Testimony of Cynthia M. Armstrong Has Been Served Upon the Following Parties of Record in the Captioned Proceeding by Electronic Service on June 28, 2021
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STATE OF INDIANA INDIANA UTILITY REGULATORY COMMISSION VERIFIED PETITION OF INDIANAPOLIS POWER & ) LIGHT COMPANY D/B/A/ AES INDIANA FOR ) APPROVALS AND COST RECOVERY ASSOCIATED ) WITH THE RETIREMENT OF PETERSBURG UNITS 1 ) AND 2, INCLUDING: (1) APPROVAL OF IPL’S ) CREATION OF REGULATORY ASSETS FOR THE ) NET BOOK VALUE OF PETERSBURG UNITS 1 AND 2 ) CAUSE NO. 45502 UPON RETIREMENT; (2) AMORTIZATION OF THE ) REGULATORY ASSETS BASED UPON THE ) COMPANY’S DEPRECIATION RATES; AND (3) ) RECOVERY OF THE REGULATORY ASSETS ) THROUGH INCLUSION IN AES INDIANA’S RATE ) BASE AND ONGOING AMORTIZATION IN AES ) INDIANA’S FUTURE RATE CASES. ) INDIANA OFFICE OF UTILITY CONSUMER COUNSELOR TESTIMONY OF CYNTHIA M. ARMSTRONG - PUBLIC’S EXHIBIT NO. 2 JUNE 28, 2021 Respectfully submitted, Lorraine Hitz Attorney No. 18006-29 Deputy Consumer Counselor Public’s Exhibit No. 2 Cause No. 45502 Page 1 of 15 TESTIMONY OF OUCC WITNESS CYNTHIA M. ARMSTRONG CAUSE NO. 45502 INDIANAPOLIS POWER & LIGHT COMPANY D/B/A AES INDIANA I. INTRODUCTION 1 Q: Please state your name and business address. 2 A: My name is Cynthia M. Armstrong, and my business address is 115 W. Washington 3 St., Suite 1500 South, Indianapolis, IN, 46204. 4 Q: By whom are you employed and in what capacity? 5 A: I am employed as a Senior Utility Analyst in the Electric Division for the Indiana 6 Office of Utility Consumer Counselor (“OUCC”). A summary of my qualifications 7 can be found in Appendix A. 8 Q: Briefly summarize Indianapolis Power and Light Company’s request in this 9 proceeding. 10 A: Indianapolis Power and Light Company d/b/a AES Indiana (“IPL” or “AES 11 Indiana”) intends to retire Petersburg Units 1 and 2 in 2021 and 2023, respectively. 12 These dates are much earlier than the estimated retirement dates IPL identified for 13 the Petersburg Generating Station in its last depreciation study in Cause No. 14 45029.1 The updated accelerated retirement dates are based on IPL’s 2019 15 Integrated Resource Plan (“IRP”) Short-Term Action Plan. Due to earlier 16 retirement dates, Petersburg Units 1 and 2 will not be fully depreciated when 17 retired. Therefore, AES Indiana requests authority to create a regulatory asset for 1 The depreciation study in Cause No. 45029 assumed a 2042 retirement date for both Petersburg Units 1 and 2 (Cause No. 45029, Direct Testimony of IPL witness John J. Spanos, JJS Attachment 1, p. 37), and IPL’s 2016 IRP assumed a 2032 retirement date for Petersburg Unit 1 and a 2034 retirement date for Petersburg Unit 2 (IPL’s 2016 IRP, Volume 1, p. 63). Public’s Exhibit No. 2 Cause No. 45502 Page 2 of 15 1 the remaining net book value of Petersburg Units 1 and 2 upon their retirement, 2 amortization of the regulatory assets based on the depreciation rates approved in 3 Cause No. 45029, and to recover the regulatory assets through inclusion in rate base 4 in a future AES Indiana base rate case. 5 Q: What is the purpose of your testimony in this proceeding? 6 A: I discuss the Consent Decree IPL entered into with the U.S. Department of Justice 7 (“DOJ”), U.S. Environmental Protection Agency (“EPA”), and Indiana Department 8 Environmental Management (“IDEM”) to settle alleged New Source Review 9 (“NSR”) and emission violations occurring at the Petersburg Generating Station. I 10 explain how IPL’s past management decisions regarding Petersburg’s operation 11 and compliance with environmental laws have contributed to the current decision 12 to retire Petersburg Units 1 and 2 with a significant investment remaining to be 13 recovered from ratepayers.2 I support OUCC witness Wes R. Blakley’s 14 recommendations regarding AES Indiana’s requested accounting treatment for the 15 early retirement of Petersburg Units 1 and 2. 16 Q: How did you evaluate issues presented in this Cause? 17 A: I reviewed AES Indiana’s verified petition, pre-filed direct testimony, and 18 responses to OUCC discovery requests. I reviewed the Consent Decree, the Notice 19 of Violations (“NOVs”) relevant to the Consent Decree, and other documents 20 relevant to the Consent Decree. I also reviewed past Certificate of Public 21 Convenience and Necessity (“CPCN”) cases where IPL requested Commission 2 Please note that since Indianapolis Power and Light announced its name change to AES Indiana on February 24, 2021, I use both names interchangeably as most of the activities I describe occurred prior to that date. Public’s Exhibit No. 2 Cause No. 45502 Page 3 of 15 1 authority to install pollution control equipment on the Petersburg units to comply 2 with environmental regulations. II. IMPACTS OF THE CONSENT DECREE 3 Q: AES Indiana relies on its 2019 IRP Short-Term Action Plan as the basis for 4 changes in planned retirement dates for Petersburg Units 1 and 2 and its 5 associated request in this case. Is this the only factor contributing to its 6 decision to retire these units earlier than expected? 