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STATE OF INDIANA

INDIANA UTILITY REGULATORY COMMISSION

VERIFIED PETITION OF INDIANAPOLIS POWER ) & LIGHT COMPANY FOR APPROVAL OF: (1) AN ) ADJUSTMENT TO ITS RATES THROUGH ITS ) CAUSE NO. 42170 ECR 31 APPROVED ENVIRONMENTAL COMPLIANCE ) COST RECOVERY ADJUSTMENT COMMENCING ) WITH THE SEPTEMBER 2018 BILLING CYCLE; ) APPROVED: AUG 2 9 2018 AND (2) ONGOING REVIEW REPORTS, ) CONSTRUCTION AND ASSOCIATED COSTS. )

ORDER OF THE COMMISSION

Presiding Officers: David L. Ober, Commissioner Brad J. Pope, Administrative Law Judge

On June 1, 2018, Indianapolis Power & Light Company ("IPL") filed a Verified Petition and the direct testimony, attachments, and workpapers of the following witnesses with the Indiana Utility Regulatory Commission ("Commission"):

• Bradley D. Scott, IPL Senior Vice President, Power Supply; • Dale V. Fisher, Manager of Project Construction for the IPL Mercury and Air Toxics

Standards ("MATS") Rule Compliance Project and Petersburg National Ambient Air Quality Standards ("NAAQS") Compliance Project;

• Gary Finchum, Construction Manager for the IPL National Pollution Discharge Elimination System ("NPDES") Compliance Project;

• Eugene Spindler, Plant Leader of Maintenance at IPL's Petersburg Generating Station ("Peters burg");

• Craig Foresta!, Director of Regulatory Accounting at AES US Services, LLC; • Chad A. Rogers, IPL Senior Regulatory Analyst; and • Kenneth R. LaMont, Manager of Project Construction for the Coal Combustion

Residuals ("CCR") Compliance Project.

On June 4, 2018, IPL filed certain Confidential Information in accordance with the May 28, 2013 and September 20, 2013 Docket Entries issued in Cause No. 44339 and the May 31, 2017 Docket Entry in Cause No. 44950 granting IPL's requests for confidential treatment. On July 13, 2018, IPL prefiled revised schedules and the supplemental testimony of Mr. Forestal, which revised the revenue conversion factor and presented additional schedules that incorporated the impact of a $9.51 million credit to reflect the settlement agreement filed in Cause No. 45032 Sl related to the impact of the Tax Cuts and Jobs Act of2017 ("TCJA"). On July 19, 2018, IPL filed its supplement and final report related to the Eagle Valley Combined Cycle Gas Turbine ("CCGT").

On July 20, 2018, the Indiana Office of Utility Consumer Counselor ("OUCC") prefiled the testimony of Wes R. Blakley, Senior Utility Analyst in the OUCC's Electric Division.

The Commission held an Evidentiary Hearing in this Cause on August 10, 2018, at 1:30 p.m. in Room 224 of the PNC Center, 101 W. Washington Street, Indianapolis, Indiana. At the hearing, IPL and the OUCC appeared by counsel, and the parties offered their prefiled testimony and attachments, which were admitted into evidence without objection.

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

1. Commission Jurisdiction and Notice. Notice of the hearing in this Cause was given and published by the Commission as required by law. IPL is a public utility as that term is defined in Ind. Code§ 8-1-2-l(a). Under Ind. Code§§ 8-1-2-6.6 and 8-1-2-6.8 and Ind. Code chs. 8-1-8.4, 8-1-8.5, 8-1-8. 7, and 8-1-8.8, the Commission has jurisdiction over a public utility's cost recovery related to the use of clean coal technology, compliance projects, and clean energy projects and the ongoing review of powerplant construction. Therefore, the Commission has jurisdiction over IPL and the subject matter of this Cause.

2. IPL's Characteristics. IPL is a corporation organized and existing under the laws of the State of Indiana, with its principal office at One Monument Circle, Indianapolis, Indiana. IPL renders electric public utility service in the State of Indiana and owns and operates plant and equipment within the State of Indiana used for the production, transmission, delivery, and furnishing of such service to the public.

