The following links comprise testimony that was provided to the Regulatory Flexibility Committee on Tuesday, August 14, 2007. The testimony addresses energy efficiency, renewables, and the public health impacts of coal. Click on the links below to download the pdf and read the testimony.

2007 Session Ends on Sweet and Sour Note for Indiana Ratepayers

Biennial Budget
The Indiana General Assembly adjourned “sine die” on Sunday, April 29, 2007, marking the end of the 2007 legislative session. In the waning hours, the legislature passed a two-year, $26 billion state budget (HB1001), calling for approximately $550 million in property tax subsidies for homeowners and a scaled down, optional plan for districts to provide full-day kindergarten. Threats to the expanded use of the Community and Home Options to Institutional Care (C.H.O.I.C.E.) Program dollars for the Medicaid Aged and Disabled Waiver Program were quelled late in the process, ensuring that the bulk of those dollars remain available to provide home and community-based services to individuals who would otherwise require nursing home care.

Health Care Reform
Hopes to make meaningful progress toward universal health care coverage to address the roughly 862,000 uninsured residents of Indiana were dashed early in the legislative process, but Sunday evening saw the passage of a scaled-down “Indiana Check-Up” insurance plan alleged to extend coverage to an additional 132,000 Hoosiers who can’t afford health insurance. The plan (HB 1678), to be funded by a 44-cent increase in the cigarette tax, is estimated to raise an additional $206 million a year. Under the plan, people who earn up to 200% of the federal poverty level (“FPL” - $20,420 for an individual and $41, 300 for a family of four), can purchase the insurance.

The plan provides up to $500/year in free preventive care services and requires individuals to set up a $1,100 health savings account, funded in part with individual contributions, based on a sliding scale, capped at 5% of adjusted gross income at the 200% FPL. For many individuals who daily struggle to pay for basic necessities (rent, groceries, child care, etc.), making regular payments to a health savings account to become or remain insured under the plan may be an impossibility. The plan raises the number of children and pregnant women who are eligible for Medicaid, creates an insurance pool for small businesses, and tax incentives in an effort to encourage more employers to offer insurance.

Renewable Electricity Standard (RES)
Considerable in-roads were made this session to secure passage of a renewable electricity standard (RES), marked by the introduction of HB 1496 and HB 1122 in the House and SB 348 in the Senate. Over the past year CAC has collaborated with the Indiana Coalition for Renewable Energy and Economic Development (ICREED), of which it is a member, to develop the key components of an Indiana RES and a multifaceted strategy for its passage. CAC spearheaded the lobbying efforts at the statehouse, with technical support and expertise from the Hoosier Environmental Council (HEC) and the Chicago-based Environmental Law and Policy Center (ELPC).

Our RES initiative calls on electric utilities to purchase an increasing amount of electricity from renewable resources such as wind, solar and biomass, beginning with 1% in 2009 and increasing to 10% by 2017. Though unsuccessful in our efforts, we laid important groundwork this year by educating legislators of the need to invest in alternative energy resources to reduce greenhouse gas and toxic air emissions, capitalize on Indiana’s rich portfolio of renewable electricity resources to diversify our energy mix, stimulate job creation and economic development in a new energy sector, and distribute electric generation more widely throughout Indiana. We backed up our arguments about the negligible rate impact of an RES with a commissioned study specific to Indiana and supported by 27 other studies across the county, and contrasted the cost-effectiveness of an RES with the inevitable and significant rate increases attributable to a one-track energy policy limited to fossil-fuel-generation and the associated costs of anticipated CO2 regulations.

During the session we successfully fought attempts to pass watered-down versions of an “RES”, including efforts by the utility and coal lobbies to include “waste coal” and “clean coal and energy projects” in the definition of “renewable energy resources”, and to lower the compliance standard to levels below which any meaningful investment in an Indiana renewable energy sector would be possible. We also found a strong ally in Representative Dave Crooks (D, District 63, Washington), Chair of the House Commerce, Energy and Utilities Committee to which utility regulatory legislation is routinely assigned. At every step of the legislative process, Rep. Crooks strived to equitably balance the interests of investor-owned monopoly utilities with CAC’s interest in protecting residential and commercial ratepayers and in developing a renewable electricity market. His leadership ensured our “seat at the table” throughout the negotiation process, and will no doubt help us in future efforts to advance our legislative policy initiatives.

“Tracking” Provisions
Though the electric monopoly utilities ultimately thwarted our efforts to pass an RES this session, we were successful in defeating no less than five “tracking” provisions that would have allowed them to profiteer at the expense of captive ratepayers. As previously discussed, “trackers” are a shorthand method of increasing utility rates. Over a period of almost three decades now, trackers have become a habit of regulation, and utilities are routinely tracking rate increases to consumers instead of pursuing rate cases at the Indiana Utility Regulatory Commission (IURC).

