Indiana Utility Regulators Reach Deal With Duke Energy That Screws Ratepayers, No Surprise

Duke Energy carried on construction of its coal gasification plant at Edwardsport with the same reckless abandon that its predecessor, PSI, carried on its construction of the Marble Hill Nuclear Power plant in Madison back in the 1970s. Who gives a shit how much it costs to pay when we've got the regulators in our back pocket who will agree to pass on any cost overruns to consumers. When the company first obtained the IURC's approval for the project a few years ago, it claimed it would cost $1.985 billion. The costs have now soared to at least $3.3 billion. The IURC thinks consumers should be happy with a deal that only requires them to pay about half of the cost overruns, while the other half is to be absorbed by Duke Energy's shareholders. Utility rates will be hiked 14.5% over two years instead of the 22% rate increase Duke was seeking and for which it had initially received thumbs up from the IURC's former general counsel and administrative law judge, Scott Storms, shortly before he was hired by the utility and later fired after e-mails obtained by the Star revealed a too cozy relationship that existed between IURC officials and Duke executives. The IBJ has this reaction from Kerwin Olson, a consumer watchdog:

Kerwin Olson, executive director of the Citizen Action Coalition, said the settlement came as a shock to him. He said the power plant should never have been approved.

"The settlement on the surface appears to give Duke Energy far too much. The terms appear to be completely unacceptable to CAC," he said.

The deal has been signed off on by the Office of Utility Consumer Counselor, which never really seems to represent the interest of consumers. Most of the people who hold key positions in the office wind up going to work for the same utilities they're hired to serve as a check on, which should tell you something about the office's credibility in these matters. Duke Energy's Indiana President's reaction was predictable:

Duke Energy Indiana President Doug Esamann says the agreement meets two objectives, reducing what Indiana customers will pay in rates and resolving uncertainty for Duke Energy shareholders.

"We're now in the home stretch of completing a facility that will modernize our electric system and provide Indiana with cleaner power to meet increasingly strict federal environmental regulations," he said.

The operative objective here was to resolve uncertainty for Duke's shareholders. The deal does little to alleviate the higher cost of electricity that the company is being allowed to pass on to consumers under this agreement. Nothing at all has changed at the most corrupt public utility regulator in the country. It's nothing but a glorified auction to line the pockets of the utility industry.

The comparisons between this Edwardsport project and the failed Marble Hill nuclear power plant project are too eerie. Duke's predecessor, PSI, originally told state regulators the plant would cost about $1 billion to build when it obtained approval for it in the 1970s. After the company spent $2.8 billion and construction was about 60% complete, the company abandoned the project in 1984. Under the deal state regulators struck with Duke for the Edwardsport project, construction costs paid by consumers will be capped at $2.6 billion, or about $700 million less than the anticipated $3.3 billion cost. If the past is any indication, there will be a lot more to this story before it finally ends, none of which will likely be good news for the utility's consumers.

Former IURC Chairman Indicted For Official Misconduct

Marion Co. Prosecutor Terry Curry today announced that a grand jury his office convened has returned three counts of official misconduct against former IURC Chairman, David Hardy, for his role in permitting the agency's former general counsel, Scott Storms, to accept a new position at Duke Energy despite Storms' direct role in deciding matters Duke Energy had pending before the Commission. The Star's John Russell details the three counts of the indictment:

The first count of the indictment accuses Hardy of knowingly aiding and abetting Storms by communicating with employees of Duke Energy regarding Storms' prospective employment while allowing Storms to continue to participate in proceedings involving the utility.

The second count accuses Hardy of failing to disclose a secret, ex parte communication with Duke Energy that occurred on March 17, 2008 with an employee of Duke concerning cost overruns at the utility's Edwardsport coal-gasification plant.

The third count accuses Hardy of failing to disclose a secret, ex parte communication with Duke Energy that occurred on Feb. 24, 2010, concerning cost overruns at the Edwardsport power plant.

Gov. Mitch Daniels fired Hardy last year after the Star began an investigative series that detailed numerous e-mail communications between Hardy and Storms with Duke Energy officials concerning the hiring of Storms by the giant energy company. Duke later fired Storms and two other high-ranking officials at the company instrumental in Storms' hiring. According to the Star, even Gov. Mitch Daniels may be guilty of having inappropriate meetings with Duke's CEO, Jim Rogers, discussing cost over-run problems with construction of its Edwardsport plant.

Each count of official misconduct against Hardy represents a Class D felony under I.C. 35-44-1-2, which reads:

Sec. 2. A public servant who knowingly or intentionally:


(1) commits an offense in the performance of the public servant's official duties;

(2) solicits, accepts, or agrees to accept from an appointee or employee any property other than what the public servant is authorized by law to accept as a condition of continued employment;

(3) acquires or divests himself or herself of a pecuniary interest in any property, transaction, or enterprise or aids another person to do so based on information obtained by virtue of the public servant's office that official action that has not been made public is contemplated; or

(4) fails to deliver public records and property in the public servant's custody to the public servant's successor in office when that successor qualifies;

commits official misconduct, a Class D felony.

