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STATE OF INDIANA

INDIANA UTILITY REGULATORY COMMISSION

VERIFIED PETITION OF SOUTHERN INDIANA ) GAS AND ELECTRIC COMP ANY d/b/a VECTREN ) ENERGY DELIVERY OF INDIANA, INC., FOR: (1) ) APPROVAL OF AN ADJUSTMENT TO ITS ) ELECTRIC SERVICE RATES THROUGH ITS ) CLEAN ENERGY COST ADJUSTMENT ) ("CECA"); AND (2) APPROVAL OF REVISED ) COST ESTIMATE FOR THE URBAN LIVING ) RESEARCH CENTER, ALL PURSUANT TO IND. ) CODE § 8-1-8.8 )

CAUSE NO. 44909 CECA 2

APPROVED:

ORDER OF THE COMMISSION

Presiding Officers: James F. Huston, Chairman Carol Sparks Drake, Senior Administrative Law Judge

On February 3, 2020, Southern Indiana Gas and Electric Company d/b/a Vectren Energy Delivery of Indiana, Inc., a CenterPoint Energy Company ("Vectren South" or "Petitioner;'), filed a Verified Petition ("Petition") with the Indiana Utility Regulatory Commission ("Commission") seeking approval of an adjustment to its electric rates through its Clean Energy Cost Adjustment ("CECA") and approval of modifications to the project scope and cost estimate for the Urban Living Research Center ("ULRC").

On February 3, 2020, Vectren South also filed its case-in-chief, which included the direct testimony and attachments of the following witnesses:

• Wayne D. Games, Vectren South's Vice President - Power Generation Operations;

• Robert C. Sears, Vice President of Marketing and Commercial Development for CenterPoint Energy Company; and

• J. Cas Swiz, Director, Regulatory and Rates for CenterPoint Energy, Inc.

On February 28, 2020, Petitioner and the Indiana Office of Utility Consumer Counselor ("OUCC") filed a joint motion requesting approval of an agreed procedural schedule. This motion was granted in a docket entry issued on March 2, 2020.

On April 1, 2020, the OUCC filed its case-in-chief, consisting of the direct testimony and attachments of Kaleb G. Lantrip, Utility Analyst in the OUCC's Electric Division.

Vectren South on April 9, 2020, filed corrected attachments to Mr. Swiz's testimony. This included a correction to the allocation of recovery variances between Rate LP and Rate HLF. On April 15, 2020, a docket entry was issued requesting Vectren South to provide updates upon the

operation costs associated with its battery energy storage system ("BESS"). Petitioner filed responses to this docket entry on April 20, 2020.

The Commission noticed this matter for a public evidentiary hearing at 11 :00 a.m. on April 22, 2020, in Room 224 of the PNC Center, 101 West Washington Street, Indianapolis, Indiana. A docket entry was issued on April 17, 2020, advising that in accordance with Indiana Governor Holcomb's Executive Orders related to the COVID-19 pandemic, the hearing would be conducted via teleconference and providing related participation information. Vectren South and the OUCC, by counsel, appeared at the evidentiary hearing via teleconference, and the testimony and exhibits of Vectren South and the OUCC were admitted without objection.

Based upon the applicable law and the evidence presented, the Commission finds:

1. Notice and Commission Jurisdiction. Notice of the evidentiary hearing in this Cause was given and published by the Commission as required by law. Vectren South is a public utility, an energy utility, and an eligible business as defined in Ind. Code§§ 8-1-2-l(a), 8-1-2.5-2, and 8-1-8.8-6. The Commission has jurisdiction to approve Petitioner's requested CECA under Ind. Code ch. 8-1-8.8. The Commission, therefore, has jurisdiction over Vectren South and the subject matter of this proceeding.

2. Petitioner's Organization and Business. Vectren South is a public utility incorporated under the laws of the State of Indiana. Petitioner has authority to engage in and is engaged in rendering electric service within Indiana. Vectren South owns, operates, manages, and controls, among other things, plant, property, equipment, and facilities that are used and useful for the production, storage, transmission, distribution, and furnishing of electric utility service to approximately 145,000 customers in southwestern Indiana.