Taken in isolation, trackers seem relatively harmless. The utility asks to add a cost of doing business, whether new or ongoing, to the rate base. The problem, however, is that no consideration is given to offsetting cost increases with cost reductions that would otherwise be passed onto ratepayers in a formal rate case. In collaboration with the Indiana Industrial Energy Consumers (INDIEC), we were successful in educating many more legislators, including those on key utility committees, about the evils of tracking legislation. Our success is reflected in the defeat of all of the utility-sponsored tracking provisions this session, as follows:

1. Biofuels Electric/Gas Service Tracker: This tracker provision was unjustly attached to our RES language in the introduced version of HB 1496, and would have made a utility’s residential, commercial and industrial customers the guarantors of all costs made by public utilities in extending electric or gas service to facilities that produce ethanol or biofuels, regardless of whether the facilities become or remain operational. This would conflict with current policy, requiring each electric utility to provide necessary facilities for rendering adequate service to a customer without charge, and only allowing a utility to charge such customer if the utility’s estimated total revenue for a period of 2.5 years to be realized from the customer is at least equal to the estimated costs of such extension (the so-called “2.5 Rule”). Had this provision been enacted into law, it would have set a precedent for a public utility to guarantee a return on its investment in extending service to a particular customer, even when the utility will also receive revenue from the customer as soon as the service is established, and even though the other customers in its rate base receive no benefit from the transaction.

2. Distribution System Improvement Charges (“DSIC”) Tracker: Another provision inserted in the RES bill (HB 1496) would have expanded provisions, allowing public and municipal water utilities to “track” costs associated with distribution system improvement charges (“DSIC”), to include electric, gas and steam-generating utilities that distribute electric power to retail customers or end users by means of low voltage electric lines. It would have further required the IURC to approve DSIC charges for projects up to $50 million. This tracker would unreasonably expand the scope of the statute’s original purpose – to assist smaller water utilities in recovering costs associated with distribution system improvements – to include investor-owned monopoly utilities that are required to engage in long-term planning to address projected needs and to maintain service quality, and that are required to recover costs for these reasonably anticipated investments only through formal rate-making procedures that equitably balance cost increases with cost savings for the benefit of ratepayers.

3. Electric Lines Facilities Projects (“ELFP”) Tracker: A third “poison pill” included with the RES language in HB 1496 would have provided automatic incentives for electric utilities for investments they are already required to make to maintain quality of service; investments in overhead and underground electric transmission and distribution lines (“electric line facilities”). Instead of penalizing electric utilities for failure to maintain and upgrade the basic, revenue-generating infrastructure for the delivery of electricity to end users, these provisions would require the IURC to reward electric utilities by providing financial incentives allowing them to “track” expenditures for electric line facilities projects to their customers. The provisions would further require the IURC to approve projects that are “consistent with” a plan developed by a regional transmission organization (“RTO” – more like a utility trade association than an impartial regulatory body), regardless of whether such investments are cost effective or consistent with actual need. This would shift the burden of proof from monopoly utilities to ratepayers, who can least afford regulatory challenges to the reasonableness of such investments.

4. Advanced Metering Infrastructure (“AMI”) and Conservation and Load Management Tracker: SB 410, as introduced, would have provided financial incentives for an electric utility’s investments in AMI and implementation of conservation and load management programs. It would have also required the IURC to create specified financial incentives for investments in AMI and conservation and load management programs. AMI is touted as a way to influence a customer’s timing or use of electricity by allowing utilities to charge higher rates during peak usage times and lower rates at other times during the day.

SB 410 would have allowed electric utilities to track investments in conservation and load management programs by encouraging the IURC to provide financial incentives for programs found to be reasonable and necessary not later than 120 days following an electric utility’s application for one or more incentives. Coupled with the fact that an IURC investigation is currently underway to determine whether or not it is appropriate to implement time-based rate schedules and the advanced metering and communications technology to support them (IURC Cause No. 43083), these provisions would remove IURC discretion to determine whether to award financial incentives, and would place arbitrary limits on the timeframe in which the IURC could consider the reasonableness of a request.

