Vectren Corp. (NYSE: VVC) is reviewing its existing pollution control equipment in relation to requirements in the Mercury and Air Toxics Standards (MATS) and the 2015 requirement imposed by the Clean Air Interstate Rule (CAIR), but has found so far it should be able to comply with existing equipment.
“However, it is possible some minor modifications to the control equipment, additional operating expenses, and/or the purchase of some allowances could be required,” the company’s Nov. 6 Form 10-Q statement said. “The Company believes that such additional costs, if necessary, would be recoverable under Indiana Senate Bill 251.”
MATS has a 2015 compliance deadline. CAIR is a factor because in August, a federal appeals court struck down the U.S. Environmental Protection Agency’s Cross-State Air Pollution Rule (CSAPR), which covers SO2 and NOx emissions, with the older CAIR rule left in its place by the court while the agency rewrites or replaces CSAPR.
To comply with prior air rules, Vectren invested approximately $411m starting in 2001, with the last of this equipment put into service on Jan. 1, 2010. The equipment included selective catalytic reduction (SCR) systems, fabric filters, and an SO2 scrubber at the Warrick power plant unit that is jointly owned with ALCOA (the Vectren portion is 150 MW). SCR technology is the most effective method of reducing NOx emissions where high removal efficiencies are required and fabric filters control particulate matter emissions, the company noted. Vectren’s regulated coal-fired fleet is now 100% scrubbed for SO2 and 90% controlled for NOx.
In April 2011, Senate Bill 251 was signed into law. It allows for cost recovery outside of a base rate proceeding for federal government-mandated projects and provides for a voluntary clean energy portfolio standard. The law applies to both gas and electric utility operations and provides a framework to recover 80% of federally-mandated operating costs and capital investments through a periodic rate adjustment mechanism outside of a general rate case. Construction costs receive a return on investment. The remaining 20% of those costs and capital investments are to be deferred for recovery in the utility’s next general rate case. Vectren said it is currently evaluating the impact this law may have on its operations, including applicability to expenditures associated with the integrity, safety, and reliability of natural gas pipelines and facilities; coal ash disposal; water regulations; and air pollution control, including greenhouse gas emissions.
On September 2011, Vectren South filed a petition with the Indiana Utility Regulatory Commission (IURC) seeking recovery of and return on the capital investment in dense pack technology to improve the efficiency of its A.B. Brown coal plant. This investment is expected to be about $32m, of which approximately $25.5m has been invested to date. This technology is expected to allow the A.B. Brown units to run at least 5% more efficiently, reducing fuel consumption, costs and air emissions.
In the company’s base rate order issued in April 2011, the IURC authorized deferred accounting treatment associated with this dense pack investment. As a result of a subsequent filing by the company seeking a current recovery mechanism in lieu of the deferred accounting treatment, the IURC issued an order on July 11, denying the company’s request for a current recovery mechanism, stating that dense pack technology does not qualify as advanced technology under the statute. Although the company said it believes that the investment does meet the requirements of the statute that would have allowed for timely recovery, it does not plan to appeal the decision and will employ deferred accounting treatment ordered in the company’s last base rate order.
Vectren South issued a request for proposals in April 2011 for coal purchases for a four-year period beginning in 2012. After negotiations with bidders, Vectren South reached an agreement in principle for multi-year purchases with two suppliers, one of which is Vectren Fuels Inc., with the other being coal operator Chris Cline’s Foresight Energy. Consistent with the IURC direction in the electric rate case, a sub docket proceeding was established to review the company’s prospective coal procurement procedures, and the company submitted evidence related to the RFP and those coal procurement procedures to the IURC in September 2011. In March, the IURC issued its order in the sub docket. The order concluded that Vectren South’s 2011 RFP process resulted in prices at the lowest fuel cost reasonably possible. The IURC will continue to regularly monitor Vectren South’s procurement process in future fuel adjustment proceedings, the Form 10-Q noted.
Vectren is an energy holding company headquartered in Evansville, Ind. Its wholly-owned subsidiary, Vectren Utility Holdings Inc. (Utility Holdings), serves as the intermediate holding company for three public utilities: Indiana Gas Co. Inc., Southern Indiana Gas and Electric Co. (known as SIGECO or Vectren South), and Vectren Energy Delivery of Ohio Inc.