3. Baclmround. IPL's Environmental Compliance Cost Recovery Adjustment ("ECCRA") and the procedures for its implementation were initially approved in the Commission's November 14, 2002 Order in Cause No. 42170. Thereafter, the Commission issued additional Orders authorizing projects and associated cost recovery through the ECCRA.

4. Relief Requested. IPL seeks Commission approval of an ECCRA to provide a return on construction costs incurred through April 30, 2018, and to timely recover depreciation, carrying costs, and operating and maintenance ("O&M") expenses, as well as the amortization of regulatory assets. The adjustment also reflects a credit for O&M savings, excluding fuel, due to operating Harding Street Unit 7 ("HS-7") on natural gas as opposed to coal. IPL proposes this rate adjustment be effective for all bills rendered for electric services commencing with the first billing cycle forthe September 2018 billing month, which begins August 30, 2018, or the first full billing cycle following the Commission's Order in this proceeding. IPL also requests approval of its ongoing review reports and the construction work and costs (including Allowance for Funds Used During Construction ("AFUDC")) incurred as of March 31, 2018. Such ongoing review reports include the semi-annual review report filed May 30, 2018, in Cause No. 44339 related to the Eagle Valley CCGT Project and the refueling of Harding Street Units 5 and 6, as well as the July 19, 2018 Supplement and Final Report regarding the Eagle Valley CCGT Project.

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5. Ongoing Progress Reports.

A. IPL's Evidence. Mr. Fisher reviewed the implementation ofIPL's MATS and NAAQS Compliance Projects and their progress following issuance of the Orders in Cause Nos. 44242 and 44794, respectively, authorizing these projects. He described the work completed during this reporting period and discussed the work planned to be accomplished prior to the next ECR proceeding. Mr. Fisher stated that work undertaken from November 2017 through April 2018 focused mainly on warranty work and inspections of the installed systems as unit outages allowed without interruption of the operation of any of the units. He explained that during this timeframe, the Engineering, Procurement, and Construction ("EPC") contractor reached an agreement with IPL on a fmal settlement of warranty items and the remaining warranty period. He said the settlement amount of$3 million was applied to identified warranty items, with the fmal $1,146,544 being applied to new bags and cages installed in the Petersburg Unit 2 Bag House during the 2018 spring outage.

Mr. Fisher stated that during the last six-month period, fire protection controls were purchased for the MA TS installed equipment to allow the MA TS systems to interface with the rest of the newly installed plant fire system. He stated the MA TS-related work is planned to be completed by September 2018. He explained that this work is necessary to complete the project and added that IPL expects the total costs of the MATS Project to be approximately $24.34 million less than the amount previously approved by the Commission.

Mr. Fisher testified that the Dibasic Acid portion of the NAAQS Project was placed in service late in 2016 to meet a compliance date of January 1, 2017. He said the emergency limestone hoppers have been installed, were placed in service in May 2018, and are available for use as necessary. He said fire protection installation on the limestone conveyors is in progress and should be complete by mid to late summer. The two recycle pumps for the Petersburg Unit 3 scrubber are in progress with foundations poured and pipe supports being installed. He stated the pumps will be completed during the scheduled fall 2018 outage. Mr. Fisher explained the new Petersburg Units 1 and 2 scrubber transformer and the new 13 8 kV circuit breaker have been ordered. He said this transformer is also scheduled to go into service following work to be completed in the scheduled fall 2018 outages. Mr. Fisher concluded his testimony by stating the NAAQS Project is scheduled to be complete early in 2019 and is presently within the project estimate.

Mr. Scott presented the semi-annual ongoing review reports filed in Cause No. 44339 and IPL' s request for Commission approval of the ongoing review reports and the construction work and costs incurred as of March 31, 2018. Mr. Scott noted the report also includes information on the status of the Eagle Valley CCGT project beyond the cost-reporting period. With respect to the HS-7 refueling, Mr. Scott stated IPL is finishing the installation of a heater in the gas supply piping to prevent precipitation of paraffms found in the gas supply and consequent fouling of the pressure regulators and flow control valves. He added that although not yet final, IPL expects the total final costs will be within the estimate approved by the Commission in Cause No. 42170 ECR 26. He recommended the Commission approve the ongoing review reports and the construction and costs presented therein. Finally, Mr. Scott discussed the modification to the compliance deadline for the CCR Rule at Petersburg, which allows IPL to continue to use a small portion of Pond A for the

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purpose of removing excess solids from the flue gas desulfurization wastewater until November 1, 2018.