5. Air Emissions Projects Tracker: SB 206, as introduced, would have expanded the availability of financial incentives and automatic rate adjustment (“tracker”) provisions for utility compliance with federal environmental regulation, to investments to comply with “reasonably anticipated” regulations that may be enacted for other pollutants, such as carbon dioxide (CO2), mercury, and particulate matter. CAC has testified in support of planning for and investment in regulated air emissions projects that include CO2. However, the proposed language in SB 206 would have expanded the scope of regulated air emissions projects beyond electric generating facilities using “clean coal technology” to any existing electric generating facility regardless of its fuel source. This could incentivize the burning of municipal waste, garbage imported from outside Indiana, and other materials not originally contemplated in Indiana’s Clean Coal Technology statute, to the exclusion of more cost effective investments in energy efficiency and renewable energy resources that do not cause further harm to public health or the environment.

SB 206 would have also expanded the definition of a regulated air emissions project to include “offset programs”, such as agricultural and forestry activities that reduce the level of greenhouse gases in the atmosphere. While such programs may have merit, the term “offset programs” was never defined in the bill, contained no standards by which to measure potential offsets for power plant emissions, and was not limited to investments in Indiana. Combined with provisions requiring the IURC to award financial incentives for these expanded air emissions projects, SB 206 removed the only mechanism - meaningful IURC oversight – to protect ratepayers from questionable investments, and would have unjustly rewarded utilities through enhanced profits merely for complying with what is or will soon be legally required.

(NIPSCO) Public Power Authority Study
In the second half of the 2007 session, HB 1824, requiring the IURC to study the feasibility of establishing a regional public power authority upon the request of the county executives of three or more counties that are located in an electric utility’s service area (this language was also amended into SB 206 in the second half of the session), was amended to include the tracking provisions outlined in items 3-5 above. A weak, so-called renewable energy standard (because it required only a 4% standard by 2016 and included waste coal and clean coal and energy projects in the definition of “renewable energy resources”), was also amended into HB 1824. CAC testified in support of HB 1824 as introduced (prior to the “RES” provisions). The rationale for the bill was to consider possible establishment of a non-profit, public power authority to run NIPSCO’s electric division in the event of a rumored sale amid long-standing customer complaints about high utility rates and poor quality of service.

We worked aggressively to “kill” the bill when the “fake” RES and tracking provisions were added. HB 1824 remained viable until the final day of the session, when concerted efforts by CAC, INDIEC, AT&T, the AFL-CIO and the Indiana Building Trades Association led to the bill’s ultimate demise.

Combined Pollution Control/RES Legislation
We were successful in the second half of the session in amending SB 206, described above, to retain the IURC’s discretionary authority over the awarding of financial incentives for investments in air emissions projects “reasonably anticipated to be regulated.” We did so to support the bill with the addition of a strong RES provision, calling for a 10% standard by 2018. A lesser standard (10% by 2025), but one that at least did not include coal, was amended into SB 206 on second reading in the House, and with the support of Rep. Crooks, we drafted changes that strengthened the RES provisions and called for an 7.5% standard by 2016. However, we could not secure support in the Senate, and when the RES provisions were pulled from the bill and the IURC’s discretionary authority removed, we frantically worked in the remaining minutes of the session to kill SB 206. With assistance from Representative Win Moses (D, District 81, Fort Wayne), who went to the microphone to speak against SB 206 (the final bill of the 2007 session) and run out the clock so that the bill would die before a vote could be taken, we succeeded in our efforts. Accordingly, while we were unable to pass an RES this session, we prevented the investor-owned monopoly utilities from passing any of the utility trackers described above.

Captive Ratepayer Coal Gasification Financing Scheme
The only anti-ratepayer bill we were unable to stop was HB 1722 – Coal gasification tax credits and cost recovery. HB 1722 changes current law by eliminating the Indiana Utility Regulatory Commission’s (IURC) authority to prevent gas utilities from recovering, through rate-adjustment (tracking) mechanisms, their gas purchase costs unless they demonstrate they obtained the gas for the lowest cost reasonably possible. While limited to gas purchase agreements in connection with a proposed coal gasification plant, this change could affect upwards of 25% of all gas purchases in Indiana for the next 30 years.

This statutory change was touted as a key component of a complex plan to secure financing for construction of substitute natural gas (“SNG”) and integrated coal gasification powerplant (“IGCP”) facilities (the “project”), that would otherwise be too risky to build. The proposed project is described in a petition filed with the Indiana Utility Regulatory Commission (IURC) on 10/27/06, in Cause No. 43154. In the petition, Indiana Gasification, LLC, the developer, and Vectren, NIPSCO and Citizens Gas, the utility petitioners, are asking the IURC to decline jurisdiction over the project and to approve the purchase of SNG under fixed-priced, 30-year contracts – the price and terms of which are unknown.

HB 1722 prohibits the IURC, the state, or any other governmental entity from future disallowance, let alone re-consideration, of substitute natural gas (“SNG”) power-purchase agreements and related costs (for transportation and storage services) under the proposed project. HB 1722 further provides for the recovery of the cost of replacement gas and related costs in the event the SNG gas is not delivered pursuant to contract terms.

