Rompala
Frustration over utility rates and concerns about the impact of new businesses locating in Indiana have driven discussions about Indiana’s energy policy to an unprecedented but justified level of intensity in recent months.
It is not hard to understand why. Access to reliable and affordable energy is essential to our daily lives. It is also critical to the state’s manufacturing and industrial sectors, which account for 26% of the state GDP, a larger share than any other state.
Though it is easy to understand why energy anxiety has hit new levels, it is a little harder to pinpoint exactly why. Suffice to say that economic incentives to support utility investment, the necessary process of retiring aging power plants and building replacement generation, inflationary pressures, changing customer demand, and a litany of other factors have all played a role in bringing us to this point. The interplay of these factors help explain why the process of creating balance between customers and utilities — which is the ultimate goal of the regulatory process — is difficult.
Unfortunately, while Indiana and some very dedicated policymakers and stakeholders have tried very hard to find the right balance between those pressures and their impact on customers, we haven’t gotten the mix quite right.
At this historic juncture, with a need to expand electric capacity on a scale the likes of which this country has not seen since the 1940s and ’50s, we now have two broad paths open to us. One is to keep doing what we have been doing. The other is to try new approaches to adjust the balance. Understanding the story of how we got here is important, not to lay blame, but to focus on the essential question: “Which path do choose?” If we want reliable and affordable power as well as economic prosperity and development, we cannot continue along our current trajectory.
But if we choose a different path, what does that look like?
One step is to establish better support for customer investment in the energy resources which serve them. Indiana already has customer generation and, in fact, industrial customers in Indiana generate hundreds of megawatts of their own power to support their operations. But more could be done to balance the rights of customers and the interests of utilities. Expanded options for ownership and operational models for customer generation, actively supporting voluntary partnerships between utilities and customers to develop generation, and removing geographic and economic constraints on generation are all positive steps that could expand private investment in energy resources and reduce the need for costly new utility construction at public expense.
We also need to re-evaluate the incentives currently provided to utilities. In the past, Indiana has encouraged infrastructure investment by providing financial incentives for cost recovery. But a sustained cycle of incentivized capital investment by utilities will continue to drive utility rates higher. Gov. Mike Braun has suggested we need to be more “attentive” to the investments utilities make.
One approach would be to revisit prior legislation to add stronger ratepayer protections. Utilities should be required to provide better justification for investments which receive automatic rate recovery; to demonstrate more than ordinary business risk before recovering cost overruns from customers; and adjust their profit margins to reflect the reduced risk arising from pre-approved investments. These are common sense steps to balance the existing investment incentives with the corresponding rate burden on customers.
Indiana has many advantages. Our location means we have the highways, the pipelines, the transmission facilities and other resources to propel ourselves forward. No single answer is the “right” one. It is clear that if we want different outcomes, we need to implement different approaches. Hopefully, we choose that path.
Joseph Rompala is a director at Lewis Kappes, and is member of the firm’s Energy and Utility and Appellate Law practices. Joe advises the firm’s clients on a variety of energy related issues, and regularly appears before the Indiana Utility Regulatory Commission on behalf those clients. Joe also serves as the Legislative Director for Indiana Industrial Energy Consumers, Inc., a trade organization comprised of over 20 of the state’s largest manufacturers. As Legislative Director, he advocates on behalf of INIDEC before the Indiana General Assembly. This column originally appeared at The Indiana Capital Chronicle. Send comments to editorial@therepublic.com.