Mr. Finchum reviewed the implementation ofIPL's NPDES Compliance Project approved in Cause No. 44540, and he discussed the work completed through April 2018 and the work planned to be accomplished prior to the next ECR proceeding. He stated commissioning has finished at Petersburg and punch list activities are being performed at each plant. He said the primary emphasis for the spring and summer of 2018 will be to complete the punch list items at each plant. He discussed the project cost and stated the project is progressing as scheduled, within budget and has an extremely good safety record. Mr. Finchum testified IPL's Harding Street NPDES system equipment was operated with routine corrective and preventative tasks being performed during the past six months. He explained the O&M expense was below anticipated spend mainly due to decreased usage of chemicals used in the treatment process.

Mr. LaMont reviewed the progress ofIPL's CCR Compliance Project approved in Cause No. 44794. He discussed the work completed through April 2018 as well as the work planned to be accomplished prior to the next ECR proceeding. He explained that during this reporting period, the focus has been on operation, punch list item completion, warranty repairs, and non-EPC construction activities. He said one punch list item remains and should be completed within the next few weeks. He added that Substantial Completion of the Bottom Ash system was granted on October 30, 2017, retroactive to September 11, 2017, at which time a two-year warranty period began. He said the project has remained on schedule, within budget, and has an exemplary safety record.

B. OUCC's Evidence. Mr. Blakley reviewed and analyzed IPL's exhibits, schedules, and supplemental prefiled testimony. He described IPL's request for ratemaking treatment for its Qualified Pollution Control Property ("QPCP") and recovery of depreciation and O&M for some of the completed pollution control property per Indiana's QPCP statutes. He stated that IPL has requested this treatment for its current programs for MATS, NPDES, NAAQS, and disposal of CCR compliance projects.

Mr. Blakely also explained the changes that IPL made in its supplemental testimony. He said that the first change was to correct a calculation error ofIPL's revenue conversion factor, and the second change involved IPL's settlement agreement filed July 6, 2018, in Cause No. 45032 S 1, IPL' s Phase 1 tax sub-docket in response to the TCJ A. He stated that the settling parties in that Cause agreed to a $9.51 million credit derived from excess taxes embedded in IPL's base rates, and they agreed to use the ECR tracker to pass through the credit to customers, as shown in IPL' s supplemental filing. He stated that the credit will be passed back using IPL's demand allocation factors established in its most recent base rate case, Cause No. 44576. Mr. Blakley concluded by stating that the OUCC took no exception to the ongoing review reports.

C. Commission Discussion and Findings. IPL's evidence in this Cause included a status report on the relevant Commission-approved environmental compliance and generation projects. This evidence included IPL's semi-annual review report filed May 30, 2018, in Cause No. 44339 related to the Eagle Valley CCGT Project and the refueling of Harding Street

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Units 5 and 6, as well as the July 19, 2018 Supplement and Final Report regarding the Eagle Valley CCGT Project. These projects are not subject to timely cost recovery through the ECCRA.

The May 30, 2018 report shows that the refueled Harding Street Station Units 5 and 6 have been released for commercial operation since December 2015, and there have been no derates or outages associated with the conversions to date. The induced fan motor change was completed in October 2016, which concluded all major construction on this project. Punch list items are completed for Units 5 and 6. The EPC contractor has finished all but two items on the punch list for the HS Unit 7 work, and this unit was returned to service in June 2016. Some trailing work will be completed in 2018.