CAC opposed HB 1722 for the following reasons:

• HB 1722 unfairly shifts the financial risks for a commercially unproven and deregulated gas supplier to Indiana ratepayers.
• HB 1722 forces Indiana ratepayers to become the guarantors of a speculative project with sight-unseen-30-year contracts.
• HB 1722 locks the IURC and Indiana ratepayers into 30-year contracts for gas and electricity supplied by the proposed project even if there are other cheaper resources.
• HB 1722 prevents the IURC from instituting ratepayer protections if there are changes in “market conditions” or “other circumstances.”
• HB 1722 forces ratepayers to pay for gas twice if the proposed project fails to operate - during plant outages, ratepayers would have to pay to meet the obligations of the SNG contract while simultaneously paying for replacement gas.
• HB 1722 directly conflicts with and overrides current law which mandates that gas utilities provide service at the cheapest cost to ratepayers.
• The sole purpose of HB 1722 is to change the current IURC regulatory scheme to enrich out-of-state developers and protect the financial interests of investor-owned utility companies at the expense of ratepayers.

Despite our legislative and grass roots advocacy efforts, HB 1722 passed the House and Senate and awaits the Governor’s signature into law. Before its final passage it was further amended to include language providing production tax credits for cellulosic ethanol, and “Energy Saving Tax Credits” for residential and small business taxpayers who purchase Energy Star heating or cooling equipment (furnaces, water heaters, central air conditioners, room air conditioners, and programmable thermostats). The latter provision, supported by CAC in testimony on SB 525, where it originally resided, allows taxpayers to take a credit equal to the lesser of 20% of the purchase price or $100, and limits the total credits allowable in a given year to $1 million.

The final version also includes language defining “organic waste biomass” as agricultural crops, agricultural wastes and residues, wood and wood wastes (wood residues, forest thinnings, mill residue wood and waste from clean construction and demolition), animal wastes and aquatic plants. Municipal waste, which we argued should be taken out of an earlier version of the definition, was ultimately removed, but waste from clean construction and demolition, which we also argued against, remains.

However, CAC has intervened in the Indiana Gasification LLC proceeding now before the Indiana Utility Regulatory Commission in an effort to protect consumer interests in this decision-making process. Notwithstanding the passage of HB 1722, there are many questions about final construction costs, coal contracts, the details of the contract (still in negotiation) between the project and Indiana’s major gas utilities, and the overall financial viability of the project at this time.

Home Energy Assistance Sales Tax Exemption
An important victory this session came with the passage of HB 1037, extending the sales tax exemption for the low income home energy assistance program (LIHEAP) until July 1, 2009. The sales tax exemption was first enacted last year, and was to expire 7/1/07. Exempting sales tax on federal LIHEAP dollars coming to Indiana makes approximately $2.45 million in additional funds available to serve low income families in need of assistance in paying energy-related utility bills.

Federal funding for LIHEAP has not kept up with inflation, and skyrocketing costs for natural gas have exacerbated the problem of affordability for people with low and fixed incomes. Beginning last year, due to the Governor’s move to expand eligibility for LIHEAP to include families with incomes at or below 150% of the federal poverty level (up from 125%), more families were eligible for energy assistance, which includes money for weatherization programs to help people lower their heating bills.

However, while record numbers sought help, less than a third of all eligible households applied for and received assistance. Moreover, the one-time energy assistance benefit only covers about one month’s heating bill, leaving hundreds of thousands of households struggling to maintain this essential service.

The House-passed version of HB 1037 (the bill passed by a vote of 99-0) made the sales tax exemption permanent. The bill was amended in the Senate to “sunset” the sales tax exemption after two years, and on 3/13/07 passed third reading in the Senate by a vote of 48-0. While CAC supports the permanent exemption of sales tax from LIHEAP, a two-year extension is still a victory, and makes it more likely that a permanent exemption will be granted at the end of the two-year extension to avoid having to reduce the number of participating households. House Enrolled Act (HEA) 1037 was signed into law by the Governor on April 23, 2007.

Concentrated Animal Feeding Operations (CAFOs) and Confined Feeding Operations (CFOs)
At least six bills were introduced this session to address the regulation of CAFOs and CFOs. Bills varied widely in scope, from a complete moratorium on new operations, set-backs from schools and municipalities, the requirement of local health and/or zoning permits before construction is allowed, the establishment of “good character” requirements, increased fees for permits and violations, limits on distribution and storage of waste, tax credits for anaerobic digesters, to prohibiting local ordinances from exceeding state requirements for CFO statutes and rules.

