At a time when coal prices were at record highs, Vectren locked into expensive, multiyear agreements to buy almost all of its coal supply from its own wholly-owned mining subsidiary, Vectren Fuels. And ratepayers paid the price.
Experts say Vectren disregarded the common industry practice of staggering its coal purchases through shorter-term contracts to hedge against unusually high prices.
Since that time in 2008, Vectren Fuels has sold coal to other Indiana utilities -- including Duke Energy, Indianapolis Power and Light, and Northern Indiana Public Service Company -- for much lower prices. On average, Vectren charged those utilities $44.35 a ton, but charged itself $68.48 a ton -- a difference of more than 50 percent, which translated to at least $136 million from January 2009 to June 2012.
Vectren officials defended the company's decision to buy expensive coal from its own subsidiary, saying the purchases were the result of a competitive bidding process and represented market conditions at the time.
The Star found that Vectren's electricity rates are among the highest in the nation. Why the IURC wouldn't more closely scrutinize the utility's purchase of coal from its own subsidiary is only explained because it's corrupt, although the Star makes an effort to find another reason.
But during the company's 2010 effort to secure a base rate increase, the consumer counselor's office criticized the coal purchases and asked the utility regulatory commission to force Vectren to renegotiate its contracts with Vectren Fuels. Commissioners stopped short of doing that, choosing instead to require increased monitoring of Vectren's coal purchases in the future. Commissioners noted that "the timing of the 2008 RFP and the fact that Vectren South placed itself in a position where all of its coal supply was exposed to market prices at effectively one point in time is concerning."
Utilities also often include a provision in coal purchase contracts that index the price to an accepted market price, he said.
"The Vectren solicitation and the resulting contract lacked these features," Burns said. "The failure to renegotiate the contract is clear evidence that the contract is not arms-length." . . .
In Indiana, utilities are required by state law to "make every reasonable effort to acquire fuel ... at the lowest fuel cost reasonably possible." Despite the potential for conflict with that provision, state utility regulators allowed Vectren to begin purchasing coal from Vectren Fuels in the late 1990s.
The IURC's chairman, Jim Atterholt, a former lobbyist for AT&T, tells the Star that the Commission has been holding Vectren's feet to the fire. He just doesn't have any evidence to back up that claim. A utility specialist at Ohio State University says Indiana "has the regulatory equivalent of a Model T when it comes to its ability to closely monitor companies like Vectren." It also probably hasn't hurt the utility having Carolene Mays as one of the IURC commissioners. She is the niece of Bill Mays, who served as a member of Vectren's board of director members until this past May.