3. Background to this Proceeding. On August 16, 2017, the Commission issued an Order in Cause No. 44909 (the "44909 Order") approving three clean energy projects that Petitioner had proposed. As originally approved, these three projects included a 2.0 MWac ground mounted solar facility located at U.S. Highway 41 north of Evansville along with a 4 MWh Bess ("Highway 41 Facility"); a 2.0 MWac ground mounted solar facility on land Petitioner leased from the City of Evansville ("Evansville Urban Facility"), and a rooftop based solar generating facility of approximately 300 kWac with approximately 400 kWh of BESS at the ULRC. In the 44909 Order, the Commission also approved timely cost recovery through CECA filings, with depreciation rates of 10 years for Petitioner's BESS investments and 25 years for the other investments, consistent with their anticipated service lives. Petitioner's CECA rates and charges are to be based on the annual revenue requirement calculation on all approved investments placed in-service, along with an annualized level of operations and maintenance ("O&M") costs.

The cost estimates for the three clean energy projects approved in the 44909 Order totaled $16.2 million. The Commission found the estimated cost for each of these proposed solar facilities was reasonable and the best cost estimate available. In the 44909 Order, the Commission required Petitioner to seek approval of modifications of its reasonable and necessary determination for any increases from the approved cost estimates. Vectren South was also required to notify the Commission of any deviation from the number or size of solar and BESS installations approved in Cause No. 44909.

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In an Order approved in Cause No. 45086 on March 20, 2019, the Commission approved a Stipulation and Settlement Agreement modifying the CECA to also include recovery of Petitioner's costs associated with constructing an additional 50 MWac solar project, and in the Order issued on May 15, 2019, in Cause No. 44909 CECA 1, the Commission approved an updated cost estimate of $5.9 million for the Evansville Urban Facility, reflecting an increase from $5.4 million to $5.9 million. Petitioner also updated the Commission in that proceeding upon an anticipated reduction in the size of the solar facility and BESS at the ULRC based on its updated design.

4. Relief Requested. In its Petition, Vectren South states that on December 31, 2019, two of the three projects approved in the 44909 Order were in service, those being the Highway 41 Facility and the Evansville Urban Facility; consequently, Vectren South requests approval of CECA rates to effectuate recovery of the costs incurred through December 31, 2019, in connection with the Highway 41 and Evansville Urban Facilities, to be applicable and made effective during the billing cycle beginning June 1, 2020, or as soon thereafter as practicable. Vectren South also notified the Commission of a modification and scope revision related to the solar facility and BESS located at the ULRC. This modification includes removing the BESS from this project, resulting in a reduction to the original estimate the Commission approved for the ULRC in the 44909 Order.

5. Petitioner's Case-in-Chief. Mr. Games described how Vectren South has complied with the reporting requirements set forth in the 44909 Order. He testified that Vectren South has annually made end of year filings since the clean energy projects were approved in the 44909 Order. He stated Petitioner also notified the Commission, as ordered, of the in-service dates for the Highway 41 and Evansville Urban Facilities. Mr. Games provided a status update for each of these facilities, including generation output and costs. He testified that the costs for the Highway 41 Facility through December 31, 2019, totaled approximately $7.6 million, with the current cost estimate for the Highway 41 Facility being approximately $8.0 million, as compared to the original estimate of $8.8 million. Mr. Games stated the actual costs for the Evansville Urban Facility as of December 31, 2019, totaled approximately $5. 7 million, as compared to the approved revised estimate of $5 .9 million. He noted this facility is complete. Mr. Games stated the costs for both facilities include engineering, procurement, and construction ("EPC") costs, owner's costs, EPC contingencies and overheads, interconnect, and interconnect contingencies and overheads.

