Utilities Could Charge Customers for New Natural Gas Plants During Construction Under New Bill

February 1, 2023

A bill intended to spur the construction of new natural gas power plants by allowing utilities to start passing the cost to customers earlier has passed its first hurdle in the Indiana House of Representatives.

House Bill 1421, authored by Reps. Ed Soliday and Chris Jeter, would allow utilities building new natural gas power plants to access a financing option, known as Construction Work in Progress, or CWIP, that would charge customers for the cost of a new plant before they receive a single electron of power from them.

The bill would also set a 240-day limit for the Indiana Utility Regulatory Commission to approve or disapprove projects and add renewable natural gas, also known as biogas, to a state list of clean energy projects eligible for financial incentives.

Bill sponsors and supporters claim the bill would help improve the reliability of the grid by adding more energy sources to it, but opponents said the bill could leave customers paying for nothing and increase the number of Hoosiers facing energy insecurity.

“This bill deals primarily with what’s called CWIP, construction while in progress. Every single fuel source has CWIP, except natural gas,” Soliday said when introducing the bill to the House Committee on Utilities, Energy and Telecommunications.

“Now, as we look at transition, the governor's office, I and Sen. Eric Koch have said we need a smooth transition plan that allows us to pivot whenever technology is there. So, what we are really doing in the bill is we are saying that the same CWIP that is available to windmills, solar, coal and every other form [of generation] will be available to gas, whether it is replacing a coal fired facility or new construction.”

Utility representatives said the bill would help encourage the construction of new power plants, which would, in turn, improve electrical grid reliability.

“Natural gas has attributes that allow it to be called upon to ramp up and ramp down quickly, and Indiana also has a robust network of natural gas pipelines to support future projects. Plus, natural gas serves as a complement to renewables which we know are lower cost but intermittent,” testified Danielle McGrath, president of the Indiana Energy Association, which represents 14 investor-owned utilities.

Recent major outages have put the reliability of natural gas resources in question, as multiple failures at the plants across several grids left hundreds of thousands of people without power during one of the coldest weather events of the year and pushed the grid serving Indiana to its limit.

Certain safeguards caused the grid serving most of Indiana to bend but not break, but not before the weaknesses of natural gas plants were exposed.

The PJM Interconnection, which provides electricity to eastern Indiana, 12 other states and the District of Columbia, faces up to $2 billion in penalties after natural gas plants owned by member utilities, like Duke Energy, faced outages and startup failures around Christmas due to problems like bad equipment and an inadequate fuel supply. More than 23% of the grid’s total capacity was knocked out by Christmas Eve.

Similar natural gas plant outages happened at utilities that are part of the Tennessee Valley Authority, the Electric Reliability Council of Texas and the Northeast Power Coordinating Council.

The outages led to the North American Electric Reliability Corp., the organization that oversees electrical grid operations in the U.S., to declare a level two energy emergency requiring all power stations to ramp up energy production and manage where the electricity is sent.

The Midcontinent Independent System Operator, the electrical grid managing the supply of electricity to most of Indiana and 14 other states and a Canadian province, ordered “conservative operations” for many MISO regions Dec. 23.

Critics of the bill have questioned how HB1421 would affect the hundreds of thousands of Hoosiers already facing energy insecurity.

According to the latest data provided by the five largest electric utilities to the Indiana Office of Utility Consumer Counselor, at least 250,000 Hoosiers are behind on their monthly electric payment and more than 208,000 have been sent disconnection notices.

Part of the problem is a rise in natural gas prices, which have reached a 14-year high. Most major electric utilities have asked the IURC to raise rates in order to compensate for those prices.

Citizens Action Coalition executive director Kerwin Olson said the bill would expand a troubling funding tool that makes ratepayers involuntary financiers giving utilities interest-free loans at their expense.

‘Utilities are financially healthy, and can access capital and debt a lot cheaper than consumers can. And we urge you, 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,” Olson testified.

McGrath said the bill could help avoid rate shock by having customers pay for the utility project gradually.

“The project is going to result in a rate increase one way or another. The question is when that happens is it through CWIP or is it through [alternate financing option Allowance for Funds Used During Construction] after the fact,” McGrath testified. “With CWIP, you’re paying earlier as opposed to later which is much smoother over time. Whereas with AFUDC, [rates are] flat. Once project is then in service it jumps back up again, and you’re actually paying a higher rate base.”

The bill passed the committee 8 to 3. It now heads to the full Indiana House of Representatives for consideration.

Utilities Could Charge Customers for New Natural Gas Plants During Construction Under New Bill