On May 6, Indiana Governor Mike Braun signed House Enrolled Act (HEA) 1007 into law. This new law, along with Senate Enrolled Act (SEA) 424 signed earlier by the Governor, supports the development of small modular reactors (SMRs) and new generation resources to serve large customer loads, such as data centers, in Indiana.
Small Modular Reactors
With respect to the SMR industry, HEA 1007 provides a credit against state tax liability for expenses incurred in the manufacture of a SMR in Indiana. The amount of the credit provided by this section is equal to twenty percent (20%) of the amount of the taxpayer's qualified investment. If the amount of the credit in a taxable year exceeds the taxpayer's state tax liability for that taxable year, the taxpayer may carry the excess over to the following taxable years. The amount of the credit carryover from a taxable year shall be reduced to the extent that the carryover is used by the taxpayer to obtain a credit under this chapter for any subsequent taxable year. A taxpayer is not entitled to a carryback or refund of any unused credit. If a pass through entity is entitled to a credit under this new law but does not have state tax liability against which the tax credit may be applied, an individual who is a shareholder, partner, or member of the pass through entity is entitled to a tax credit equal to: (1) the tax credit determined for the pass through entity for the taxable year; multiplied by (2) the percentage of the pass through entity's distributive income to which the shareholder, partner, or member is entitled.
As used in HEA 1007, "small modular nuclear reactor" means a nuclear reactor that:
- has a rated electric generating capacity of not more than 470 megawatts;
- is capable of being constructed and operated, either:
- alone; or
- in combination with one or more similar reactors if additional reactors are, or become, necessary; at a single site; and
- is required to be licensed by the United States Nuclear Regulatory Commission.
The term includes a nuclear reactor that is described in this section and that uses a process to produce hydrogen that can be used for energy storage, as a fuel, or for other uses.
SEA 424 supports the development of SMRs in Indiana in a different way — by allowing an electric utility to seek preapproval and timely recovery of SMR project development costs, such as design and engineering costs, licensing and permitting costs, equipment procurement costs, and financing costs. As a first step, the utility must petition the Indiana Utility Regulatory Commission ("IURC") for approval to incur the project development costs. SEA 424 directs the IURC to rule on the utility's request within 180 days, after giving consideration to whether the SMR project under consideration by the utility will enhance Indiana's energy security and reliability. The IURC must also consider the amount of anticipated project development costs, the anticipated timeline for incurring the costs, and the anticipated date by which the utility will make a decision whether to seek approval of the SMR project itself.
After a utility receives approval to incur SMR project development costs, the utility may then seek to recover the incurred development costs via a rate adjustment mechanism. In connection with this second step, the utility must describe any efforts it has made to pursue funding opportunities from the U.S. Department of Energy to offset the project development costs for which recovery is sought. SEA 424 directs the IURC to approve timely recovery of 80% of the costs if it determines that the public utility has incurred or will incur project development costs that are reasonable in amount; necessary to support the construction, purchase, or lease of a small modular nuclear reactor; and consistent with the IURC's previous finding as to the best estimate of such costs. The remaining 20% of the project development costs are to be deferred for subsequent recovery in the utility's next base rate case. Approved project development costs must be recovered over the lesser of the period over which the costs were incurred, or three years.
Actual project development costs that exceed the approved estimate of such costs may only be recovered if the IURC finds they are reasonable, necessary, and prudent in supporting the SMR project. Project development costs for a project that is canceled or not completed may be recovered by the public utility if found by the IURC to be reasonable, necessary, and prudently incurred, but such costs are to be recovered without a return unless the IURC also finds that the decision to cancel or not complete the project was prudently made for good cause. In such case, the IURC must also find that the costs incurred will be offset, as applicable, by any federal funding, any revenues received from third parties related to a transfer of assets created through the costs incurred, or a reimbursement of costs from a customer at whose request the SMR project was pursued. Finally, the IURC must find that a return on the project development costs incurred is appropriate under the circumstances to avoid harm to the public utility and its customers.
SEA 424 makes clear that a utility may elect not to seek approval of, or cost recovery for, SMR project development costs under this new statute and instead may seek approval from the IURC to defer and amortize such costs.