Mr. Games described improvements to the BESS at the Highway 41 Facility, including a new climate control system and off-gassing monitor, and what prompted these additions. He explained that these improvements will allow the batteries to remain in a climate-controlled setting at all times, prolonging the life of the batteries and increasing reliability/availability because the temperature and humidity in and around the BESS will be better controlled. Mr. Games testified about the lessons Vectren South has already learned from the use of solar energy and BESS since commencing the Highway 41 Facility. He stated this BESS was tested in December 2018 and placed in service in late January 2019, but it was taken out of service on April 24, 2019, due to safety and operational concerns as a result of the Arizona Public Service battery fire. Mr. Games stated the original equipment manufacturer was contacted, the BESS was inspected, and emergency action plans were revised. He testified there were also discussions with local fire departments prior to placing the system back in service on June 4, 2019. Mr. Games stated that during normal preventative maintenance on August 5, 2019, moisture was found inside the container because of condensation, so the battery was again taken offline, and both the equipment manufacturer and the contractor that installed the system were contacted for repairs to be made under warranty. Mr. Games testified that new HV AC units had to be

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ordered, and container repairs had to be made. The container repairs were made in August and September 2019, but the HVAC units had a long lead time and were not received until December 2019. Mr. Games stated the battery was tested in December 2019, and a software upgrade was completed in mid-January 2020. To reliably and safely operate and maintain this BESS in the future, Mr. Games testified the temperature and humidity within and around the BESS must be better controlled. Petitioner plans to accomplish this by enclosing the BESS in a climate-controlled environment. In addition, a battery off-gassing detection system will be installed that will shut down the BESS if there are conditions that could result in a fire. Mr. Games stated that once this work is complete, the BESS will be placed back in service, and Petitioner projects this will conclude the capital work associated with the initial installation and start-up of the Highway 41 Facility.

Mr. Games testified Vectren South has learned a considerable amount from its experience so far with the Highway 41 and Evansville Urban Facilities, both with respect to construction and day­to-day operation of the facilities. He testified the lessons learned include the following:

• Cable in conduit is preferred over direct bury due to the ease of installation and future maintenance costs. He noted the Evansville Urban Facility cable is direct buried compared to the Highway 41 Facility which has cable in conduit.

• Flat surface is preferred. Water drainage has been an issue and a challenge at the Evansville Urban Facility.

• The contractor's experience and the efficiency of the panel installation greatly affects the project cost.

• Solar field output varies greatly. There is a large variation in solar field output both minute to minute and day to day. Daily ranges of output on one field in 2019 were from O. 6 MWhrs to 18 MWhrs generated.

Mr. Games provided an update on the O&M expenses Vectren South incurred at the Highway 41 and the Evansville Urban Facilities during calendar year 2019. He stated Vectren South incurred $182,879 in O&M expenses related to the Highway 41 Facility during this reporting period. These expenses included, but were not limited to, costs incurred for mowing, routine walk-downs to inspect and repair equipment, including the BESS, instrumentation calibration, fence repairs, inverter and HV AC maintenance, as well as spring and fall preventative maintenance routines. With respect to the Evansville Urban Facility, Mr. Games testified Vectren South incurred $116,265 in O&M expenses. These expenses covered approximately $19,200 in lease payments to the City of Evansville with the remainder applied toward on-going general maintenance similar to the Highway 41 Facility with the exception of BESS.

Mr. Games testified the Highway 41 Facility and Evansville Urban Facility were certified as Ohio Renewable Energy Resource Generating Facilities by the Public Utilities Commission of Ohio, effective June 17, 2019. He stated that in 2019 Vectren South sold 2,772 solar renewable energy credits ("SRECs") from the Highway 41 Facility with net proceeds of $29,013, and 2,573 Evansville Urban Facility SRECs were sold with net proceeds of $27,143. He noted that Vectren South currently has 406 Highway 41 Facility qualified SRECs and 445 Evansville Urban Facility qualified SRECs from 2019 remaining in its portfolio.

Petitioner's witness Sears provided an overview and update on the ULRC, including costs

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incurred to date, why the BESS was removed from the project scope, why a fall protection system was added to this rooftop solar installation, and the status of research and grant funding from the United States Department of Energy ("DOE") as a result of removing the BESS. Mr. Sears testified that over the evolution of the ULRC, Vectren South has learned several key lessons in the process of scoping and designing indoor battery storage systems. He stated one current challenge is that the battery storage industry is maturing, and while codes, standards, and best practices are emerging, they are trailing state-of-the-art technology, making it challenging and costly to integrate cutting-edge battery storage technology in buildings, especially residential buildings occupied at all times, while preserving the highest safety margins. Mr. Sears testified that as a result, battery storage designs, as well as codes and standards, are rapidly evolving, and today's battery storage design may not keep pace with changing requirements, may not meet best practices within a few years, or worse, may require significant modifications to ensure its continued safe operation. He testified another key lesson learned is that outdoor installations are currently better suited to utilities seeking to capture the value of battery storage integrations on their system. Mr. Sears stated there is still substantial value in integrating battery storage in buildings, and the ULRC is a good opportunity to showcase the benefits; however, close integrations of occupied buildings and lithium-ion battery storage should follow deeper understanding of causes and mitigation of risks inherent in this technology. Mr. Sears testified that based on the challenges with moving forward with the ULRC battery storage system, Vectren South has eliminated this system from the ULRC project scope.