SB 431 remained the sole vehicle for consideration at session’s end, and included disclosure statement requirements for permit applicants, new certification, training and education requirements for manure and fertilizer applicators, increased fees for CAFO/CFO operators to support an enhanced Indiana Department of Environmental Management (IDEM) inspection and compliance program, implementation of a voluntary certified livestock producer program, a commitment to provide model ordinances and other land use planning and zoning tools to local governments, and removal of controversial provisions that interfered with current local authority over land use planning, zoning and health.

Notwithstanding, SB 431 “died” when agreement could not be reached on retention of set-back provisions in the bill. A simple Senate Resolution (SR 72) is all that ended up passing in the final hours of the session. The resolution urges the legislative council to seek a report from IDEM regarding the types and numbers of annual inspections for CAFOS and CFOs, the number of applications, approvals, denials and permits, the types and sizes of operations for which approvals are issued, the types and numbers of violations of statutes and rules concerning human health and the environment, the types and numbers of enforcement actions initiated or concluded, and the types, numbers and amounts of criminal and civil penalties and fines.

We encourage you to visit http://www.in.gov/legislative/ to obtain complete information on the 2007 session of the Indiana General Assembly.

Paul Chase, J.D.
Governmental Affairs Liaison

Authored by Representative Scott Pelath (D-Michigan City), House Bill (HB) 1824 began as a positive bill for consumers. However, HB 1824 has been highjacked by utility interests in the Indiana Senate.

As written the legislation would:

• Severely weaken the regulatory process and, thereby, consumer protections now in that process.
• Completely undermine Indiana's ability to jumpstart a market for renewable energy technology in the state.

Current Status: HB 1824 started out as a good bill until the Indiana Senate amended anti-consumer provisions into it designed to bolster the profits of utilities at the expense of ratepayers.

HB 1824, if passed, would:

• Make Indiana the laughing stock of the country by including coal as a renewable resource in Indiana’s definition of renewable energy and ensuring that no substantial renewable energy investments are made in Indiana.
• Force ratepayers to pay for expensive electric meters so that electric utilities could reduce their costs and increase profits by charging customers according to time of day.
• Keep obsolete coal-fired power plants running by forcing ratepayers to pay for air pollution control equipment regardless of cost and regardless that cheaper, cleaner alternatives, such as energy efficiency and wind technology, can meet electric energy demand and reduce air emissions, including carbon dioxide that is causing global warming.
• Provide automatic incentives for utilities for investments they are already supposed to be making to maintain quality of service, such as investments in transmission lines and local distribution systems.
• Allow for virtual automatic rate increases by allowing utilities to recover the cost of investments and incentives for investments in transmission and distribution lines on a quarterly basis.

Conclusions:
Because Indiana’s electric utilities are monopolies, and we do not have a choice, the current regulatory framework is the only thing that protects ratepayers from monopoly abuses. HB 1824 would severely weaken the regulatory process and, thereby, consumer protections now in that process.

Renewable electricity policy should result in significant investment in renewable technology in Indiana, not be a scam to protect electric utilities and sell out our economy, our health, and our future. HB 1824 would completely undermine Indiana’s ability to jumpstart a market for renewable energy technology in the state.

Call your State Representative and State Senator tell him or her to vote no on HB 1824!

Your State Representative can be reached at 800-382-9842 or 317-232-9600.

Your State Senator can be reached at 800-382-9467 or 317-232-9400.

This report focuses on a number of key bills in which we are actively involved in the second half of the Indiana General Assembly. With the exception of HB 1037 (Home Energy Assistance Sales Tax Exemption), all of the following bills await hearings in the committees to which they have been assigned in the “second house” (i.e., House bills await hearings in the Senate, and vice versa).

I. Energy

HB 1722 - Coal gasification tax credits and cost recovery
HB 1722 was introduced for the sole purpose of changing longstanding laws that require gas utilities to “make every reasonable effort” to provide gas to their retail customers at “the lowest gas cost reasonably possible.” HB 1722 is a key component of a complex plan to secure financing for construction of substitute natural gas (“SNG”) and integrated coal gasification powerplant (“IGCP”) facilities (the “project”), that would otherwise be too risky to build.

The proposed project is described in a petition filed with the Indiana Utility Regulatory Commission (IURC) on 10/27/06, in Cause No. 43154. In the petition, Indiana Gasification, LLC, the developer, and Vectren, NIPSCO and Citizens Gas, the utility petitioners, are asking the IURC to decline jurisdiction over the project and to approve the purchase of SNG under fixed-priced, 30-year contracts – the terms of which are unknown.