The May 30, 2018 and July 19, 2018 reports show the Eagle Valley CCGT Project reached commercial operation on April 28, 2018. The CCGT is now under the control and operation of IPL and is providing energy, which is cleared through the Midcontinent Independent System Operator, Inc.'s ("MISO") real-time and day-ahead markets. In addition, the CCGT successfully cleared the MISO 2018/2019 Planning Year auction. In its July 19, 2018 final report, IPL indicated that as of June 30, 2018, IPL and the EPC contractor entered into a Fourth Amendment of the EPC Contract and Settlement Agreement that resolves all claims and disputes between the parties, including the dispute regarding Late Substantial Completion Payments and the potential claims arising from the Eagle Valley CCGT Project. The report states that as reflected in IPL's rebuttal testimony and IPL's Sixth Monthly Investment Update filed in Cause No. 45029 (IPL's pending rate case), the cost of the Eagle Valley CCGT (excluding AFUDC) as of May 31, 2018, was $595 .179 million.

Based on the evidence presented, we approve the progress reports, including the semi­annual report dated May 30, 2018, and the final report dated July 19, 2018, for the projects approved in Cause Nos. 44242, 44339, and 44540 and the construction and costs (including AFUDC) presented therein. As noted in IPL's July 19, 2018 report, a Settlement Agreement has been filed in IPL's pending rate case that provides for the inclusion of the Eagle Valley CCGT in IPL's rate base and resolves all related ratemaking issues, including issues regarding the treatment of AFUDC and Late Substantial Completion Payments under the EPC Contract. As noted by Mr. Rogers, the issuance of an order in Cause No. 45029 will also reflect the incorporation of in-service plant and related expenses associated with the MATS, NPDES, HS-7, NAAQS-DBA, and CCR Corripliance Projects. Accordingly, we conclude the ongoing review process for the Eagle Valley CCGT Project and the MATS, NPDES, HS Units 5 and 6 Refueling, HS-7, NAAQS-DBA, and CCR Compliance Projects, which are all in-service and will be reflected in rate base following an order in Cause No. 45029.

6. ECCRA Factors.

A. Environmental Compliance Costs. The incremental construction costs for which IPL is requesting recovery in this filing are for the MATS, NPDES, HS-7 refueling, NAAQS and CCR compliance projects. Mr. Forestal's revised Attachments CF-2 set forth the construction costs through April 2018 for which IPL seeks ratemaking treatment in this Cause. Mr. Forestal said the environmental compliance projects for which IPL is seeking recovery have been under construction at least six months, at a cost of $823 million (inclusive of AFUDC and net of retirements).

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Based on the evidence discussed above, we find that the costs incurred through April 30, 2018, for the environmental compliance projects used in the computation of the proposed ECCRA are reasonable and appropriate. Accordingly, we approve the construction work through April 30, 2018, and the reflection of such costs in the ECCRA as proposed by IPL.

B. Recovery of Depreciation, Carrying Costs, and O&M Expenses. The Orders in Cause Nos. 44242 (MATS), 44540 (NPDES including HS-7 Refueling), and 44794 (NAAQS and CCR Bottom Ash) authorize the timely recovery of depreciation, carrying costs, and O&M expenses. Mr. Forestal's revised Attachments CF-2 include the depreciation, carrying costs, O&M expenses, and amortization of regulatory assets to be reflected in the ECCRA factors for the billing period of September 2018 through February 2019. Mr. Forestal's direct testimony states that IPL' s filing includes $19 .14 million of depreciation expense applicable to jurisdictional retail customers and $11. 73 million of O&M expenses (environmental compliance controls) applicable to jurisdictional retail customers. After adjustment for the revenue conversion factor and the 20% regulatory asset deferral (where applicable), these amounts become $18.12 million and $11.15 million, respectively, as shown on Petitioner's Ex. 7, Attachment CR-1, lines 4 and 5. Mr. F orestal said that the estimated O&M expenses include chemicals for the operation of the baghouses and precipitators (MATS) and for equipment maintenance.

Mr. Scott testified that the costs of operating HS-7 on coal are reflected in the cost of service used to establish IPL's base rates approved by the Commission in Cause No. 44576. He said IPL recognizes there are O&M savings, excluding fuel, due to operating the unit on natural gas. Mr. Scott stated that in ECR 27, the Commission approved IPL's proposal to credit these O&M savings through the ECR proceedings. He said a credit of $5,901,000 is included in the filing and explained how the O&M savings were determined. Mr. Forestal also testified that the forecasted O&M includes the incremental savings or expenses for the maintenance for the HS-7 Refueling Project and amortization of previously deferred costs under the terms of the applicable Commission Orders authorizing such amortization.