Mr. Sears testified that Vectren South incurred $698,377 in costs through the reporting period ended December 31, 2019, with respect to the ULRC, which includes system design and engineering, design and planning ofresearch findings, and owner's costs and overheads. He stated that of the costs incurred to date, $376,017 was for battery-related expenses, and this amount has been transferred out of this project, with Vectren South expensing these battery-related costs. Mr. Sears stated Petitioner is not seeking recovery of these expenses. He stated Vectren South's revised total project spend is estimated to be $1,500,000, including all project costs, owner's costs, overheads, and contingencies. Mr. Sears testified the remaining procurement and construction costs for the solar-only scope are approximately $800,000, including the addition of a fall-protection system that is now necessary to comply with applicable safety requirements. He stated about $315,000 has been accrued to date related only to the ULRC rooftop solar, with approximately $385,000 remaining in the solar project covering engineering support, labor, loadings, and contingency. Mr. Sears testified that once the ULRC is in service, Vectren South will seek cost recovery in the appropriate CECA filing.

Mr. Sears provided an update on the rooftop solar installation, including the need for a fall protection system, and confirmed this has been added. According to Mr. Sears, while empty rooftop space may be the ideal collector of solar irradiance, OSHA requires that workers be provided with a means to prevent accidental falls from the roof. He stated the means differ depending on the roof layout and building architectural features. Due to the design of the parapet at the Post House where the ULRC is to be installed, a fall protection system is required that is strong enough to withstand 5,000 pounds of force, while at the same time giving maintenance workers the flexibility of movement to access panels anywhere on the roof. Mr. Sears testified this fall protection system added more than $ I/watt-DC to the total system cost.

Mr. Sears discussed the challenges associated with new building construction and siting a rooftop solar array. He testified that during the planning stages of a new building, the architects and engineers have the flexibility to adapt to the requirements of rooftop solar, such as the enhanced structural support needed to support the weight of a ballasted solar system. In this scenario, the

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building engineers need detailed information about the solar design. Mr. Sears testified there is, however, a "chicken-and-egg" problem in that the solar designers need final building plans to accurately design the solar system for the building. In addition, Mr. Sears stated it is also likely that the rooftop of a new building as built will differ from the rooftop as drawn; consequently, unanticipated protrusions appeared in the ULRC rooftop necessitating rework of the solar layouts after they had been completed and approved by the structural engineers. He also noted that in a new­construction scenario, the timeline for the rooftop solar system installation is dependent on the building construction timeline. Mr. Sears testified the ULRC has been delayed more than a year due to construction delays, resulting in cost increases related to the extended timeline for the solar project. He stated the developer's current estimate of substantial completion of Post House where the ULRC is located is the end of the first quarter of 2020, with tenant leases, including Vectren South's lease for the building rooftop, to commence after building completion. Installation of the rooftop solar will then immediately follow.

Mr. Sears also testified regarding Vectren South's research and grant funding associated with the ULRC. He stated that eliminating the battery storage scope required renegotiation of the cooperative research agreement with DOE and the funding awarded. Mr. Sears testified that Vectren South was originally awarded $1 million to advance research on grid-interactive buildings in partnership with Oak Ridge National Laboratory. The objective of this research is to combine and optimize the internet-connected electric loads (i.e. heating, air conditioning, and water heating) and solar photovoltaic generation hosted at the ULRC to supply increased efficiency, flexibility, and reliability to the distribution system. Mr. Sears testified that DOE has approved continuing the project with the modified scope, subject to future negotiations upon the award amount. Mr. Sears stated that DOE's cost share of the revised project budget and/or allocation may change and, thus, impact the amount by which Vectren South will be offsetting capital costs and, in tum, the amount Vectren South ultimately seeks to recover for the ULRC.