A key concern is that HB 1722 would prohibit the IURC, the state, or any other governmental entity from future disallowance, let alone re-consideration, of substitute natural gas (“SNG”) power-purchase agreements and related costs (for transportation and storage services) under the proposed project. HB 1722 further provides for the recovery of the cost of replacement gas and related costs in the event the SNG gas is not delivered pursuant to contract terms. CAC opposes HB 1722 for the following reasons:

• HB 1722 unfairly shifts the financial risks for a commercially unproven and deregulated gas supplier to Indiana ratepayers.
• HB 1722 forces Indiana ratepayers to become the guarantors of a speculative project with sight-unseen-30-year contracts.
• HB 1722 locks the IURC and Indiana ratepayers into 30-year contracts for gas and electricity supplied by the proposed project even if there are other cheaper resources.
• HB 1722 prevents the IURC from instituting ratepayer protections if there are changes in “market conditions” or “other circumstances.”
• HB 1722 forces ratepayers to pay for gas twice if the proposed project fails to operate - during plant outages, ratepayers would have to pay to meet the obligations of the SNG contract while simultaneously paying for replacement gas.
• HB 1722 directly conflicts with and overrides current law which mandates that gas utilities provide service at the cheapest cost to ratepayers.
• Without a comprehensive cost/benefit analysis, claims that the project will yield lower and less volatile prices for natural gas and long term energy security are totally without merit.
• The sole purpose of HB 1722 is to change the current IURC regulatory scheme to enrich out-of-state developers and protect the financial interests of investor-owned utility companies at the expense of ratepayers.

HB 1722 is set for hearing in the Senate Utilities and Regulatory Affairs Committee on Thursday, March 15, 2007 at 9:00 a.m. in Room 233 of the Statehouse.

SB 206 – Pollution Control Expenses for Energy Facilities
SB 206 extends the availability of financial incentives and automatic rate adjustment, or “tracker”, provisions for utility compliance with federal environmental regulation, to investments to comply with “reasonably anticipated” regulations that may be enacted for other pollutants, such as carbon dioxide (CO2). CAC supports planning for and investment in regulated air emissions projects that include CO2. However, CAC generally does not support tracker provisions, as they represent one-way ratemaking, allowing monopoly utilities to bypass rate cases, where increased costs are balanced against savings in other areas and passed on to ratepayers.

Of greater concern is that the proposed language in SB 206 would expand the scope of regulated air emissions projects beyond electric generating facilities using “clean coal technology” to any existing electric generating facility regardless of its fuel source. This could incentivize the burning of municipal waste, garbage imported from outside Indiana, and other materials not originally contemplated in Indiana’s Clean Coal Technology statute, to the exclusion of more cost effective investments in energy efficiency and renewable energy resources that do not cause further harm to public health or the environment.

SB 206 would also expand the definition of a regulated air emissions project to include “offset programs”, such as agricultural and forestry activities that reduce the level of greenhouse gases in the atmosphere. While such programs have merit, the term “offset programs” is not defined in the bill, contains no standards by which to measure potential offsets for power plant emissions, and is not limited to investments in Indiana. Combined with provisions that require the IURC to award financial incentives for these expanded air emissions projects, SB 206 removes the only mechanism - meaningful IURC oversight - that protects ratepayers from questionable investments, and unjustly rewards utilities through enhanced profits merely for complying with what is or will soon be legally required.

SB 206 has been assigned to the House Commerce, Energy and Utilities Committee. It has yet to be scheduled for hearing.

SB 410 – Conservation and Load Management Programs
SB 410 undermines the current regulatory process by presuming investment in “advanced metering infrastructure”, or “AMI ”, is the best way to address electric conservation and load management concerns, even as a federally-mandated IURC investigation is underway to determine whether or not it is appropriate to approve investments in AMI .

Not only is SB 410 therefore unnecessary, it would arbitrarily limit the time frame in which the IURC would otherwise have to consider the reasonableness of such investments (and the awarding of additional financial incentives – so-called “tracker” language), to 120 days. SB 410 is an end-run around a more thorough IURC investigation currently underway, and an attempt to favor investment in AMI over other programs that may be less costly and equally or more effective, including energy efficiency programs that James Rogers, President of Duke Energy recently characterized as “a fuel choice – the ‘fifth fuel’ if you will in addition to traditional generation resources of coal, nuclear, natural gas and renewables. . . . [i]f dollars spent and the megawatts saved in some areas of the country were broadened to the country as a whole, savings could top $20 billion annually while deferring 20,000 MW – the equivalent of 40 new 500 MW power plants over the next 10 to 15 years.”

SB 410 has yet to be assigned to a House Committee.

