexts that no “magic words” are required so long as there is enough
evidence to support the judgment or conclusion.”)). This logic reflects the
importance of conducting the proper analysis over simply saying the ‘magic
words.’ As such, even if the Commission did issue a CPCN under Chapter 8.4,
those ‘magic words’ do not work to circumvent the analysis required by
Chapter 8.7.
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[36] Even if we assume Vectren’s interpretation of the statutes is correct, and a
CPCN issued solely under Chapter 8.4 is sufficient to satisfy the requirements
of Chapter 8.7, the Commission did not issue a CPCN under Chapter 8.4.
Vectren argues that the Commission “could have issued (and effectively did
issue) a [CPCN] under Chapter 8.4.” Vectren’s Br. p. 21. However, the
Commission itself acknowledges in its brief that it did not issue a CPCN.
Under Ind. Code § 8-1-8.4-6(a), a CPCN is required “unless an
energy utility has elected to file for…the recovery of costs under
another statute.” In this proceeding, the recovery of costs and
financial incentives were approved by the Commission under
another statute, specifically Ind. Code § 8-1-8.8-11(a), in the form
of the creation of a regulatory asset to reflect the deferral of the
costs of the Mandated Projects. Because the cost recovery
approved was under another statute (i.e., other than Chapter 8.4),
the issuance of a CPCN by the Commission was not statutorily
required by Chapter 8.4.
Commission’s Br. pp. 8-9.
[37] Vectren may not use CCT (as defined in Chapter 8.7) until the Commission
issues them a CPCN under Indiana Code section 8-1-8.7-3. On remand, the
Commission shall make findings on the factors listed in Section 8-1-8.7-3(b)
regarding the soda ash and hydrated lime injection systems which qualify as
CCT under Chapter 8.7 and, based on those findings, determine whether those
systems serve public convenience and necessity.
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C. Whether the Commission’s Failure to Make Findings
Under Indiana Code Section 8-1-8.7-3 was Harmless or de
miminis Error
[38] Vectren argues that even if the Commission did err in failing to consider the
Indiana Code section 8-1-8.7-3 factors, that error is either de minimis or harmless
because the Commission would have reached the same result and issued a
CPCN under Chapter 8.7 if it had made the appropriate findings on the Section
8-1-8.7-3(b) factors. Vectren’s argument is attractive at first blush. The
Commission heard evidence concerning most of the issues which the 8-1-8.7-
3(b) factors address. Unfortunately, the Commission was required to make
findings on specific factors and grant or deny a CPCN based on those findings,
neither of which it did.
[39] In some cases, we have found that “a trial court’s exclusion of [statutory]
factors from its written findings does not mean that it did not consider them,”
Shumaker v. Shumaker, 559 N.E.2d 315, 318 (Ind. Ct. App. 1990), and that any
such error by an exclusion of factors may be harmless when the trial court
otherwise satisfies the requirements of the statute. Helm v. Helm, 873 N.E.2d
83, 90 (Ind. Ct. App. 2007). Here however, the Commission did not mention
Chapter 8.7 in its order and maintains on appeal that Chapter 8.7 does not
apply and that it “did not make any Chapter 8.7 findings.” Commission’s Br. p.
9. As we have already found, Chapter 8.7 does apply to certain projects within
Vectren’s proposal. Accordingly, it was not harmless error for the Commission
to ignore the statutory factors outlined in Section 8-1-8.7-3(b).
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V. Whether the Commission Erred in Failing to Make
Findings Regarding the Necessity of Culley Unit 2
[40] Appellants claim that “The Commission made no finding that Culley Unit 2, or
any other unit, is necessary for meeting the electricity needs of Vectren’s
customers.” Appellants’ Br. p. 20. Appellants allege that, based on load
forecasts, Culley unit 2 will not be needed to meet consumer electricity demand
and so it is not reasonable and necessary for purposes of the clean energy
statutes. Consequently, Appellants argue that whether Culley unit 2 was
necessary considering load forecasts was material to the Commission’s ultimate
conclusion and that the Commission erred in failing to make findings on this
issue. We find Appellants argument on this issue unconvincing for two
reasons.
[41] First, the Commission specifically addressed the issue of electricity demand
when it found that retiring the Brown or Culley facilities prematurely would
result in reliability risks for consumers based on capacity shortfall projections.