Hardy is unlikely to face much jail time, if any, if he is found guilty of the charges because he has no prior criminal record. Surprisingly, this statute is used very little by prosecutors in Indiana to punish public officials who betray the public's trust.

IURC Gives Green Light To Deal To Benefit Daniels Crony

A coal gasification deal hatched in order to make millions of dollars for Gov. Mitch Daniels' long-time political crony, Mark Lubbers, and his business associates at the expense of Indiana utility consumers was given the green light by members of the IURC appointed by Daniels to make that decision. Proving just how stupid Gov. Daniels thinks the public is, he claims the deal locks in low gas rates for 1.5 million users when it in fact guarantees the company run by his crony is guaranteed a rate for the natural gas his company produces at nearly double the current market rate for decades to come. The Star's John Russell reports on the latest decision that demonstrates that the IURC panel is nothing but stooges doing the bidding for governor's political cronies.

Gov. Mitch Daniels says it's a smart way to lock in low rates for Indiana's 1.5 million natural gas customers.

Indiana utilities and consumer advocates have warned it's a risky gamble that could backfire, forcing up monthly gas bills.

Smart or risky, a plan championed by Daniels to build a $2.65 billion coal-gasification plant on the Ohio River in southwestern Indiana has taken a big step toward reality.

On Tuesday, the Indiana Utility Regulatory Commission approved the project's most controversial aspect: a 30-year contract for the state to buy synthetic gas from the plant.

The Indiana Finance Authority will spend about $7 billion over three decades to buy synthetic gas from Indiana Gasification LLC.

The state agency would resell the gas on the national market.

Selling the gas at a profit would lower monthly bills for gas customers in the state. But selling at a loss would lead to higher bills . . .

Several Indiana utilities took a look at the project several years ago and balked at the idea of signing long-term orders with the plant. Without their support, banks would not finance the project. That prompted Daniels to get the state involved as a financial middleman.

Indiana Gasification is owned by New York investor Leucadia Corp., whose top Indiana executive is former Daniels chief of staff Mark Lubbers.

Under the plan, the Rockport gasification plant would take in 3.2 million tons of coal each year, produce 47 million BTUs of natural gas and sell 38 million of those BTUs at a firm price to the Indiana Finance Authority every year for 30 years. The state agency would resell the gas daily on the national market  . . .

The risk for Indiana consumers is in the firm price. In sales on the open market, gas prices routinely rise or fall every day with supply and demand.

But the Rockport investors always would receive from the state a firm payment: about $7.57 per 1 million BTUs, or about $7 billion over 30 years. This would cover plant operations, coal costs, shipping the natural gas and loan repayments, plus a small profit of about 5 percent on the $500 million the investors plan to spend on the plant.

On Tuesday, natural gas futures were trading for $3.39 per 1 million BTUs, or less than half the price built into the state's model.

Nevertheless, the Indiana Finance Authority has projected that the project could cut the monthly bill for the average home by 71 cents. That would add up to savings for the typical home of $255.60 over 30 years, which means the gas-burning residents of the state altogether would save about $8.5 million per year.

Yep, this deal demonstrates how a man like Mark Lubbers, who has absolutely no background in public utilities or natural gas, can be tapped to run a company because he had the political muscle to convince Gov. Daniels to risk totally screwing over Indiana utility ratepayers in order to make his long-time political crony a multi-millionaire. Lubbers saw how much money rent-a-civic leader Jim Morris made off of his Indianapolis Water Company antics and wanted his piece of the political pie. Two of Daniels' five IURC members couldn't even cast votes on the deal because of their conflicts of interest.

Two of the five commissioners on the IURC, Kari Evans Bennett and Carolene Mays, have recused themselves from the Rockport matter. Bennett came to the IURC in January from Barnes and Thornburg, a law firm representing Vectren in the Rockport case. Vectren is on the record opposing the Rockport project. Mays is related to a Vectren director.

The IURC's three remaining commissioners -- James Atterholt, Larry Landis and David Ziegner -- voted for the project. All five commissioners were appointed or reappointed by Daniels.

Like I've said before, Indiana has the most corrupt public utility commission in the country. It's nothing but an auction run to line the pockets of the political cronies of whoever is running the state at the time. If the Public Integrity Section of the Justice Department was doing its job, it would have long ago assembled a team of investigators to unravel all of the shenanigans that have been going on at this state agency for decades regardless of which political party is in charge of the governor's office.

As for those 200 miners Daniels says will be put to work because of this deal, keep an eye on that claim. I'm told if Leucadia is looking to operate this new plant efficiently, it won't be buying Indiana coal because of the higher costs associated with using it to produce natural gas. Just a small detail I realize.

State Ethics Commission Hammers Former IURC Counsel

The Indiana Ethics Commission has imposed a fine of $12,120 on former IURC general counsel Scott Storms and barred him from future state employment after he negotiated and accepted a job with Duke while he was serving as an administrative law judge on a case pertaining to the utility giant. Storms' annual salary jumped from $93,000 to $135,000 after he began his job with Duke last September. He was fired by Duke in mid-December after the IURC and Duke came under fire for the hiring of Storms. The fine represented three times the salary gain Storms realized during his short period of employment by Duke. The Commission found Storms had violated Indiana law by serving as administrative law judge in the Duke Edwardsport plant case and Duke Smart Grid case while he had a financial interest in his prospective employment with the utility company. The Commission also found that Storms violated Indiana law by failing to notify the IURC of his potential conflict, or to seek an advisory opinion from the Commission related to his further participation in the case.