Mr. Swiz explained the ratemaking treatment Vectren South is proposing to recover costs incurred during construction and operation of the solar and BESS projects, including depreciation expense, post-in-service carrying costs, taxes, and O&M expenses. Mr. Swiz testified that Vectren South's adjustment to its authorized net operating income utilized in its fuel adjustment cost earnings test, as set forth in Schedule 9 of Petitioner's Exhibit No. 3, Attachment JCS-I, is $847,903. He explained that Petitioner is requesting approval of costs incurred for the Highway 41 and Evansville Urban Facilities through December 31, 2019, to be recovered through the CECA, with such rates and charges to be implemented no earlier than June 1, 2020. Mr. Swiz testified that a reconciliation of revenues and costs is included in this filing, and the resulting variance is an under-recovery of $105,727, to be collected from customers in the CECA over 12 months. He stated the variances are determined by Rate Schedule to ensure customers pay only the costs allocated to and approved for recovery from their Rate Schedule. Mr. Swiz testified the total revenue requirement for CECA 2 is $2,006,152, and he explained how this revenue requirement was calculated. Per Mr. Swiz, the allocation percentages are those agreed upon in the settlement the Commission approved in Cause No. 45086. He stated these were applied to the total revenue requirement by rate class to determine the amount recoverable from each Rate Schedule and are as follows:

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Rate Schedule Rate RS Rate B Rate SGS Rate DGS/MLA Rate OSS Rate LP Rate HLF Total

Allocators 40.4145% 0.1225% 1.7089%

26.1523% 2.0202% 28.7431% 0.8385% 100.00%

The proposed CECA rates and charges were attached to Mr. Swiz's testimony as Petitioner's Exhibit No. 3, Attachment JCS-2, with corrections to these filed on April 9, 2020.

Mr. Swiz also discussed the cost of electricity generated by the Highway 41 Facility and the Evansville Urban Facility during the reporting period. He testified these costs are based on the actual revenue requirements for each of these two 2 MW solar projects, divided by the actual kWh. Mr. Games testified the Highway 41 Facility generated 3,625 MWHrs from January through December 2019, and the Evansville Urban Facility generated a total of 3,848 MWHrs for this same 12-month period, resulting in the actual cost per kWh for the Highway 41 Facility, including the BESS, per Mr. Swiz, being $0.32/kWh while the comparable cost for the Evansville Urban Facility was $0.22/kWh.

6. OUCC's Case-in-Chief. OUCC witness Lantrip testified that Vectren South is requesting recovery of total new capital investment of $13,084,927 incurred through December 31, 2019, for the Highway 41 and the Evansville Urban Facilities after applying the pre-tax rate ofreturn of 8.15% to the new capital investment balance. He stated this results in a capital return requirement of $1,066,422. Mr. Lantrip testified total incremental expenses from depreciation, O&M, amortization, and property tax are $1,152,102. He stated the investment tax credit annual amortization offset in this filing is $156,217 and a credit for REC sales of $56,155 should be applied, resulting in a revenue requirement of $2,006,152 (exclusive of the variance/reconciliation).

Mr. Lantrip did not raise concerns with Vectren South's current capital costs of $7,594,114 or the current estimated cost of $7,994,114 for the Highway 41 Facility, but he noted that based on Mr. Games' testimony, there have been safety and operational concerns with the associated BESS that led to the battery at this facility being out of service a significant portion of 2019. He stated that while the OUCC supports safely operating the battery, this battery to date has operated on a limited basis, making it difficult to analyze its used and useful nature. He testified the OUCC hopes the lessons learned during these difficulties will prove valuable as Vectren South considers future BESS installation projects.

Mr. Lantrip testified that Vectren South has incurred construction costs of $5,748,308 as of December 31, 2019, for the Evansville Urban Facility, including EPC costs, owner's costs, interconnection costs, and related contingencies and overheads. He stated Petitioner anticipates this project is complete. Mr. Lantrip testified no concerns came to his attention with respect to the Evansville Urban Facility.