HEA 1007's and SEA 424's support for SMRs further evinces the legislature's interest in this technology. This year, the Indiana General Assembly also passed Senate Enrolled Act ("SEA") 423, which creates a pilot program for Small Modular Nuclear Reactor Partnerships. In 2023, the Indiana General Assembly provided for IURC pre-approval of, and associated financial incentives for, certain SMR projects or potential projects for the generation of electricity to be directly or indirectly used to furnish public utility service to Indiana customers. Such projects must be located in Indiana or at the site of a nuclear energy production or generating facility that supplied electricity to Indiana retail customers on July 1, 2011. This earlier law provided for the adoption of rules by the IURC in accordance with Ind. Code § 8-1-8.5.12.1. These rules, promulgated last year (170 IAC 4-11-1), establish procedures and guidelines for a public utility's construction, purchase, or lease of SMRs in Indiana for the generation of electricity to be directly or indirectly used to furnish public utility service to Indiana customers; or at the site of a nuclear energy production or generating facility that supplies supplying electricity to Indiana retail customers on July 1, 2011.
Expedited Generation Resource Approval
HEA 1007 establishes two new procedures under which certain energy utilities may request approval of one or more of new generation resources from the IURC. One pathway provides for approval of an expedited generation resource plan (EGR plan) to meet customer load growth that exceeds a specified threshold. This path contemplates generation resource submittals to the IURC in accordance with an approved EGR plan. The second pathway provides for IURC review and approval of a project to serve one or more large load customers. HEA 1007 sets forth: (1) the requirements for approval of each of these types of requests; (2) standards for financial assurances by large load customers; and (3) cost recovery mechanisms for certain acquisition costs or project costs incurred by energy utilities. An energy utility may request an expedited review by the IURC under either or both HEA 1007 paths.
As discussed below, the HEA 1007 approval paths are designed to result in an IURC decision in 90 days to 150 days depending on the pathway chosen. This is shorter than the 240-day statutory timeline provided in Indiana's existing certificate of public convenience and necessity statute (Ind. Code § 8-1-8.5-5) that governs the construction, purchase, or lease of facilities for the generation of electricity. While HEA 1007 creates two new pathways for resource approval, the new law does not preclude an energy utility from petitioning the IURC under, or in conjunction with, other applicable statutes for approval of a project to meet the needs of its customers.
Path One – EGR Plan
An EGR Plan means a plan developed by an energy utility for acquiring generation resources to meet an extraordinary need for electricity by its customers. The statute applies to load growth that exceeds the lesser of: (1) five percent of the energy utility's average peak demand over the most recent three calendar years; or (2) 150 megawatts. The statute directs the IURC to issue an order on a petition for review of an EGR plan within 90 days after receipt of a complete petition. The IURC bases its decision on whether the EGR plan is just, reasonable and in the public interest. The IURC may approve or deny the petition in its entirety; alternatively, the IURC may modify the petition subject to the energy utility's acceptance of the modification. An energy utility may submit a generation resource submittal to the IURC for approval of an acquisition that the energy utility intends to make in accordance with an approved EGR plan. The statute directs the IURC to issue an order on such a submittal within 60 or 120 days depending on the type of resource (e.g., purchase power agreement or acquisition). The IURC is directed to make its decision based solely on whether the submittal meets the criteria and requirements set forth in the energy utility's approved EGR plan.
Path Two – Specific Project
The second pathway allows a utility to propose a specific project to serve a large load customer for review within 150 days after IURC receipt of a complete filing. The statute defines a large load customer to mean a new or existing customer of an energy utility, or not more than four multiple new or existing customers of an energy utility, that:
- requests new or additional electricity demand that in the
aggregate exceeds the lesser of:
- five percent of the energy utility's average peak demand over the most recent three calendar years; or
- 150 megawatts;
- plans to make a capital investment that exceeds five hundred million dollars in a new or expanded facility in Indiana; and
- plans to employ at the new or expanded facility in Indiana at least fifty full-time employees with wages that on average meet or exceed the most recently published annual national average according to the Bureau of Labor Statistics of the United States Department of Labor.
