Electric Rates:

A Rising Cost Environment

Tim Rushenberg, Vice President

State Chamber of Commerce RoundtableEnergy and Environmental Issues

June 5, 2015

2

Outline

• Indiana Utilities

• State Overviews: Electricity Generation by

Source

• Regulatory Process & Oversight

• Price Comparisons

• Why are electricity costs increasing?

• Steps utilities are taking to keep costs low

• What does the future hold?

Indiana Investor-Owned Utilities

5

Information on Indiana’s Investor-Owned

UtilitiesI&M serves 459,000 customers and has approximately 1,050 employees in Indiana.

Duke Energy Indiana supplies electric services to 800,000 customers, with roughly 2,500 employees and contractors.

IPL provides retail electric service to more than 470,000 customers, with nearly 1,500 employees.

NIPSCO provides electric service to 468,000 customers, and 821,000 natural gas customers, and employs 2,900 people.Vectren serves 142,000 electric customers and 995,000 natural gas customers, and employs 1,900 people in Indiana and Ohio.

*Note that all of the utilities use employees from other states, and other corporate structures as well.

State Overviews: Electricity Generation by Source

7

Indiana

8

Illinois

9

Ohio

10

Michigan

11

Kentucky

12

Pennsylvania

13

West Virginia

Regulatory Process & Oversight

• Indiana Utility Regulatory Commission (IURC) regulates utilities and sets rates after scrutinizing costs

• Only costs found reasonable are allowed to be included in approved rates

• Costs are reviewed and rates set in either general base rate cases or tracker proceedings

• Customer bills only cover the reasonable cost of service regardless of whether recovered through approved base rates or trackers/riders

Indiana: Utility Rates are Set by State

• A tracker or rider is regulatory rate adjustment mechanism that allows utility to recover specific costs (or credit specific revenues) on timely basis outside of general rate case, subject to IURC review and approval

• Interested parties have opportunity to participate in tracker proceedings before IURC – both initial tracker approval cases as well as periodic rate adjustment cases

• Does not allow utility to recover costs that it would not be entitled to request through general rate case

Tracker Process & Oversight

Electric Tracker ExamplesIndiana: Fuel Costs, Pollution Control, DSM/EE, RTO, Infrastructure (TDSIC)

Illinois: Hazardous Materials Mitigation, Advanced Metering Infrastructure System Modernization

Michigan: Nuclear Decommissioning Surcharge, Franchise Fees

Kentucky: Decoupling/Weather Normalization

Pennsylvania: Smart meter, Distribution System ImprovementCharge

West Virginia: Transmission costs

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• States that authorize more than 7 electric trackers have lower industrial rates, on average, than states with less than 7 trackers

• Restructured states, like Texas (17) and Illinois (10), authorize nearly as many or more trackers than Indiana (11)

• Minnesota authorizes most trackers (18)

Price Comparisons

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Indiana

Indiana Electricity Price Comparisons: All Sectors

(March 2014-March 2015)

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Illinois

Illinois Electricity Price Comparisons: All Sectors

(March 2014-March 2015)

25

Ohio

Ohio Electricity Price Comparisons: All Sectors

(March 2014-March 2015)

27

Michigan

Michigan Electricity Price Comparisons: All Sectors

(March 2014-March 2015)

29

Kentucky

Kentucky Electricity Price Comparisons: All Sectors

(March 2014-March 2015)

31

Pennsylvania

Pennsylvania Electricity Price Comparisons:

All Sectors (March 2014-March 2015)

33

West Virginia

West Virginia Electricity Price Comparisons:

All Sectors (March 2014-March 2015)

