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What you should know about Vectren's long-term plan to diversify its electric generation fleet.

In February of 2018, Vectren announced its long-term electric generation transition plan; a key element of the energy company's Smart Energy Future strategy for ensuring a reliable, reasonably priced and well-balanced energy mix for its 145,000 customers in southwestern Indiana.

In filings with the Indiana Utility Regulatory Commission, Vectren proposed to install an additional 50 megawatts (MW) of universal solar, retain its largest and cleanest-burning coal-fired unit, and build an 800 to 900-MW natural-gas-fired generation facility - all of which will significantly change the way the company generates power for the region and ensure compliance with Environmental Protection Agency (EPA) regulations. The generation transition plan will result in carbon emission reductions of 60% over 2005 levels by replacing the majority of Vectren's coal-fired generation with solar and natural gas.

arrow questions

Why can't Vectren continue to operate as is – just keep using coal for the majority of its power needs – and avoid spending money on new equipment?

We have to do something. If we don't build new generation, then we have to put hundreds of millions of dollars into our existing coal-fired units for environmental compliance, including installing new scrubbers at our A.B. Brown plant due to the existing equipment nearing the end of their useful life. Our plan is less expensive for customers than continuing to upgrade all of our coal-fired units.

Are you maintaining a commitment to coal, which means so much to southwestern Indiana and our economy?

Our generation transition plan retains our largest and cleanest coal-fired unit, a 270-MW unit at our F.B. Culley power plant in Warrick County. Furthermore, we will continue to burn the same amount of Indiana coal into 2023 while the new gas plant is being built. We very much believe coal is a key component of operating a diverse generation fleet, and we will continue to purchase and utilize southwestern Indiana coal, thus supporting local coal jobs. After 2023, the reduction in coal consumption associated with the retirement of the two A.B. Brown coal-fired units is approximately 1.2 million tons. This represents about 0.002% of the country's annual coal consumption.

Why doesn't Vectren install all or more renewable energy instead of building a plant powered by a fossil fuel?

Before arriving at our decision to build the gas plant, we explored dozens of possible scenarios in a very public process, known as the Integrated Resource Plan, which was conducted throughout 2016. During the IRP process, we modeled two scenarios with smaller gas units, more renewable energy, and energy storage technology - and that modeling included declining costs for those technologies over the 20-year period, which were estimated by reputable third parties. However, the results of those two options cost $700 million to $1 billion more than our chosen plan. Selecting that route would not be good for customers as ultimately they pay for our electric generation units.

One important fact to highlight in the two portfolios above: Because renewable energy resources are not 24/7 power sources, meaning they can't be relied upon to run around the clock due to sun and wind requirements, the size installed must be much larger than other energy sources, such as gas or coal. For example, if a company needs 100 MW of energy, it can install 100 MW of gas-fired generation, but would need to install at least 200 MW of solar to ensure its customers' needs are met; as required by MISO, the regional grid management entity that sets guidelines for electric companies in 15 states, including Indiana. Even then, the solar would need to be backed up with a 24/7 power sources on cloudy days, at dusk and throughout the night. When choosing wind power, you have install even more megawatts, as wind gets a capacity credit of less than 10%.

Isn't Vectren concerned about the risks associated with natural gas produced by hydraulic fracturing, or fracking?

We understand the concerns expressed by some of our customers about the risks associated with hydraulic fracturing – or fracking as many call it. As we do in every aspect of our business, we are committed to ensuring the use of safe practices to obtain the natural gas needed to supply our proposed plant. Please visit hydraulicfracturing.com to learn more as there are many myths about this process.

Will Vectren use local natural gas to serve this plant? Will hydraulic fracturing be used to produce it?

The gas supply for Vectren's proposed new natural gas-fired plant will come from an existing interstate pipeline system in western Kentucky. In the coming years, we intend to construct, own and operate a new 23-mile, 20-inch natural gas pipeline that will interconnect at an existing Texas Gas Transmission (TGT) station east of Robards, Ky. The pipeline, several miles of which will be adjacent to an existing gas pipeline corridor, will travel northwest before crossing the Ohio River from Kentucky into Indiana where it will serve the new plant. Texas Gas receives its supply from Louisiana, Arkansas and the Rockies and Plains region via an interconnection with the Rockies Express pipeline.

Won't this new gas plant significantly raise electric bills?

There will be no immediate impact on electric bills for construction of the new gas plant. The construction will take several years, and costs will not impact bills until it is completed - likely in 2023. The cost recovery must be requested in a rate review filing, which will likely not occur until 2024.

Are Vectren's electric rates the highest in the nation?

No. The highest electric rates in the nation are more than 30 cents per kilowatt hour (kWh). Vectren charges around 15 cents for its residential electric rates. Here are some key facts:

  • Other electric companies' rates in the state of Indiana have experienced a compound annual growth rate of 2% to 6% since 2011.
  • States with higher residential electric rates than Vectren include: the New England states, California, Michigan, Wisconsin, Colorado (Black Hills), and Wyoming.
    • Other utilities with 15-cent energy include: Baltimore Gas & Electric, South Carolina Electric and Gas; DTE and Consumers in Michigan, Interstate Power in Iowa and We Energies in Wisconsin.
  • Vectren's residential electric rates are among the highest in the state of Indiana, however. This was driven by $500 million in environmental investments over the past 15 years that were done to comply with EPA standards and dramatically improve local air quality. Vectren's industrial rates remain very competitive and are not among the highest in the state of Indiana.
  • Vectren's natural gas rates are among the lowest in the state, ranking #17 of 18 companies this past winter with 18 being the lowest.
  • Vectren residential electric bills have dropped about 7% since 2011 thanks to no rate increases, the Federal tax reduction, and usage decline (energy efficiency). See chart below. The national average rate (kWh price) has increased 9.3%, and the average national bill amount increased nearly 2% over this same time period.
Chart: Residential electric bills have decreased

Aren't natural gas prices forecasted to rise dramatically in the coming years, which will cause our electricity costs to skyrocket? Aren't you better off sticking with coal?

Although natural gas prices may experience daily, monthly and seasonal volatility as they always have, natural gas prices are expected to remain low and stable even as demand increases - a price band of $4 to $6 per unit through 2050 according to a Feb. 2018 report from the Energy Information Administration (EIA). See chart below. That forecasted growth rate is at or below inflation levels through 2050, and forecasted prices are well below those experienced in the decade of the 2000s. EIA projects that coal prices will generally increase through the year 2050 as well.

Chart: Gas prices remain relatively low compared to historic values

When we modeled natural gas prices in the IRP process referenced above, we included scenarios in which gas prices were much higher than those listed in the EIA forecast to ensure building a natural gas-fired plant was indeed the best option for our customers, as they ultimately pay for the fuel costs used to generate electricity - whether that fuel is coal or gas. Even when including higher-priced natural gas over the 20-year period, our filed generation transition plan remained the more cost-effective option.

Furthermore, domestic supply is large enough to meet growth in demand across all sectors, even with the expected continued shift to natural gas for electric power generation. The U.S. estimated future supply of natural gas (reserves plus resources) stood at 3,141 Tcf at year end 2016 — enough natural gas to meet America's diverse energy needs for more than 100 years. The estimated future supply has more than doubled for the period 1990–2016. Learn more about natural gas supply and its benefits to customers by reading through the American Gas Association's 2018 playbook.