SB 525 - Indiana fueled energy investment tax credit
As introduced, the main focus of SB 525 was to provide tax credits to incentivize investments in renewable fuels (cellulosic ethanol), energy efficient products (Energy Star heating and cooling appliances, geothermal and wind energy systems) and energy efficiency services (to reduce energy consumption by large-scale industrial facilities). Tax credits for such investments promote energy conservation, security, sustainability, and public and environmental health.

As amended, the relatively inconsequential tax credit provisions for energy efficient appliances and systems, and energy efficiency services, were removed, while large tax credits for the production of cellulosic ethanol and Indiana “fueled energy” (coal, petroleum coke, oil shale, coal mine methane and biomass-including municipal waste containing toxic materials) remain.

CAC no longer supports SB 525 after all of the good tax credit provisions benefiting residential and small business ratepayers were removed. If SB 525 goes forward, CAC will work to re-focus the bill on progressive energy policy that promotes energy conservation and diversification. SB 525 has been assigned to the House Ways and Means Committee. It has yet to be scheduled for hearing.

II. Anti-Poverty

HB 1037 – Home Energy Assistance Sales Tax Exemption
HB 1037 extends the sales tax exemption for the low income home energy assistance program (LIHEAP) until July 1, 2009. The sales tax exemption was first enacted last year, and was to expire 7/1/07. Exempting sales tax on federal LIHEAP dollars coming to Indiana makes approximately $2.45 million in additional funds available to serve low income families in need of assistance in paying energy-related utility bills.

Federal funding for LIHEAP has not kept up with inflation, and skyrocketing costs for natural gas have exacerbated the problem of affordability for people with low and fixed incomes. Beginning last year, due to the Governor’s move to expand eligibility for LIHEAP to include families with incomes at or below 150% of the federal poverty level (up from 125%), more families were eligible for energy assistance, which includes money for weatherization programs to help people lower their heating bills.

However, while record numbers sought help, less than a third of all eligible households applied for and received assistance. Moreover, the one-time energy assistance benefit only covers about one month’s heating bill, leaving hundreds of thousands of households struggling to maintain this essential service. CAC supports the permanent exemption of sales tax from LIHEAP funds and will continue to advocate for establishment of a contingency fund to serve all those in need of energy assistance.

HB 1037 passed unanimously out of the Senate Tax and Fiscal Policy Committee on March 6, 2007, and awaits further action in the Senate.

III. Consumer/Regulatory Issues

HB 1197 – Regulation of Confined Feeding Operations
As amended, HB 1197 prohibits construction of a new confined feeding operation (CFO), including a CAFO (concentrated animal feeding operation), within one mile of a public school, a licensed health facility or a municipality (the introduced version contained two-mile “setback” provisions). An exception is made for expansion of existing facilities or where construction has already begun or been approved. In addition, a person may appeal to the local zoning authority to obtain a variance to the one-mile setback requirement if, upon notice and hearing, the variance is found to be consistent with the public health, safety and welfare.

HB 1197 requires the Indiana Department of Environmental Management (IDEM) to establish civil penalty matrices for (1) first time violations (ranging from $100 to $25,000 for each day of violation), (2) repeat violations (ranging from $500 to $50,000 for each day of violation) and (3) intentional violators (ranging from $10,000 to $100,000 for each day of violation). The bill requires IDEM to inspect each confined feeding operation, including CAFOs, at least once a year, and requires each confined feeding operation to pay an annual inspection fee of $500 ($750 for CAFOs) to fund such inspections. The bill also requires the state chemist to adopt rules to establish a training and educational program for manure haulers and applicators, including manure testing, soil testing, transportation, and manure application and handling (the introduced version restricted manure application to “incorporation” and “injection”, and required establishment of a training and certification program for manure applicators).

The amended bill also provides that a local ordinance may “retroactively” regulate the location, construction or operation of a new CFO or CAFO if the legislative body adopts the ordinance (1) after HB 1197’s effective date, (2) before 1/1/08, and (3) not later than 90 days after the facility approval date. This provision applies to counties that do not already have an ordinance in place. HB 1197 also provides that in any action against an owner or operator regarding any aspect of the construction or operation of a CFO or CAFO, brought by a person other than a political subdivision or state agency, the prevailing party is entitled to recover court costs and reasonable attorney’s fees. Finally, the bill requires IDEM to revoke approval of or a permit for construction of a CFO or CAFO if a person is convicted of an environmental offense or a civil penalty.

HB 1197 has been assigned to the Senate Energy and Environmental Affairs Committee. It has yet to be scheduled for hearing.

