Proposed legislation making it quicker and easier for utility companies to get customers to pay for transmission and distribution infrastructure projects is not a step toward efficiency – it’s a step away from proper oversight and consumer protection.
Senate Bill 560, authored by Sen. Brandt Hershman, R-Lafayette, easily passed in that chamber last week and moved to the House for approval. The bill includes multiple components, such as tax incentives for natural gas companies building gas lines in rural areas. The disconcerting element of the bill is that it allows electricity and natural gas utility companies to use cost trackers to speed infrastructure projects through the state regulatory review process and add most of the cost for a project to customers’ bills.
Cost trackers are a deregulatory move that allow utility companies to recoup the cost of an infrastructure project – building an electrical substation, upgrading transformers, installing utility lines or poles – from customers before going through a traditional rate increase procedure.
But weakening the regulatory oversight of the Indiana Utility Regulatory Commission and Indiana Office of Utility Consumer Counselor seems unwise in the wake of the Edwardsport scandal.
Duke Energy’s Edwardsport coal-gasification plant was rife with controversy from the beginning for alleged mismanagement of the project. Then it was discovered that former Indiana Utilities Regulatory Commission attorney Scott Storms was negotiating a job with Duke while handling Duke-related matters before the commission. The ethics breach led former Gov. Mitch Daniels to fire IURC chairman David Lott Hardy.
Traditional rate increase cases can take a long time and cost utilities millions. The extensive process helps protect customers and ensures utilities don’t request rate increases until they can prove a revenue increase is necessary and fair.
If this portion of the bill passes, it would allow an electricity provider to get expedited approval for installing a substation, for example, and get ratepayers to pay for most of the project long before the utility would have to go through the traditional rate increase process.
Proponents of the legislation assert the use of cost trackers will make it easier for utility companies to improve service to customers and address the state’s aging utility infrastructure. And supporters point to the increased use of trackers nationally. There are 18 states that allow natural gas companies to use the tracker process and at least 11 states that allow water utilities to use it.
They believe the bill’s requirement that utilities go through the complete rate increase process within seven years of using trackers will protect customers.
Opponents reasonably think the provision erodes needed regulatory oversight of utilities and forces utility customers to pay for the projects while giving those same customers less ability to contest the project. It allows utility companies to do an end run around the traditional procedure to request a rate increase. By the time the company goes through the full rate case process, the increased rates will likely already be locked in.
Environmental advocates are also concerned it would discourage energy companies from shifting toward renewable energy sources. The bill would make it easier to get power distribution and transmission projects approved, making it less important for companies to find efficiencies.
The new process could also become an impediment to economic development. Indiana economic development leaders have long used the state’s relatively low energy costs as an incentive to attract new businesses. But cost tracker cases always lead to rate increases.