Mr. Rogers stated that the $5.5 million previously recorded to utility plant in the NPDES project was reclassified to reflect $2.75 million each in the NPDES and CCR Bottom Ash Compliance Projects, as shown on Column I on Revised Attachments CF-2 NPDES and CF-2 CCR of Petitioner's Exhibit 7.

The record shows that, consistent with the Commission's Order in Cause No. 42170 ECR 29, IPL has provided a credit to O&M for warranty reimbursements received by IPL related to the replacement of bags within the Petersburg Unit 2 baghouse. We find IPL's estimated depreciation, carrying costs, O&M expenses, and amortization of deferred costs are reasonable and approve the inclusion of these expenses in the ECCRA revenue requirement.

C. Revenue Requirement. In accordance with 170 IAC 4-6-12(5), IPL submitted evidence regarding the derivation of its revenue requirement, including tax calculations, associated with the ratemaking treatment for the environmental compliance construction costs. Mr. Forestal's Revised Attachments CF-2 provide details of the costs that have been occurred through April 30, 2018.

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IPL also reconciled estimated expenses and revenues to actual for the ECR 29 period of September 20 I 7 through February 20 I 8, including the revenue variances for the months of January and February as a result of the TCJA, resulting in a total variance of $(2.82) million.

In his supplemental testimony, Mr. Foresta! explained that he updated the ECCRA rates to (i) correct an error in the revenue conversion factor that was identified after IPL filed its case-in­chief; and (ii) to incorporate and illustrate the impact of a $9.5I million credit to reflect a Stipulation and Settlement Agreement filed on July 6, 20I8, in Cause No. 45032 SI related to the impact of the TCJA on IPL's rates. Mr. Foresta! explained the error regarding the revenue conversion factor understates the revenue requirement and presented the calculation of the revised revenue conversion factor, which flows through Attachments CF-2 of Petitioner's Exhibit 6-S.

Mr. Foresta! next explained his Attachment CF3-R-T, which incorporates the impact of the $9.5I million credit proposed in the Settlement Agreement filed in Cause No. 45032 SL He said IPL and the settling parties in that Cause agreed, subject to certain terms and conditions defined in the Settlement Agreement, that a $9.5I million credit to IPL's customers provided in ECR 3I, using IPL's demand allocators, represents a fair, just and reasonable resolution of all matters pending before the Commission in Cause No. 45032 SL He said that ifthe Commission approved the Settlement Agreement in Cause No. 45032 SI, the only other schedule that would be impacted is the tariff sheet. Mr. Forestal presented Petitioner's Exhibit A-R-T, which he explained is a revised tariff sheet including both the corrected revenue conversion factor and the $9.5I million TCJA credit.

Wes R. Blakley, Senior Utility Analyst with the OUCC, testified regarding the proposed ECR factors. He noted that IPL filed supplemental testimony with respect to the revenue conversion factor and the Settlement Agreement filed in Cause No. 45032 SL He further testified that nothing came to his attention that would indicate that Petitioner's calculation of estimated ECR adjustment factors for the relevant period is unreasonable.

On August 29, 20 I 8, the Commission issued an Order approving the Settlement Agreement filed in Cause No. 45032 SI ("45032 SI Order"). Accordingly, we find IPL has properly calculated its revenue requirement to include the $9.5I million credit as agreed to in Cause No. 45032 SL We therefore approve IPL's jurisdictional revenue requirement of $44.7I 7 million as shown on Petitioner's Exhibit 6-S, Attachment CF3-R-T.

D. Allocation of Jurisdictional Revenue Requirement. I 70 IAC 4-6-I5 requires IPL to allocate the jurisdictional revenue requirement among the utility's customer classes in accordance with the allocation parameters established in its last general rate case. Mr. Rogers testified that the retail allocation factor is based on the retail jurisdictional share of the twelve­month average system peaks used to allocate production plant, operating expenses, and depreciation expenses respectively from IPL's cost of service study as used in IPL's last general rate proceeding. He said there are no non-jurisdictional customers based upon the cost of service study in Cause No. 44576, which is why the jurisdictional retail allocation percentages are 100%. Mr. Rogers also explained how the reconciled ECR 29 O&M and depreciation expense variances are allocated between jurisdictional and non-jurisdictional customers.