Mr. Lantrip stated the current costs for the ULRC total $698,377, of which $376,017 was incurred for battery related expenses. He testified Vectren South is not seeking cost recovery in this filing for any of these expenses because the ULRC project is not complete or in-service. Mr. Lantrip

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stated there have been notable changes in the ULRC project, with the revised current estimated project cost being $1.5 million as compared to the original $2.0 budget. He noted the revised project plan no longer includes BESS installed on-site. Mr. Lantrip testified that he supports Vectren South's recommendation to delay seeking cost recovery related to the ULRC until this project is in-service as used and useful. Mr. Lantrip opined that Vectren South witness Sears' testimony in this matter provides an informative account of how rapidly the storage industry has changed in relation to Vectren South's ability to implement stable small-scale unit installations and the technological shifts that have given Petitioner pause regarding how best to proceed with the ULRC project. He testified the OUCC supports Vectren South bringing renewable solutions online in a safe and efficient manner.

Mr. Lantrip testified that he agrees with Vectren South's CECA allocation method, and he recommended approval of Vectren South's proposed change in the CECA factor. He testified the bill of a typical residential customer using 1,000 kWh per month will increase less than $0.01, resulting in a minimal adjustment to customer billings.

7. Commission Discussion and Findings. Based on the evidence presented, as discussed above, the Commission finds Petitioner's requested relief in this proceeding is reasonable and should be approved. Specifically, the Commission finds Vectren South's requested authority to recover costs and expenses incurred through December 31, 2019, for the Highway 41 and Evansville Urban Facilities through its CECA should be approved.

Petitioner presented substantial evidence supporting its requested CECA rates. After reviewing this evidence, OUCC witness Lantrip recommended the Commission approve Vectren South's proposed CECA rates and allocation factors. Given this evidence, including the calculations Mr. Swiz provided in Petitioner's Exhibit No. 3, Attachments JCS-1 and JCS-2, and the OUCC's concurrence, the Commission finds Petitioner's total annual revenue requirement to be recovered through the CECA is $2,111,878. The Commission also finds that, based on the evidence, Petitioner has properly calculated the reconciliation variance for the CECA 2 period, and the allocation factors set forth in Petitioner's Exhibit No. 3 are consistent with the allocation factors the Commission approved in Cause No. 45086; therefore, the Commission finds Petitioner's proposed CECA rates, as set forth in Petitioner's Exhibit No. 3, Attachment JCS-2 as corrected on April 9, 2020, should be approved.

In addition, Vectren South sought approval to update its cost estimate for the ULRC from the previously authorized amount of $2.0 million to $1.5 million. Mr. Sears provided detail in his testimony upon the reasons for the reduced costs, and he testified the revised $1.5 million cost estimate to complete the ULRC project includes all project costs, owner's costs, overheads, and contingencies. The Commission finds Petitioner's modifications in the ULRC project scope, including eliminating the BESS, are reasonable given the safety considerations Vectren South shared; consequently, Petitioner's updated project scope and cost estimate for the ULRC are approved.

IT IS THEREFORE ORDERED BY THE INDIANA UTILITY REGULATORY COMMISSION that:

1. Petitioner's CECA rates, as set forth in Petitioner's Exhibit No. 3, Attachment JCS-2 (as corrected on April 9, 2020), are approved to effectuate the timely recovery of costs incurred through December 31, 2019, to be implemented no earlier than June 1, 2020.

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2. Prior to implementing the approved CECA rates, Vectren South shall file the tariff and applicable rate schedules under this Cause for approval by the Commission's Energy Division. Such rates shall be effective on or after the Order date subject to Division review and agreement with the amounts reflected but shall not be implemented before June 1, 2020.

3. Petitioner's revised cost estimate for the ULRC of $1.5 million is approved.

4. Petitioner's request for an adjustment to its authorized net operating income to reflect any approved earnings for purposes of Ind. Code§ 8-l-2-42(d)(3) is approved.

5. This Order shall be effective on and after the date of its approval.

HUSTON, FREEMAN, KREVDA, OBER, AND ZIEGNER CONCUR:

APPROVED: MAY 13 2020

I hereby certify that the above is a true and correct copy of the Order as approved.

iv.i:fil"YM. B rra Secretary of the Commission

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