Under this pathway, the petition must concern serving the energy needs of a large load customer. Additionally, the large load customer must commit to significant and meaningful financial assurances that must:
- include reimbursement by the large load customer of at least 80% of the project costs reasonably allocable to the large load customer; and
- afford protections for the energy utility's existing and future customers from project costs reasonably allocable to the large load customer regardless of whether the large load customer ultimately takes service in the anticipated amount and within the anticipated time frame.
Consistent with filings under the first pathway, the IURC may: (1) approve the energy utility's petition in its entirety; (2) deny the energy utility's petition in its entirety; or (3) modify the petition, subject to the energy utility's acceptance of the modification.
HEA 1007 provides that the IURC may approve a reasonable risk premium for a project if requested in an energy utility's petition and if the IURC finds that the reasonable risk premium is appropriate. If the IURC approves a reasonable risk premium the large load customer is responsible for the amount of the reasonable risk premium. Furthermore, the reasonable risk premium may not be included in the energy utility's revenue requirement or authorized net operating income. HEA 1007 provides that the risk premium may not be included in earnings test calculations under Ind. Code § 8-1-2-42(d)(3) or Ind. Code § 8-1-2-42(g)(3)(C), or otherwise considered for purposes of setting the authorized return in any future general rate case or other regulatory proceeding involving the energy utility.
Cost Recovery
HEA 1007 provides certain assurance of cost recovery. If the IURC approves an energy utility's generation resource submittal under the EGR plan pathway, or a petition for approval of a specific project under the second pathway, the energy utility may recover: (1) acquisition costs; or (2) project costs; as applicable, that have been reviewed and found reasonable by the IURC, with a return at the energy utility's weighted average cost of capital. If an approved submittal or project is cancelled and/or IURC approval is revoked, an energy utility may recover acquisition costs or project costs, with a return at the energy utility's weighted average cost of capital, that the energy utility incurred or contractually will incur in reliance on the IURC approval order – absent fraud, concealment, or gross mismanagement.
If the IURC denies an energy utility's generation resource submittal or petition for approval of a project, the energy utility may recover planning costs that have been reviewed and found reasonable by the IURC, without a return.
HEA 1007 also recognizes the importance of timely cost recovery. The new law provides that an energy utility may request, and the IURC may approve, financial incentives including timely recovery of costs through a rate adjustment mechanism under Ind. Code § 8-1-8.8-11(a) for: (1) an acquisition; or (2) a project; that qualifies as a clean energy project (as defined in (Ind. Code § 8-1-8.8-2).
HEA 1007 provides that an energy utility may begin construction of an acquisition or a project before filing a petition or submittal under this chapter. The new law also authorizes the IURC to require an energy utility to file with the IURC progress reports and updates with respect to an acquisition or project under this chapter.
Confidentiality and Economic Development
HEA 1007 recognizes the competitively sensitive nature of information relating to resource development and large loads. While the IURC already has statutory authority to protect confidential information from public disclosure, HEA 1007 directs that upon request by an energy utility, the IURC shall determine whether the information and related materials filed or submitted, or to be filed or submitted, by an energy utility under this chapter: (1) are confidential under Ind. Code § 5-14-3-4 or are trade secrets under Ind. Code § 24-2-3; (2) are exempt from public access and disclosure by Indiana law; and (3) must be treated as confidential and protected from public access and disclosure by the IURC.
HEA 1007 also recognizes the need for economic development efforts to be coordinated with energy utility planning. If the Indiana Economic Development Corporation (IEDC) is in negotiations with an industrial, research, or commercial prospect about a potential economic development project and, based on communications related to those negotiations, determines that the potential economic development project for a new or expanded facility in Indiana may result in the economic development project requiring new or increased energy demand of at least twenty megawatts, HEA 1007 requires the IEDC to notify the affected energy utility not later than fifteen days after making the determination. The new law recognizes that such communications, including the required notice to the energy utility, are considered confidential and exempt from public disclosure.
Customer Specific Contracts
HEA 1007 recognizes that large customer loads may be served by customer specific contracts. The statute provides that an energy utility may request review of an arrangement under Ind. Code § 8-1-2-24 and any related rates and charges under Ind. Code § 8-1-2-25 that are: (1) submitted with a generation resource submittal; or (2) filed with a petition for a project; be reviewed and approved or denied by the IURC not later than ninety 90 days after the date of submittal or filing, as applicable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
