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NIPSCO wants to greatly reduce what its five largest customers pay for power while increasing residential fees.
The Northern Indiana Public Service Company (NIPSCO) plans to close two coal-fired power plants, R.M. Schahfer in Wheatfield and Michigan City in Northwest Indiana, within a decade.
Clean energy advocates have largely applauded the utility’s decision, which will mean cleaner air and ratepayer savings of about $4 billion, according to the company. A related move by the company is drawing criticism, though.
NIPSCO is proposing to greatly decrease the amount paid by its five largest customers — including steel mills and an oil refinery — in a bid to dissuade them from developing their own generation and curbing their reliance on NIPSCO.
In a rate case currently before the state’s Public Utility Commission, NIPSCO proposes to significantly reduce the amount these large industrial customers pay for fixed costs including upkeep of the grid and depreciation costs associated with the coal plants’ closing. That means more of the burden will fall on regular customers and smaller businesses.
In expert testimony filed for the Citizens Action Coalition, consultant Jonathan Wallach said the large industrials would see their fixed costs drop by about 60 percent thanks to the new structure. In all, $67 million to $80 million worth of the utility’s cost recovery would be shifted from large industrial to smaller customers, estimated Wallach, vice president of Massachusetts-based Resource Insight, Inc. NIPSCO itself estimated that $40 million worth of costs would be shifted.
Coalition Executive Director Kerwin Olson said he finds the request to reduce large customers’ fixed costs ironic, since NIPSCO like other utilities has argued that customers reducing their energy demand through distributed solar are not paying their fair share to keep up the grid. As Olson sees it, the cost shift would mean the large industrial customers would not be doing their part for grid upkeep.
“We want to do what we can to support NIPSCO’s clean energy transition,” Olson said. “We didn’t say no cost shift; we basically said it’s not fair the industrials aren’t paying their fair share, and it’s not fair every other rate class gets an increase and industrials get a decrease. We’re trying to find a middle ground.”
Fleeing the system?
The BP Whiting oil refinery in Northwest Indiana a decade ago bought its own natural gas combined cycle co-generation plant, capable of generating 525 megawatts by reusing waste heat.
“If the other large industrial customers were to follow suit and generate their own energy, it would mean that nearly all of their costs would need to be spread among all other remaining customers — including both commercial and residential,” said NIPSCO spokesperson Nick Meyer.
“Instead of this potential future scenario, NIPSCO has proposed a rate structure that maintains industrial competitiveness, keeping these employers and their jobs in northwest Indiana, and keeping a portion of their usage tied to NIPSCO’s system as a way to help reduce the cost burden on all other customers.”
Meyer said the five large industrial customers that would be affected by the proposed cost shift are BP along with steel operations US Steel Gary Works, ArcelorMittal and NLMK, and industrial gases company Praxair.
“NIPSCO’s five largest industrial customers have historically accounted for approximately 40 percent of NIPSCO’s energy sales and have covered a significant portion of the overall fixed costs associated with producing and delivering electricity to nearly half a million customers,” Meyer said. “They face global competition and it’s imperative that they’re not paying for more of the system costs than what is tied to serving them.”
Olson said the utility is offering the industrial customers a deal that is unfairly sweet.
“What they’re effectively doing is giving those industrial customers a deregulated marketplace,” he said.
“This is classic deregulation stuff — industrials leave the grid to procure their own energy yet don’t have to contribute to the ongoing costs of assets — power plants — that were put into place to serve them. They shouldn’t just be able to say, ‘We’re not paying for that anymore, we’re doing our own thing.’ It’s like having a mortgage on a house — you move out of your house and the mortgage isn’t paid, you still have to pay that mortgage.”
Fixed cost increase
Under NIPSCO’s proposal, residents would also face a monthly fixed cost increase from about $14 to $17. Citizens Action Coalition is proposing the cost be lowered to $12.55 per month.
“If usage-driven costs are inappropriately collected through fixed customer charges, then customers will have reduced incentives to control their bills through conservation or investments in energy efficiency or distributed renewable generation,” Wallach testified.
Meyer indicated that the increase might entail switching payments from another part of the bill into the fixed cost charge, giving customers “a clearer picture of how energy use affects their bill.”
“Additionally, increasing the customer charge further stabilizes customer bills throughout the year, especially during the summer, when electric bills are typically higher because of warmer temperatures and increased usage,” she said.
The coalition also filed expert testimony from John Howat, a senior policy analyst at the National Consumer Law Center, calling for more programs to help low-income customers. He wrote that the federal Low Income Home Energy Assistance Program is not adequate as evidenced by the fact that between 2013 and 2018, up to a third of residents with the aid had their electricity disconnected.
Howat estimated that given the cost of living, one would need to earn almost double the poverty-level wage to live in NIPSCO service territory. More than a quarter of families are not earning that much, he testified, and “low-income households must devote a higher proportion of total household income to basic home electricity service than their higher-income counterparts.”
A full-time worker earning minimum wage would spend 7.5 percent of their wages on electricity, Howat reported, while a household making over $100,000 would spend only 1.2 percent of their income on electricity.
“We’re not talking about video games, we’re talking about electricity to heat and cool your home and take a hot shower,” Olson said. “Just simply put, access to electricity in one’s home is a necessary and essential human service, in order for folks to participate in society in a meaningful way.”