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Based on the evidence presented, we find IPL has complied with 170 IAC 4-6-15, and we approve IPL's allocation factors.

E. Amount of ECCRA Adjustments. As shown on Exhibit A-R-T presented with Mr. Forestal's supplemental testimony, the proposed ECCRA factors for each customer class, after inclusion of the $9 .51 million credit, are:

$0.007010 per KWH for Rates RS, CW (with associated Rate RS service)

$0.006638 per KWH for Rates SS, SH, OES, UW, CW (with associated Rate SS service)

$0.007440 per KWH for Rate PL

$0.005842 per KWH for Rate HL

$0.006472 per KWH for Rates SL, PH

$0.001829 per KWH for Rates APL, MU-1

F. Approval of ECCRA Adjustments. The Commission finds that IPL has complied with the rules and procedures applicable to its request, including the requirements of 170 IAC 4-6 and our subsequent orders regarding the ECCRA. The Commission further finds that the proposed ECCRA factors are properly calculated, and comply with the provisions of the Settlement Agreement in Cause No. 44242 and other applicable Commission orders, including our 45032 Sl Order, which approved the Settlement Agreement filed in that Cause. Therefore, the Commission approves the ECCRA factors set forth above and contained in Exhibit A-R-T, effective for all bills rendered for electric services beginning with the September 2018 billing cycle, which begins August 30, 2018.

G. Net Operating Income for Fuel Adjustment Clause. 170 IAC 4-6-21, Ind. Code § 8-1-8.8-11 (a) and the Commission's orders regarding IPL' s environmental compliance projects authorize IPL to add the approved return on its environmental compliance investment to its net operating income authorized by the Commission for the purposes of Ind. Code § 8-1-2-42( d)(3) in all subsequent Fuel Adjustment Charge proceedings. However, the Commission requires that, for purposes of computing the authorized net operating income for Ind. Code § 8-1-2-42( d)(3 ), the jurisdictional portion of the increased return shall be phased-in over the appropriate period of time that IPL's net operating income is affected by the earnings modification resulting from the Commission's approval of this ECCRA.

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

1. The environmental compliance projects construction work and construction costs used in the computation of the proposed ECCRA, incurred as of April 30, 2018, are approved.

2. IPL' s proposed rate adjustments in its ECCRA as set out in Paragraph 6E of this Order are approved.

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3. In accordance with 170 IAC 4-6-21 and Ind. Code§§ 8-1-8.8-ll(a) and 8-1-8.4-7 ( c )(1 ), and as set forth above in Paragraph 6G, IPL shall add the approved return on its environmental compliance investment to its net operating income authorized by the Commission for the purposes of Ind. Code § 8-1-2-42( d)(3) in all subsequent Fuel Adjustment Charge proceedings. However, for purposes of computing the authorized net operating income for Ind. Code§ 8-1-2-42(d)(3), the jurisdictional portion of the increased return shall be phased-in over the appropriate period of time that IPL's net operating income is affected by this earnings modification resulting from the Commission's approval of this ECCRA.

4. Prior to implementing the authorized rate adjustment, IPL shall file the applicable rate schedules under this Cause for approval by the Commission's Energy Division. Such rates shall be effective on or after the date of this approval.

5. IPL's May 30, 3018 and July 19, 2018 semi-annual ongoing review reports filed in Cause No. 44339 are approved. The construction work and costs associated with the Projects approved in Cause No. 44339, incurred as of March 31, 2018, (inclusive of AFUDC) for the Harding Street Units 5 and 6 Refueling Project and as of June 30, 2018, (inclusive of AFUDC) for the Eagle Valley CCGT, are approved.

6. The ongoing review process for the Eagle Valley CCGT Project and the MATS, NPDES, HS Units 5 and 6 Refueling, HS-7, NAAQS-DBA, and CCR Compliance Projects is concluded.

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

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

AUG 2 9 2018 APPROVED:

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

MaryBec ~ Secretary of the Commission

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