HB 1308 – Local Review of Confined Feeding Operations
As amended, HB 1308 prohibits IDEM from granting approval for construction of a confined feeding operation after May 10, 2007 (originally 12/31/08) unless a person has obtained prior approval from the local health and zoning authorities after notice and joint public hearing within 45 days. Only if the construction and operation of the proposed confined feeding operation is found to be consistent with the public health, safety and welfare may an application be approved.

HB 1308 establishes the procedure for local approval, including an appeal to the county executive of an approval or denial. Ten or more residents may appeal the approval of an application to the county executive. HB 1308 also provides for administrative guidance and rulemaking.

SB 431 – Confined Feeding
As amended, SB 431 defines “applicant”, “modification” and “responsible party”, and clarifies that the confined feeding control statutes apply to both confined feeding operations (CFOs) and concentrated animal feeding operations (CAFOs), and to both original construction and modifications. It requires an applicant who wishes to construct a CFO or CAFO to execute a disclosure statement to IDEM under oath or affirmation, that includes each responsible party’s name and address, management experience, pending enforcement actions, enforcement actions settled or adjudicated within five years preceding the date of application, and all state and federal permits denied or revoked (so-called “good character” disclosures).

The bill raises the application fee for CFOs and CAFOs from $100 to $4,000, eliminates separate NPDES permit fees for CAFOs and allows the Commissioner of IDEM to deny an application for intentionally misrepresenting or concealing material facts in the disclosure statement or other required information, or where an enforcement action was resolved against a responsible party. It sets forth various factors the commissioner must consider in determining whether to approve or deny an application.

SB 431 provides that IDEM and the environmental boards have sole regulatory authority for protection of human health and the environment concerning CFOs and CAFOs, and that political subdivisions have regulatory authority concerning CFOs and CAFOs only with respect to land use and zoning. It requires IDEM to publish notice of proposed CFO or CAFO construction or modification, and requires the state chemist to adopt rules relating to the use of fertilizer material and the distribution and storage of bulk commercial fertilizers.

SB 431 has been assigned to the House Agriculture and Rural Development Committee. It has yet to be scheduled for hearing.

Please continue to watch for our action alerts, where we will provide more specific information that you can convey to your legislators before a vote on a particular bill is taken. We encourage you to visit www.in.gov/legislative to obtain complete information on the 2007 session of the Indiana General Assembly.

Paul Chase, J.D.
CAC Governmental Affairs Liaison

We have now reached the half-way mark of the 2007 session of the Indiana General Assembly. Bills had to pass out of the committees to which they were assigned, and pass second and third readings in their “house of origin” to remain viable for the second half of the session. Bills that didn’t make it through this process are now “dead”, although their language can be revived if successfully inserted into a bill still in play.

This session we are seeing what in essence amounts to backdoor deregulation of the utility industry in the form of a number of bills that allow utilities to recoup their investments, reasonable or otherwise, as they are being incurred (so-called “tracking” language, or “trackers”), coupled with language that limits, and in some instances completely removes, the discretion of the Indiana Utility Regulatory Commission (IURC) to approve or disapprove various investment proposals.

Trackers allow monopoly utilities to pass costs for new projects or expenditures on to ratepayers without having to credit them for any cost savings that would otherwise be required in a formal rate case. The more trackers attached to investments for which a utility can recoup expenses, the less need for a utility to ever seek rate adjustments in a rate case. Combined with incentives that allow a utility to reduce shareholder risk through cost recovery mechanisms that earn a higher rate of return, not only are any and all cost obligations shifted from the utility’s investors to ratepayers; ratepayers are forced to pay for even unreasonable risks and failed initiatives, at the same time the regulatory framework through which they can seek recourse is being dismantled.

The good news is that we have been successful in limiting the number of tracker bills still in play. In addition, we have garnered the support of key legislators who are helping us engage the utility industry in meaningful negotiations, where we hope to develop a more equitable approach to cost recovery that includes a strong regulatory framework within which to protect ratepayers from unreasonable investments.

This session we are also involved in a number of bills that address environmental, health and property concerns associated with concentrated animal and confined feeding operations (CAFOs and CFOs). These bills generally support the need for stronger regulations and local control. We are also pleased that HB 1037, the sales tax exemption on home energy assistance funds, has made it through the half-way mark.

The following tables contain bills we will be following in the second half of the session. Please watch for our action alerts, where we will provide more specific information that you can convey to your legislators before a vote on a particular bill is taken. We encourage you to visit www.in.gov/legislative to obtain complete information on the 2007 session of the Indiana General Assembly.

Paul Chase, J.D.
CAC Governmental Affairs Liaison

I. Energy

II. Utilities and Transportation

III. Anti-Poverty

IV. Consumer/Regulatory

V. Environment

VI. Government Reform