Rankings of Industrial Prices per KWh for March 2015

5. Kentucky

17. West Virginia

24. Indiana

25. Ohio

27. Illinois

29. Michigan

35. Pennsylvania

Rankings of Industrial Prices per KWh for 2014

4. Kentucky

6. West Virginia

15. Illinois

22. Ohio

26. Indiana

33. Pennsylvania

36. Michigan

Illinois = +19.97%

Ohio = +13.32%

Pennsylvania =

+11.33%

Indiana = +4.31%

West Virginia = -

2.29%

Kentucky = -2.80%

Michigan = -3.65%

Industrial Rates: Percent Change

January 2013 to March 2015

Rankings of Commercial Prices per KWh for March 2015

13. West Virginia

19. Illinois

21. Kentucky

22. Indiana

27. Pennsylvania

30. Ohio

34. Michigan

Rankings of Commercial Prices per KWh for 2014

3. West Virginia

10. Illinois

19. Kentucky

23. Pennsylvania

24. Ohio

25. Indiana

38. Michigan

Illinois = +17.22%

Ohio = +9.46%

Kentucky = +6.84%

West Virginia =

+6.22%

Indiana = +2.98%

Pennsylvania =

+0.60

Michigan = -0.86%

Commercial Rates: Percent Change

January 2013 to March 2015

Why are Electricity Costs Increasing?

“Electric bills have skyrocketed in the last five years, a

sharp reversal from a quarter-century when Americans

enjoyed stable power bills even as they used more

electricity.” – USA Today (Dec 13, 2011)

“A plunge in the price of natural gas has made it

cheaper for utilities to produce electricity. But the

savings aren't translating to lower rates for customers.

Instead, U.S. electricity prices are going up.” –

Huffington Post (Jul 11, 2012)

“…electricity prices are rising faster than disposable

income, which historically has not been the case.” –

Forbes (Oct 16, 2014)

Rising Rates: A National Problem

“Indiana’s use of coal as a fuel source

for electricity generation has

contributed to the state’s relatively low

cost electricity, historically an

important economic development

advantage. However, investment costs

to address environmental mandates, the

general trend of increased coal prices

observed since 2003, and decreased

natural gas prices since 2011 have

reduced Indiana’s relative price

advantage.” – IURC, 2014 Annual

Report

Indiana is Competitive, but…

• ~80% of Indiana’s electricity is generated

from coal

• Rising coal prices

• EPA mandates over last 10 years – $4B+

spent on compliance

• Retiring old power plants and building new

capacity

• Investment in transmission & distribution

systems

• DSM/EE, RTO costs, NERC (grid reliability

costs)

• High taxes – Indiana taxes utilities twice +

property taxes

Reasons for Increased Rates in Indiana

Steps Utilities are Taking to Keep Costs Down

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• LEAN initiatives to increase workforce productivity

• Proactively created alternative

environmental upgrade at power plant that saved over one billion dollars and met with EPA’s approval

• Extending life of low cost, emission-free power plant to ensure it will be able to continue to serve customers

Keeping Costs Down to Keep Indiana Competitive

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• Developed plan for coal to natural gas conversion that, if approved, will significantly decrease capital costs to comply with MATS, NPDES and other future environmental mandates

• Submitted comments to EPA on “Clean Power Plan”

o National climate policy should be set through federal legislation, not rulemaking

o Studies show increase in electric rates for Indiana could be 12%-20%

o There are questions as to legal authority of EPA to regulate carbon emissions from existing power plants

Keeping Costs Down to Keep Indiana Competitive

What Does the Future Hold?

Concerns• MATS, Ozone, Clean Power Plan – serious grid

reliability concerns

• “Over the next 15 years, the state’s electricity demand

is forecasted to slowly increase, with many aging coal-

fired units facing retirement or premature shutdown

due to tightening environmental regulations.” – IURC,

2014 Annual Report

• “EPA’s plan to further regulate electricity from power

plants may lead to higher costs of electricity to large

industrial customers like steel, while potentially

lessening the quality and reliability of the electric

supply that is essential for our industry to operate and

succeed.” - American Iron and Steel Institute

Comments to EPA (Dec 1, 2014)

Questions?Tim Rushenberg, Vice President, IEA

Office: (317) 632-4406