Ironically, the same Commission okayed his employment by Duke within the one-year cooling off period for former employees with the knowledge he had served as an ALJ in those same Duke cases. From its opinion last September giving the green light to Storms' employment by Duke:

This provision would not be triggered by Mr. Storms' work at the IURC as he was neither a commissioner nor a voting member of the regulatory body that may have made license or permit decisions regarding Duke." 

The ethics panel added that Storms would be prohibited from representing or assisting Duke on any matter in which he was "personally or substantially involved as a regulator." Those include several cases involving the Edwardsport plant and Duke's "smart grid."

Imagine if you sought the government's permission to do something before you did it. The government says, yeah, go ahead. A few months later after the proverbial shit hits the fan the government comes back and says we didn't get all the facts nailed down before we gave you approval to do that. We now find you violated the law and you must pay us a hefty fine. I don't have a lot of sympathy for Storms, but I don't have a lot of respect for the Commission's handling of his case. It looks like the Commission is simply punishing Storms now for making it look even more foolish than what it looked when it first signed off on his employment by Duke last September.

Duke's Rogers: Worried Hiring IURC's Storms Was "A Bridge Too Far"

John Russell's excellent reporting at the Star of the cozy relationship between regulators at the Indiana Utility Regulatory Commission and Duke Energy's top executives continues today. He has more e-mails of discussions that eventually led Duke to offer the IURC's general counsel, Scott Storms, a job working for another former IURC official, Michael Reed, the company's Indiana head. In one e-mail, Duke CEO Jim Rogers worried that hiring Storms was "a bridge too far", but the view of other Duke officials that former IURC Chairman David Hardy would be offended if a job was not extended to Storms, which exemplifies the extent of the perversion in the relationship between the regulator and regulated, ultimately prevailed in spite of the risks.

When the chairman of Duke Energy Corp., the largest utility serving Indiana, was asked last summer by a subordinate for permission to hire the top lawyer at the Indiana Utility Regulatory Commission, he expressed misgivings.


"It bothers me but I don't know why," James Rogers, the chairman and chief executive, wrote in an email on July 26 to James Turner, a Duke vice president. "(It) feels like a bad move at this time."

Rogers suggested the move could raise criticisms of a revolving door, coming so closely on the heels of Duke's hiring of another former IURC official, Michael Reed. It is "a bridge too far," Rogers wrote . . .

But [Kelley] Karn was in a bind. Hiring Storms might set off criticism from consumer groups. But not hiring him, she seemed to feel, could upset Hardy, the powerful chairman of the IURC.


Karn turned to her boss at Duke's corporate headquarters in Charlotte, N.C., for guidance. "This could all blow up with Hardy being mad that we won't hire Scott," she wrote in an email July 1 to her boss, Catherine Stempien, senior vice president for legal services. "I'm really not sure how to get out of this mess." . . .

Of particular concern to Gov. Mitch Daniels and the impact on his potential presidential run are e-mails that firmly establish his personal legal counsel was aware of Storm's potential hiring and supported the move.

On the same day, Turner seemed to pick up an important ally in the Statehouse: David Pippen, general counsel to Daniels. Turner sent an email to Rogers on July 26, saying he had "just talked with Pippen" and it would "be fine" to move forward with discussions on Storms.


"I was pleasantly surprised by how positive and supportive the gov's chief counsel was," Turner wrote

Not surprisingly, Daniels' spokesperson, Jan Jankowski, didn't like any spin that suggested the guv's office complicity in Duke's hiring of Storms:

A Daniels spokeswoman, Jane Jankowski, took issue Tuesday with the suggestion that Pippen had supported the idea of Duke hiring Storms.


"There was no discussion of Duke hiring Storms," she wrote in an email. "Pippen was asked about Storms' work as a state employee. Any other characterization is Turner's."

In October, The Star requested all correspondence among the governor's office, Duke and the IURC in 2010. The governor's office released some emails but denied others, saying they were "advisory communications or expressions of opinion communicated for the purpose of decision-making and thus not subject to disclosure" under the state's public records law.

The release of these latest internal Duke e-mails suggests a potential cover up by the governor's office in the role it played in this sordid affair. It isn't "a bridge to far" to think the governor's office selectively released e-mails to the Star last year to give the appearance of transparency when it moved quickly to fire Hardy after the scandal first broke last year. There will no doubt be more pressure on the governor's office to release other communications it deemed "advisory" or "expressions of opinion." You can bet national reporters, particularly given their extreme bias for Barack Obama, will seize on this scandal as a way of diminishing the many Daniels' successes as Indiana governor.

The Star provides a link to the latest release of e-mails, which you can view here. They're much worse than Russell describes them in his story. Both Duke's and the IURC's top brass should be holding their heads in total shame.