Bill to let utilities charge consumers earlier for building projects advances
Indiana House lawmakers advanced a bill Monday that could encourage more natural gas in the state and allow utilities to charge ratepayers for a plant before it ever goes online.
House Bill 1421 would allow utilities to use a financing option known as Construction Work in Progress, or CWIP, in which customers pay for the natural gas project gradually — rather than with sudden rate increases.
It’s a process utilities can already use with other types of power like coal, solar and windmills.
The bill was approved 71-26 and now heads to the Senate chamber for further deliberations.
Author Rep. Ed Soliday, R-Valparaiso, maintains the legislation would provide Indiana with a “smooth transition plan” to eventually pivot from fossil fuels.
“There will never be a wind- and solar-only world. There will be wind and solar, plus some kind of backup for when the wind isn’t blowing and the sun isn’t shining,” Soliday said, adding that “we definitely need peaker plants “ — natural gas power plants that operate when there’s high demand for electricity — “and we need to get them as affordably as we possibly can.”
Utility representatives said the bill would help them to recoup expenses for new plants earlier and encourage the construction of new power plants. That’s more likely to result in improved electrical grid reliability, they said.
But clean energy advocates argue that the proposal puts ratepayers on the hook for interest-free loans to utility companies.
Rep. Matt Pierce, D-Bloomington, pushed back on Soliday’s bill Monday, maintaining that CWIP takes “accountability off the table” for utilities and leaves ratepayers taking all the risk, upfront, for projects that could be obsolete in the not-so-distant future.
“Once you have these payments rolling for the project — before it’s even constructed and online — you take away the incentive for the utility to really work to efficiently get that project done,” he said. “What we’re also doing with this bill is we’re encouraging utilities to come in and build yet even more baseload plants that we’re going to have to retire before too long, anyway.”
Fewer fees for utilities
Normally, utilities need to get bonds to build or upgrade facilities. The Indiana Utility Regulatory Commission (IURC) then approves utilities to increase rates to help recover the cost of the bonds, plus interest.
Soliday said the shift to a “pay as they go” model would enable utilities to collect project dollars through the rate process earlier so they don’t have to pay the interest on a bond. In the long run, that saves customers money, too, he said.
“The bill gives the same incentive to gas fired plants as it gives to renewables, as it gives to coal, as it gives to everyone else,” he said.
Soliday noted that the bill would also set a 240-day limit for the IURC to approve or disapprove projects — a response to what Soliday said are current wait times of up to two-and-a-half years for those decisions. His bill additionally adds renewable natural gas, or “biogas,” to a state list of clean energy projects eligible for financial incentives.
Utility representatives who support Soliday’s proposal said in committee slower increases to customers’ bills are likely to help avoid sudden rate shock.
“The project is going to result in a rate increase one way or another,” said Danielle McGrath, president of the Indiana Energy Association, which represents 14 investor-owned utilities. “With CWIP, you’re paying earlier as opposed to later, which is much smoother over time.
With other financing options, rates are flat, McGrath continued.
“Once a project is then in service, it jumps back up again, and you’re actually paying a higher rate base,” she said.
Bad news for consumers?
But Pierce contends that Soliday’s bill will encourage utilities to propose even more building plans for plants that are “probably transitional at best.” Plus, if there are hang-ups in a project, “ratepayers are going to eat that.”
“If the utility has to go under the old system without CWIP, if they have to go to the private markets to do bonds, and go to the capital markets, those private investors are going to be asking the hard questions,” he said. “You’ll leave the ratepayers with the risk that somebody’s going to go around with a plan, or maybe it never even gets online … you have a shifting of risk.”
Pierce also noted nationwide shifts — including in Indiana — towards more renewable energy sources
“In 10 or 15 years from now, when we have the storage figured out — when the renewables are there — we’re going to have this big plant, with what they call stranded assets,” he said. “There is a transitional role for natural gas, but not building a big baseload plant, which is going to be encouraged by this bill.”
Citizens Action Coalition Executive Director Kerwin Olson said his group is opposed to financing any power sources in this way.
“Utilities are financially healthy, and can access capital and debt a lot cheaper than consumers can,” Olson said while testifying against the bill in the House utilities committee last month. “If we’re serious about affordability, we must reject the expansion of Construction Work in Progress, which only stands to exacerbate the affordability crisis in the state of Indiana — and not help.”
Other critics of the bill also worry that CWIP permissions for natural gas utilities will increase the number of Hoosiers facing energy insecurity.
At least 250,000 account payers in the state are behind on their monthly electric payment as of December, and more than 208,000 have been sent disconnection notices, according to the Indiana Office of Utility Consumer Counselor.
With natural gas prices on the rise, major electric utilities have already asked the IURC to raise rates.
Those opposed to the bill also point to recent large-scale outages that pushed the grid serving Indiana to its limit, exposing weakness in the reliability of natural gas resources. The most recent swathe of plant failures in December left hundreds of thousands of people without power during one of the coldest weather events of the year.