7 A: No. It is accurate that IPL’s preferred resource portfolio in its 2019 IRP included 8 retiring Peterburg Unit 1 in 2021 and Petersburg Unit 2 in 2023. However, the 9 Consent Decree IPL entered into with the DOJ, EPA, and IDEM to settle claims 10 IPL violated various provisions of the Clean Air Act (“CAA”) also contributes to 11 retiring these units early. Although settlement discussions were continuing with the 12 EPA and IDEM during the 2019 IRP development process, IPL included estimated 13 costs of complying with the Consent Decree in the candidate resource portfolios 14 evaluated in the IRP model.3 While the Consent Decree’s costs were not the sole 15 reason IPL selected the resource portfolio which retires Petersburg Units 1 and 2 16 by 2023, the Consent Decree burdens the Petersburg Generating Station with 17 additional costs should IPL keep these units operational. As the memorandum the 18 DOJ and State of Indiana filed on behalf of the EPA and IDEM in support of the 19 Consent Decree notes, there is no obligation for IPL to follow through with its 20 announced retirements without the Consent Decree.4 21 Q: Please describe the Consent Decree. 3 OUCC Attachment CMA-1, AES Indiana’s Response to OUCC Data Requests 1-8 through 1-11. 4 OUCC Attachment CMA-1. Public’s Exhibit No. 2 Cause No. 45502 Page 4 of 15 1 A: On August 31, 2020, the DOJ, EPA, IDEM, and IPL announced an agreement to 2 settle claims IPL violated NSR, New Source Performance Standards, Indiana’s 3 State Implementation Plan (“SIP”), and its Title V Operating Permit at the 4 Petersburg Generating Station.5 The Consent Decree acknowledges IPL denies the 5 alleged violations but agrees to the Consent Decree’s obligations to avoid litigation 6 costs and uncertainties. 7 The Consent Decree requires IPL to commit to activities at the Petersburg 8 Generating Station to reduce NOx, SO2, sulfuric acid, and particulate matter 9 (“PM”) emissions.6 IPL must take the following actions, including: 10 • Installing Selective Non-Catalytic Reduction (“SNCR”) on Petersburg Unit 11 4 or retiring Petersburg Units 1 and 2 by July 1, 2023. 12 • Continuously operating Selective Catalytic Reduction (“SCR”) systems, 13 other NOx controls, Flue Gas Desulfurization (“FGD”) systems, baghouses, 14 electrostatic precipitators, and sulfuric acid mitigation systems already 15 installed at the facility. 16 • Meeting specified unit emission rates for NOx, SO2, PM, and sulfuric acid 17 emissions by certain dates. These emission rates coincide with any 18 additional pollution controls the Consent Decree requires. 19 • Meeting plantwide annual tonnage emission limits on SO2 and NOx 20 emissions. 21 • Surrendering any excess emission allowances attributable to the compliance 22 activities the Consent Decree requires. 5 U.S. EPA Press Office. (8/31/2020) United States Agrees with Power and Light Company to Resolve Alleged Violations of the Clean Air Act. https://www.epa.gov/newsreleases/united-states-agrees-power-and- light-company-resolve-alleged-violations-clean-air-act. 6 United States v. Indianapolis Power & Light Company, Civil Action No. 3:20-cv-202-RLY-MPB. Consent Decree. https://www.epa.gov/sites/production/files/2020-09/documents/indianapolispowerlight-cd.pdf Public’s Exhibit No. 2 Cause No. 45502 Page 5 of 15 1 • Completing an environmental mitigation project to construct and operate a 2 3 MW solar facility on the Petersburg site. IPL is not obligated to spend 3 more than $5.0 million on this project. 4 • Spending $325,000 on a state-only environmentally beneficial project 5 involving the acquisition and donation of ecologically-significant land 6 bordering or contiguous to the Patoka National Wildlife Refuge. 7 • Paying a $1.525 million civil penalty. The U.S. will receive $925,000 and 8 the State of Indiana will receive $600,000 of this penalty. 9 Q: Does the Consent Decree allow for alternatives to shutting down Petersburg 10 Units 1 and 2? 11 A: Yes. As mentioned previously, AES Indiana can also comply with the Consent 12 Decree by installing SNCR on Petersburg Unit 4 by July 1, 2023. However, the 13 lead time necessary for IPL to obtain the necessary regulatory approvals, design 14 and construct the project, and complete testing to determine the reagent levels 15 necessary to meet the more stringent Consent Decree NOx limits makes executing 16 this option by July 2023 incredibly difficult. 17 Q: Please summarize the events leading to the Consent Decree. 18 A: OUCC Attachment CMA-2 provides a timeline of events relevant to the Consent 19 Decree. In 2009, the EPA issued an NOV to IPL stating it violated NSR when it 20 failed to obtain Non-attainment New Source Review (“NNSR”) and Prevention of 21 Significant Deterioration pre-construction permits prior to undertaking major 22 replacements and upgrades of equipment at the Eagle Valley, Harding Street, and 23 Petersburg Generating Stations.