Vectren also considered whether the continued operation of
Brown units 1 and 2, Culley unit 3, and Warrick unit 4 was the
best option. Vectren submitted production cost modeling
supporting its plan to continue investing in, rather than retire,
Brown, Culley, and Warrick….
The evidence presented by Vectren shows that failure to complete
the Mandated Projects could require the premature retirement of
the related generation facilities, which would result in significant
reliability, market, and regulatory risk. MISO is projecting
capacity shortfalls as early as 2016 and constructing a new gas
generation facility would take at least four years. Without the
Court of Appeals of Indiana | Opinion 93A02-1502-EX-110 |October 29, 2015 Page 31 of 34
ability to obtain voltage support from distant generators to serve
its territory, Vectren would be forced to purchase capacity in an
already constrained market. All of these factors point to
concerns that retirement of Brown and Culley would expose
Vectren’s customers to significant reliability risks. Based on the
evidence presented, we find that the Mandated Projects are
reasonable and necessary.
Appellant’s App. p. 21.
[42] Furthermore, Vectren did not request the approval of any project tied only to
Culley unit 2 because it was not a non-compliant unit and so was not at issue in
these proceedings. As the Commission noted in its order, “Culley unit 2 was
not evaluated because Vectren was not seeking relief for work done on that unit
and it was not part of Vectren’s settlement with the EPA.” Appellant’s App. p.
16. The only portion of the Culley Air project which would affect Culley 2 is
the organo-sulfide injection system which would be installed at the “combined
scrubber” which serves both Culley units 2 and 3. Appellants’ App. p. 10
(emphasis added). In other words, the emissions control being added by the
project will improve an existing emissions control which currently serves both
Culley units. The project is designed to bring Culley unit 3 into compliance and
would have only an ancillary effect on Culley unit 2. Therefore, the
Commission did not fail to make necessary findings on this issue.
VI. Whether the Commission Erred in Failing to Make
Findings on Vectren’s Delay in Filing its Application
[43] Appellants claim that Vectren unreasonably delayed in filing its application for
the Mandated Projects and that that delay resulted in the reliability risks which
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Vectren has used to justify its proposal. Appellants further argue that the trial
court erred in failing to make findings on this issue. This argument is without
merit. Appellants claim, without any supporting evidence, that Vectren’s delay
was unreasonable because “Vectren could have filed its application in 2012 or
at the latest in 2013, when the MATS and NPDES obligations were known to
the utility, and when the utility was aware of EPA’s notice of sulfur trioxide
emission violations.” Appellants’ Br. p. 21.
[44] The only information in the record which Appellants cite to support Appellants’
contention of unreasonable delay is the testimony of Vectren Vice President
Angila Retherford which shows that Vectren received the initial NOV regarding
the Brown facility in November of 2011. However, Retherford went on to
testify that Vectren disputed the allegations raised in the NOV and that it was
not until August of 2013 that EPA inspectors visited the Brown and Culley
facilities to gather visible emissions readings. The EPA’s inspections revealed
opacity at both plants over permitted limits resulting from sulfur trioxide
emissions and requested that Vectren address the issue.
[45] Apparently, Appellants argument is that the time between Vectren’s being put
on notice of its noncompliance and Vectren’s filing of the instant petition is
inherently unreasonable. Vectren filed the instant petition in January of 2014.
In the time after receipt of the NOV and before filing the petition, Vectren was
negotiating a settlement with the EPA and engaging consultants to determine
the best method of compliance. Appellants cite no evidence to support their
argument that Vectren’s disputing the NOVs was done with the intent to reduce
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the feasibility of alternative compliance options. Therefore, we find that the
Commission did not err in failing make findings on this issue as it does not
appear from the record that it was material to the Commission’s ultimate
conclusions.
Conclusions
[46] We find that (1) the Appellants’ claims are not moot, (2) the Commission did
not err in failing to consider the necessity of Culley unit 2 or the reasonableness
of Vectren’s delay in filing its petition, and (3) regarding the soda ash and
hydrated lime injection systems, the Commission erred by failing to make
findings on the statutory factors listed in Indiana Code section 8-1-8.7-3 and by
failing to grant or deny Vectren’s request for a CPCN thereunder. Accordingly,
we remand the case to the Commission with instructions that the Commission
make the required findings under Chapter 8.7.
[47] Remanded with instructions.
May, J., and Crone, J., concur.
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