Indiana court strikes down commission okay for Vectren coal emissions projects

The Indiana Court of Appeals on Oct. 29 remanded back to the Indiana Utility Regulatory Commission the commission’s Jan. 28 decision to approve new emissions control projects for coal-fired units of Southern Indiana Gas and Electric d/b/a Vectren Energy Delivery of Indiana over certain technical issues about what part of a state statute applied in this case.

In January 2014, Vectren had applied with the commission for approval of projects to modify certain coal-fired units to meet new U.S. Environmental Protection Agency standards. The petition also requested financial incentives and reimbursement from ratepayers for costs associated with the projects. The Citizens Action Coalition of Indiana (CAC), Sierra Club and Valley Watch intervened in that case to oppose Vectren’s petition. They 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.

Southern Indiana Gas and Electric is a unit of Vectren Corp. (NYSE: VVC).

The commission eventually found that Vectren’s proposal was reasonable and necessary, approved it, and granted Vectren’s request for reimbursement of project costs. On appeal, the environmental groups argue that the commission failed to make necessary findings on: facts material to its determination of the issues; and statutory factors required to be addressed prior to authorizing the use of clean coal technology (CCT). The state has a specific statute allowing cost recovery for CCT projects.

In response, Vectren claimed 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,” said the Oct. 29 appeals court ruling.

Vectren’s baseload electricity generating units include Brown Unit 1, Brown Unit 2, Culley Unit 2, Culley Unit 3, and part of Warrick Unit 4, 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.

Vectren and the EPA later 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 (MATS) and the Water Pollution Control Act which limit mercury emissions in the air and water, respectively.

The January 2014 application to the commission covered modifications to four facilities – Brown Units 1 and 2, Culley Unit 3, and Warrick Unit 4 – in order to comply with the MATS rule, the NOV, and the CAA information request. Specifically, Vectren requested 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. Vectren also requestd 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. Vectren also requested approval for recovery of its portion of the costs, along with unit co-owner Alcoa, to install an organo-sulfide system at Warrick Unit 4.

In addition, Vectren requested approval to construct, install, and operate equipment necessary to control wastewater discharges from the units at both Brown and Culley as required to comply with National Pollution Discharge Elimination System (NPDES) Hg limitations. 

In order to comply with EPA requirements, Vectren told the commission it 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 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.

B&V’s report found that the only feasible plans to meet environmental regulations were: replacing one or more of Vectren’s current units with new natural gas-powered facilities and retiring the remaining facilities; or upgrading the current coal-powered facilities. B&V concluded that Vectren’s plan to modify the existing facilities was the best option in terms of cost to ratepayers.

On appeal, the environmental groups argued 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 argued that the commission was statutorily required to make findings on the specific factors listed in Indiana Code section 8-1-8.7-3. Vectren argued that the appellants’ claims are moot because appellants failed to obtain a stay pending appeal and Vectren has since completed and begun using many of the covered projects.

The appeals court ruling said that a commission approval granted under Chapter 8.4 would not be sufficient to satisfy the requirements of Chapter 8.7. The two chapters serve different purposes: Chapter 8.4 requires the issuance of a certificate in order to recover costs of a federally-mandated compliance project; and Chapter 8.7 requires the issuance of a certificate to approve a CCT project. These two chapters have different factor analyses, and presumably, these factors are appropriate to their respective purposes, the court said.

Vectren may not use CCT (as defined in Chapter 8.7) until the commission issues it a certificate under Indiana Code section 8-1-8.7-3, the court said. “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,” said the court.